Brian Domitrovic, Contributor
History, economics, and the supply-side revolution
11/01/2011 @ 11:27AM
As the essential Nathan Lewis, of Forbes and Gold: The Once and Future Money fame, once put it, “monetary interpretations of the [Great] Depression had fallen out of favor somewhat by the 1970s. It wasn’t until the 1980s, as a political drive for a gold-linked currency gathered force, that academics revived old notions about an unstable gold standard.”
Well, academics, you’d better dust off those old notions and start spiffing them up. Because the same individual who set your thoughts a-reeling in 1982 is making waves again in 2011.
But first let’s go back to 1982. In that year, the United States came fairly close to getting back on the gold standard – the very gold standard that had done little things in the past like supervise the industrial revolution. In 1982, the U.S. was considering a guarantee whereby any holder of $500 could claim an ounce of gold in exchange from the Treasury.
This was the suggestion of the intellectual leadership of a commission that had been chartered by Congress to look into the gold question. At the time, it had only been a decade since the U.S. had severed the dollar’s last ties to gold. The thanks the nation had gotten in the interim were a series of double-dip recessions en route to a trebling of the price level; stagflation, in a word.
That intellectual leadership came in the persons of Ron Paul, who has continued to carry the torch of gold to this day at the level of presidential politics, and Lewis E. Lehrman, the entrepreneur and historian. As Wall Street Journal editor Robert L. Bartley once said of Lehrman, “he could and still can tilt monetary policy with anyone.”
Now as it turned out, the Gold Commission of 1982 narrowly voted to hold off on recommending a return to the gold standard, the trenchancy of Lehrman and Paul’s minority report – a volume that still richly repays rereading – notwithstanding.
So reform-wise, nothing happened to our monetary system in the go-go years of the 1980s and 1990s (outside of making celebrities of Fed chairmen). We got our semi-low inflation of 3% for a while. In 2008, the oversight blew up in our face as the Fed virtually took over the world.
Therefore it comes as major news that Lew Lehrman has written a book, The True Gold Standard, just out, that aims to put some oomph in the Rahm Emanuel maxim that you never let a crisis go to waste. The book is clear as can be that going back to gold is precisely the solution that this world economy, longing for stability and prosperity as it is, needs right now.
Consider, for example, this aspect of the true gold standard as discussed in the book (emphasis original): “Gold convertibility and wide circulation of legal tender gold coins put the ultimate regulation of the money supply in the hands of a free people – removing it from arbitrary government control, central bank manipulation, and control by the banking cartel.”
Let’s face it – we’ve seen what arbitrary government control and central bank manipulation can do. Namely, what the Federal Reserve has done since 2008. This is to scare everyone away from the currency such that there’s no investment, with inflation hedges (such as gold) shooting the moon, all the while stiffing the small defaulter and bailing out the biggest of the big.
This kind of anti-democratic monopolism is exactly what the gold standard forestalls, and The True Gold Standard explains why, among much else, in less than a hundred tidy pages.
Here’s another exquisite recommendation from the book: given gold, government bonds can’t count as bank reserves. This will do two things. First, dry up the market for government debt, an unqualified good in our age of trillion-dollar deficits. And second, release bank assets to be at the service of the real economy.