The True Gold Standard (Second Edition)
Seth Lipsky, the editor of the storied New York Sun (a brand distinguished by the long residency of Henry Hazlitt), recently, in the Wall Street Journal, brought to wider attention certain remarkable recent comments by Paul Volcker. Volcker spoke before the May 21st annual meeting of the Bretton Woods Committee at the World Bank Headquarters in Washington, DC. Volcker’s remarks did not present a departure in substance from his long-standing pro-rule position. They nonetheless were striking, newly emphatic both by tone and context.
Volcker, asked by the conference organizer for his preferred topic, declared that he had said:
Eswar Prasad, the Tolani senior professor of trade policy at Cornell University and senior fellow at the Brookings Institution recently sat down with me to discuss his views on the dollar and his new book, The Dollar Trap: How the U.S. Dollar Has Tightened Its Grip On Global Finance (Princeton University Press, 2014). A video and transcript of our conversation follows.
Steve Forbes: Dr. Prasad, thank you very much for coming by today. You wrote a book that came out earlier this year called, The Dollar Trap, How the U.S. Dollar Tightened Its Grip on Global Finance when by its very behavior it should’ve been the exact opposite. First, what do you mean by trap, and how this paradox, the more we misbehave, the more people seem to want our currency?
Eswar Prasad: It’s remarkable to see. What happened of course, that the global financial crisis had its origins in the United States. Since the financial crisis the U.S. has issued a massive amount of public debt, and the Federal Reserve, the U.S. Central Bank, has been issuing a lot of dollars. All of this should logically lead to a decline in the dollar’s value, and a decline in the dollar’s prominence.
Later this week, much of the living inner circle of Rep. Jack Kemp’s brain trust will be convening, on Capitol Hill, to observe the 30th anniversary of Kemp’s introduction of the Gold Standard Act of 1984. The Jack Kemp Foundation President Jimmy Kemp considers the gold standard the most important unfinished element of his father’s policy agenda. Enactment, in the opinion of this columnist and others, would unleash a tsunami of equitable prosperity on America and the world.
The Jack Kemp Foundation, in association with American Principles in Action (which this writer serves as Senior Advisor, Economics), will be presenting at a Kemp Forum on Growth. Also presenting will be key Kemp inner circle figures of the heyday of the Supply Side: Dave Hoppe, who served as Rep. Kemp’s chief of staff; John Mueller, Economic Counsel to the House Republican Conference of which Kemp was chair; Jeffrey Bell, national co-chairman of Kemp’s 1988 presidential campaign, and, at the time of this writing, campaigning, primarily on the gold standard, for the Republican nomination for US Senate from New Jersey. The Forum will be moderated by this columnist, back then a very junior Kemp associate, founder of the Prosperity Caucus.
Their hearts are surely in the right place, but when money is discussed with devotees of the Austrian School, they frequently tout the concept of “competing currencies.” At first glance it’s hard to argue with them. Rather than leave money to government, why not let private actors compete to issue the best money?
Fair enough, but then the Austrian School view arguably misses the point for presuming that money can be extra good, or money plus. That’s the equivalent of saying that there can be an “extra strength” minute, foot, or teaspoon. In truth, there’s no good or bad minute because the latter is simply a measure. Money is similarly just a measure, though its meaning has been perverted in modern times, and in ways that have brought the global economy staggering harm.
People who have followed Steve Forbes’ “Fact & Comment” have long noted his advocacy for the Classical, gold-based monetary approach the United States used before 1971.
But, what most people probably did not know is the depth and breadth of Forbes’ understanding of this fundamental topic. Steve Forbes has one of the best monetary minds in the U.S. today – towering above today’s academics and money bureaucrats, including central bankers, whose collective incompetence is apparent to anyone who is paying attention.
Fortunately for all of us, Forbes and co-author Elizabeth Ames have expanded their thoughts in a new book, Money: How the Destruction of the Dollar Threatens the Global Economy—and What We Can Do About It. I think it will serve as a core work in the new Renaissance in monetary understanding that is happening right now. In time, as people grasp the insights contained in this book, today’s dominant Keynesian-Mercantilist orthodoxy will be revealed as so much flat-earth nincompoopery.