A report by Michelle Jamrisko in Bloomberg News on May 17th, headlined “Make America Gold Again: Calls for Everyone’s Favorite Standard Are Back,” suggests that the headline may have outrun its pass coverage. The gold standard is by no means “everyone’s” favorite standard. It has many critics.
And yet, giving due deference to an element of dramatic license, this report makes several very significant points, scooping the rest of the mainstream media.
The first key points are that, in the reported words of Jesse Hurwitz, a U.S. economist at Barclays Capital in New York — who considers the gold standard a bad idea — “The fringe has become the mainstream.” He considers the gold standard “something we’ll increasingly talk about.” This is an astute observation, far more so than Hurwitz’s facile dismissal of the gold standard itself.
Jamrisko points out that both Donald Trump, the presumptive Republican presidential nominee, and Ted Cruz, the runner up, have unflinchingly praised the gold standard:
Ted Cruz, in one of the early candidate debates last year, said the Fed “should get out of the business of trying to juice our economy and simply be focused on sound money and monetary stability, ideally tied to gold.”
Then there was Donald Trump. “We used to have a very, very solid country because it was based on a gold standard,” he told WMUR television in New Hampshire in March last year. But he said it would be tough to bring it back because “we don’t have the gold. Other places have the gold.”
One also might take note of Trump’s statement to GQ:
In a GQ video interview, the billionaire said he would support … the gold standard.
“Bringing back the gold standard would be very hard to do, but boy, would it be wonderful,” the billionaire continued. [“We’d have a standard on which to base our money.”]
Another key point in is her report that:
Below the presidential level, though, the gold camp and its allies have gained support.
“There’s a growing constituency within the House Republican membership that a more rules-based approach or a gold standard would be advantageous,” said Hurwitz of Barclays.
There is abundant evidence that this, while under-reported, is fact. As senior advisor, economics, for American Principles Project, I personally have visited over 100 Congressional and 20 Senate offices.
Late last year, the full House passed the Centennial Monetary Commission legislation to set up a nine-month independent commission to make a grounded assessment of the outcomes of Federal Reserve System policy over its century-long tenure. This legislation, fulfilling a plank in the GOP’s national 2012 platform, now is pending in the U.S. Senate.
One of the policies it is chartered to review is, of course, the gold standard. That was the monetary regime under which the Fed originally was chartered.
When I began systematic advocacy for the gold standard five years ago, the gold standard certainly was considered a fringe issue. As I wrote at Forbes.com in 2013:
The gold standard used to be consigned, mainly (to borrow a perfectly turned description from the Wall Street Journal’s Gregory Zuckerman and Carolyn Cui) to those with “bleak economic outlooks or dystopian views of society.” Then, many of gold’s proponents could be dismissed, facilely if not quite fairly. The gold standard had been frozen out of elite discourse.
No longer. The discourse has changed.
Jamrisko is the first top-tier reporter to take note of this change. As she duly notes, the gold standard, while now emerging as a respectable policy option, remains controversial.
That said, the gold standard no longer can respectably be subject to ridicule. Nor is it, outside of the work of polemicists rather than public intellectuals. As I wrote in a recent Forbes.com column:
To preempt the customary ridicule by Paul Krugman of The New York Times and Matt O’Brien of The Washington Post, let it be noted in passing that in a 2004 speech at Washington and Lee University then Federal Reserve Governor Ben Bernanke stated:
“The gold standard appeared to be highly successful from about 1870 to the beginning of World War I in 1914. During the so-called ‘classical gold standard period,’ international trade and capital flows expanded markedly, and central banks experienced relatively few problems ensuring that their currencies retained their legal value.”
And Herr Dr. Jens Weidmann, head of the Bundesbank, in a notable 2012 speech, stated,
“Concrete objects have served as money for most of human history; we may therefore speak of commodity money. A great deal of trust was placed in particular in precious and rare metals – gold first and foremost – due to their assumed intrinsic value. In its function as a medium of exchange, medium of payment and store of value, gold is thus, in a sense, a timeless classic.”
And one obscure economist by the name of John Maynard Keynes wrote in the Commercial Manchester Guardian Reconstruction Supplement on April 20, 1922:
“If the gold standard could be reintroduced…, we all believe that the reform would promote trade and production like nothing else, but also stimulate international credit and transfers of capital to the places where they are most useful. One of the greatest elements of uncertainty would be suppressed.”
… Later Keynes changed his tune about gold.
But this proffer – “we all believe that the reform would promote trade and production like nothing else” — shows the gold standard to be far from ridiculous. Indeed, in 2010, authoritative Keynes biographer Lord Skidelsky observed in the FT:
“Keynes’s famous dismissal of the gold standard as a “barbarous relic” does not quite capture his opinion of the metal, which he thought would be useful as a constitutional monarch but disastrous as a despot.”
In addition, the purported academic consensus opposing the gold standard is a flimsy postulate. It is by no means as unanimous among monetary economists as supposed. George Mason University professor Lawrence White consistently presents a lucid, and positive, assessment of the gold standard. He is, historically, in very good company.
