Could our current terrible inflation have good unintended consequences? Maybe.
Former Fed Chairman Alan Greenspan, a few years ago, quietly observed that the gold standard wouldn't become relevant again until inflation rose to 5%. We've overshot that.
I've devoted three recent columns, here, here and here, to inflation and how to quell it without recession. The silver bullet?
The classical gold standard.
Greenspan, known as "the Maestro" during the Great Moderation, at long last (contemporaneous candor being considered a vice not a virtue among Fed governors) made explicit his appreciation of the gold standard in The World Gold Council's February 2017 Gold Investor.
As I then reprised in the The National Pulse, Greenspan stated:
"Gold, along with silver, is one of the only currencies that has an intrinsic value. It has always been that way. No one questions its value, and it has always been a valuable commodity, first coined in Asia Minor in 600 BC.
"But today, there is a widespread view that the 19th century gold standard didn't work. I think that's like wearing the wrong size shoes and saying the shoes are uncomfortable! It wasn't the gold standard that failed; it was politics. World War I disabled the fixed exchange rate parities and no country wanted to be exposed to the humiliation of having a lesser exchange rate against the US dollar than it enjoyed in 1913.
"Today, going back on to the gold standard would be perceived as an act of desperation. But if the gold standard were in place today we would not have reached the situation in which we now find ourselves. ... We would never have reached this position of extreme indebtedness were we on the gold standard, because the gold standard is a way of ensuring that fiscal policy never gets out of line."
Greenspan is by no means the only central banker who thought highly of gold. In September 2011 Dr. Jens Weidmann, president of the Bundesbank (who just recently resigned from that post in light of the new German government's lessened anti-inflationary stand) gave a speech entitled "Money Creation and Responsibility."
Weidmann 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."
Herr Weidmann continued:
"Indeed, the fact that central banks can create money out of thin air, so to speak, is something that many observers are likely to find surprising and strange, perhaps mystical and dreamlike, too — or even nightmarish."
Former Fed Chairman Paul Volcker, while no gold champion, wrote, in his Foreword to Marjorie Deane and Robert Pringle's "The Central Banks" (Hamish Hamilton, 1994):
"By and large, if the overriding objective is price stability, we did better with the nineteenth-century gold standard. ..."
Jack Kemp adviser Jude Wanniski presented the gold standard as the preferred way of ending the '70's stagflation in supply-side economics' charter document, The Mundell-Laffer Hypothesis. What became known as the "Laffer Curve" was, literally, a footnote to gold. Robert Mundell, the chief architect of supply-side economics, devoted his 1999 Nobel Prize acceptance speech to a positive assessment of the classical gold standard.
Consider the heroic and elegant gold-standard advocacy of my mentor businessman/philanthropist Lewis E. Lehrman, protégé of French economist, classical gold standard proponent and intellectual titan Jacques Rueff. And consider how publishing icon and thought leader Steve Forbes has for decades lifted his lamp beside the golden door.
So, then, why is the gold standard infamous? The calumny against it derives from the confusion with a phony interwar "gold standard" which collapsed in 1929, causing the Great Depression. The classical gold standard, innocent, got framed for the crime.
As James Ledbetter astutely noted in "One Nation Under Gold," that false consciousness was later reinforced by loopy prophecies of an incipient collapse of the dollar by fringe characters such as Murray Rothbard, the John Birch Society and Harry Browne.
Yet the gold standard, synonymous, per the Oxford American Dictionary, with "the best, most reliable, or most prestigious thing of its type," worked extraordinarily well except in times of war and inept post-war resumption or occasional government mismanagement. For centuries.
Greenspan predicted that the gold standard would not come back into political play until inflation reached 5%. We've overshot.
Will Republican presidential aspirants explore the power of the gold standard to quell inflation, restore great equitable prosperity ... and draw votes ... as a sleeper issue for 2024?
Likely.
Stay tuned.
Ralph Benko, co-author of "The Capitalist Manifesto" and chairman and co-founder of "The Capitalist League," is the founder of The Prosperity Caucus and is an original Kemp-era member of the Supply-Side revolution that propelled the Dow from 814 to its current heights and world GDP from $11T to $88T. Read Ralph Benko's reports — More Here.
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