Zach Carter, the center-left Senior Political Economy Reporter for the Huffington Post, recently served himself up as an Amen Corner for most of the left’s arguments against the gold standard … and against Sen. Ted Cruz’s advocacy of the gold standard. Mr. Carter seems bright and well-intentioned. That said, he is working from stale material, some of it dubious, some of it discredited. One wishes he would expand his sources.
I would be glad to buy Mr. Carter the first and second round of drinks should he be willing to meet in a DC tavern to exchange views on the gold standard. Perhaps this might put him on firmer ground than was in evidence of his “The Republican Establishment Thinks Ted Cruz Can Save Them From Trump. There’s One Big Problem.”
Hundreds of my columns and blogs have addressed each error therein recycled by Mr. Carter. These writings are much more deeply sourced than I can justify doing here as we hurtle toward the holidays (and while I hurtle through Jacksonville Beach, Florida, en route, by car, to Phoenix, Arizona).
One hardly can expect Mr. Carter to plow through my more than half a million words published on the subject in the past several years. So let’s drink it out instead. Zach?
But before addressing the fallacies in his column let me raise three rather more important points. The reflexive opposition of Progressives to the gold standard is deeply misguided.
- The stagnation of the income of median income families — and the occurrence of their bête noir, income inequality — correlates precisely with the final destruction of the gold standard by President Richard M. Nixon. Do you really wish to die on the hill of President Nixon’s ill-conceived policy? Seriously?
- One of the greatest Progressive Democratic presidents, Grover Cleveland, was a staunch defender of the gold standard. The gold standard, properly done, can be, and should be, very palatable to Progressives.
- According to a 2011 Rasmussen poll of 1,006 people, the most enthusiastic proponents of the gold standard are not libertarians and conservatives but African-Americans and labor union members. Although the elite nomenklatura Progressive academic and policy intellectual base really hate on the gold standard, they are by no means representative of the Progressive base as a whole. Nor, one hopes, will you be once you have had the opportunity to review the full record.
Now for some of the fallacies. It is high time to put these to bed:
1. The Booth School survey of 40 academic economists who unanimously abjured the gold standard included very few monetary economists. Academic fads shift. Once upon a time, academic economists were thoroughly committed to the gold standard. Now they are in opposition. This survey was a tale told by an idiot (not, one hastens to point out, Mr. Carter) full of sound and fury, signifying nothing.
2. The price of gold, as a demonetized commodity, assuredly is volatile. This has no relevance to the gold standard, under which the definition of the dollar is meticulously defined by (and convertible to) a designated weight of gold. Under the gold standard there is no such volatility. Period.
3. Gold has a very stable stock-to-flow ratio, and has kept that stability for centuries, probably millennia. If Mr. Carter will check the empirical record, the prospect of a new gold find’s materially affecting the supply, and thus price, of gold is nil. There is no find in the historical record that would approach a fast 10 percent fluctuation. Even during the period of the “great inflation” when New World gold flooded Old Europe, the impact was trivial compared to the fluctuation of currencies under fiduciary management of the post-1971 era.
4. Every country went off the gold standard as a consequence of the First World War. The so-called gold-exchange standard, the “interwar gold standard,” established in Genoa in 1922 was, as The Economist recently termed it, a “mess,” in which the gold standard’s rules were not followed. Thus the great going-off in the 1930s, entirely appropriate, did not in any way represent a repudiation of the gold standard. The gold-exchange standard was, as termed by economist Jacques Rueff, a “grotesque caricature” of the gold standard. To have departed from it was perfectly correct and, yes, correlated with recovery from the Great Depression, in fact an artifact of the defective “gold-exchange standard, though not of the classical gold standard itself.
5. With the exception of Dr. Ron Paul, none of the premier contemporary advocates of the gold standard, such as Reagan Gold Commissioner Lewis E. Lehrman (the eminence grise of gold standard proponents), media titan Steve Forbes, APP chairman Sean Fieler, the late Rep. Jack Kemp, or me, are members of the Austrian school of economics, much less cranks or crackpots. None of these are on record as having predicted imminent hyperinflation.
6. To rectify the problems caused by the gold-exchange standard, FDR, under the sage guidance of economist George Warren (perhaps the greatest commodity price specialist of his day) properly revalued gold from $20.67 to $35 an ounce. Quite correct, as commodity prices, due to the bizarre gold-exchange standard, had increased by around 50 percent. FDR’s astute revaluation immediately brought an end to the first phase of the Great Depression, as any classical gold standard adherent would have expected. It was a re-calibration, not a repudiation, of the gold standard, whatever loose comments President Roosevelt may informally have made at the time.
7. Invoking Prof. Milton Friedman, a foe of gold, may appear a shrewd exercise in cross-quotesmanship. That said, Mr. Carter clearly is no scholar of Prof. Friedman’s work and completely misses the nuances of his analysis (as well as his late life backing away from monetarism). Mr. Carter would do very well to read more of Friedman and of commentaries on his work, such as that recently provided by Heritage Foundation’s Dr. Norbert Michel, which offer much greater clarity than here is in evidence.
The gold standard in no way inhibits the supply of money. It is a qualitative, not a quantitative, standard. The historical data are decisive that adhering to the gold standard in no way limits, or even inhibits, the amount of currency in circulation.
There are many other legitimate concerns about the soundness of Mr. Carter’s recent essay. The seven here noted are but the tip of the iceberg. They will suffice for the moment.
Mr. Carter simply cannot be blamed for falling prey, and recycling, many of the conventional fallacies about the gold standard. That said, fallacies they are. It would be a pleasure to stand Mr. Carter to the first and second round of drinks at a bistro of his choice in Washington, DC, where together we can toast to the restoration of equitable prosperity.
Mr. Carter? The gold standard was not perfect, merely, by abundant empirical evidence, the least imperfect monetary policy ever tried from time to time. You may have some legitimate criticisms of it (and if you don’t … let me point some out for you). Such criticisms, however, were nowhere in evidence in your recent Huffington Post column. Let’s get this right.
Sen. Cruz is on extremely strong economic and historical grounds in calling for the gold standard as an essential component to restoring equitable prosperity, income mobility for workers, and median income families. History, including reasonably contemporary history, shows the gold standard as a critical component to restoring the American Dream of achieving decent economic security and even Middle Class affluence through abundant opportunity and honest labor.
While the party Establishment may not, in fact, be looking to Sen. Cruz as the GOP’s savior (another matter), the gold standard is no obstacle to that. Cruz’s embrace of the gold standard adds greatly to his credibility, and not just among conservatives and libertarians but to important demographics within the Progressive base as well.
Ralph Benko, internationally published weekly columnist, co-author of The 21st Century Gold Standard, lead co-editor of the Gerald Malsbary translation from Latin to English of Copernicus’s Essay on Money, is American Principles Project’s Senior Advisor, Economics.