In Forbes.com, commentator Nathan Lewis notes that notwithstanding the claim that there is an elite academic economic consensus against the gold standard, the reality is far different:
“There is far less disagreement among scholars, however, on the question of [monetary] regime outcomes. One is struck by the near consensus in the historiography on the gold standard that the period [1880-1914] produced international regime outcomes which were highly desirable. Kenwood and Lougheed (1983) state that ‘one cannot help being impressed by the relatively smooth functioning of the nineteenth-century gold standard.’ They add that its external adjustment mechanism ‘worked with a higher degree of efficiency than that of any subsequent international system.’ Ford (1989) calls it ‘a system more stable perhaps than anything seen since.’ Cohen (1977) sees it as an international monetary regime that marks a ‘Golden Age’ in the history of monetary relations. He emphasizes how ‘enormously successful’ it was ‘in reconciling tensions between economic and political values.’ Beyen (1949) underscores the extent to which it has become perceived as ‘one of the world’s most prosperous and “normal” periods.’ Cleveland (1976) offers extensive praise of the relative performance of this regime, calling it a period of unmatched ‘harmony’ in monetary relations. Keynes (1931) noted that ‘the remarkable feature of this long period was the relative stability of the price level.’ Triffin (1964) points out the gold standard ‘provided a remarkably efficient mechanism of mutual adjustment of national monetary and credit policies to one another.’ Maier (1978) calls it a ‘smoothly running’ system. Strange (1988) refers to it as ‘an island of relative order and stability.’ Yeager (1976) stresses how the desirable regime outcomes of the gold standard imparted a vision on monetary relations of the period as the ‘good old days’: something long gone but venerated nonetheless.”
And as I have also, in the same Pulse, noted, about the core fallacy among most current academic economists, one named after its premier proponent:
Yet as I have written about the “Eichengreen Fallacy” — the fallacy that the classical gold standard induced, or at least materially contributed to, the Great Depression — into which he falls:
“The gold standard got a bad reputation after the Great Depression, when it was seen as contributing to worldwide deflation. Kurt Schuler points out that the interwar gold standard didn’t follow the rules of the game, which is true.”
“Nor let pass unnoticed the Bank of England’s 2011 Financial Stability Paper No. 13 assessing the long term performance of the Federal Reserve Note standard and assessing its real outcomes — in every category reviewed, including job creation, economic growth, and inflation — to have proven itself, over 40 years, as deeply inferior in practice to the gold and even gold-exchange standards.”
If O’Brien wishes responsibly to re-litigate the gold standard, he really must make his more customary, high integrity efforts to come to terms with Financial Stability Paper No. 13 rather than reverting to weak arguments, such as his reflexive, but callow, reference to:
“… why none of the economists in the University of Chicago’s ideologically diverse expert panel think that the gold standard would be better than what we have now. And that’s putting it politely.”
The American Principles Project — with a critical, educational, assist from The Lehrman Institute, of whose thegoldstandardnow.org I served for some years as the editor and primary contributor — is very much at the forefront of moving the perception of the gold standard out of the province of “dystopian views of society.”
A tiny but hardy band of gold proponents dispelled the myth that the gold standard caused the Great Depression. These advocates are winning the argument, based on solid theory and solid facts, that the classical gold standard, properly implemented, would not be deflationary or recessionary.
The gold standard, done right, will not privilege capital, and creditors, at the expense of labor, and debtors. There is ample gold, both in America and across the world, to make the gold standard hum and create a climate of equitable prosperity. The gold standard empirically correlates better both with economic growth and economic justice for working families than does the “Federal Reserve Note” standard inaugurated by Richard Nixon on August 15, 1971. QED.
Soon, perhaps, policy makers also will begin to recognize the wisdom of Hayek’s observation that, “The source and root of all monetary evil [is] the government monopoly on the issue and control of money,” which serves as the epigram for APP Senior Fellow George Gilder’s most recent book, The Scandal of Money. This book was just called by Forbes.com contributor Jerry Bowyer possibly “the most important political book of the year.”
In fact the classical gold standard, as perfectly articulated in Jack Kemp’s Gold Standard Act of 1984 (which then was, not so incidentally, presciently co-sponsored by Trump ally Newt Gingrich), would lay the foundation for a fresh epoch both of economic growth and economic justice. This is something both Donald Trump and Ted Cruz clearly appreciate. So, increasingly, do other influential thought leaders both on Capitol Hill and elsewhere appreciate the promise of the gold standard to restore job creation and upward economic mobility for working families.
Michelle Jamrisko was the first beat reporter to note the important emerging trend of the increasingly prominent emergence of the gold standard in monetary policy discourse. She thereby scooped the The Wall Street Journal, The New York Times, The Washington Post, USA Today, Thompson Reuters, and the Associated Press, among others.
One hopes that the Pulitzer Prize Committee is paying attention to Ms. Jamrisko.
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.