The Senate Banking Committee is scheduled to vote, tomorrow, on Trump nominee Judy Shelton as a member of the Federal Reserve Board. The vote is too close to call. There may be reasons to oppose Dr. Shelton's nomination. Her occasional calls to adopt the gold standard, however, provide the best reason to vote aye.
The gold standard (toward which President Trump is on record as favorable) has put a lightning rod on the Shelton nomination. David Wilcox, a former director of the Division of Research & Statistics at the Federal Reserve Board, acidly criticized Dr. Shelton in The Hill. Her support for the gold standard drew his unmitigated wrath. That said, methinks the gentleman protest too much.
His criticisms of the gold standard are, simply put, factually wrong. Dr. Wilcox calls America's almost 200-year-long, largely successful, use of the gold standard "a disastrous experiment in monetary policy making." Simply untrue.
Per Financial Stability Report No. 13 by analysts of the Bank of England (the oldest and most distinguished of central banks) in 2011 the gold standard and the modified Bretton Woods gold standard far outperformed the fiduciary monetary system in place since 1971. In a summary of that paper for Forbes.com, economic policy thought leader Charles Kadlec summarized its findings that compared to the Bretton Woods gold standard, under the post-Nixon fiduciary management of the dollar, "Economic growth is a full percentage point slower, with an average annual increase in real per-capita GDP of only 1.8% ... World inflation of 4.8% a year is 1.5 percentage point higher… Downturns for the median countries have more than tripled to 13% of the total period; The number of banking crises per year has soared to 2.6 per year, compared to only one every ten years under Bretton Woods … The number of currency crises has increased to 3.7 per year from 1.7 per year; Current account deficits have nearly tripled to 2.2% of world GDP from only 0.8% of GDP under Bretton Woods."
The "disastrous experiment" was in departing from, not adhering to, gold.
The head of the German central Bank, Herr Dr. Jens Weidmann, had this to say about the gold standard in a 2012 speech titled Money Creation and Stability:
"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. … 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."
The great Paul Volcker, while no gold standard proponent, observed 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 and passive central banks, with currency boards, or even with 'free banking.'"
Volcker's successor Alan Greenspan told the World Gold Council's Gold Investor, in 2017, "I view gold as the primary global currency. … It wasn't the gold standard that failed; it was politics. … But if the gold standard were in place today we would not have reached the situation in which we now find ourselves. … When I was Chair of the Federal Reserve … US monetary policy tried to follow signals that a gold standard would have created. That is sound monetary policy even with a fiat currency."
The gold standard deserves respect. Furthermore, Dr. Wilcox's claim of central bankers' "spectacular success" absent the gold standard is, to put it politely, spurious. As Ylan Q. Mui wrote in 2015 in the Washington Post Wonkblog, Why nobody believes the Federal Reserve's forecasts, "The market recognizes that the Fed has repeatedly erred on the optimistic side," said Eric Lascelles, chief economist at RBC Global Asset Management. 'Fool me 50 times, but not 51 times.' Even the government's official budget forecasters are dubious of the Fed's own forecast."
And as three distinguished monetary scholars honorably revealed wrote in the New York Fed's own Liberty Street Economics in 2015, "Model uncertainty is pervasive." An understatement.
Dr. Wilcox's bold conclusion that "We (the Fed) know how to do better (than the gold standard)" is striking rhetoric. Would that it were also true! Dr. Shelton's occasional advocacy of the gold standard, a system which has demonstrated itself to be the gold standard of monetary policy for high employment, upward mobility and price stability, is the best reason to vote to confirm Judy Shelton's appointment to the Fed.
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. He served as a deputy general counsel in the Reagan White House, has worked closely with the Congress and two cabinet agencies, and has published over a million words on politics and policy in the mainstream media, as a distinguished professional blogger, and as the author of the internationally award-winning cult classic book "The Websters' Dictionary: How to Use the Web to Transform the World." He has served as senior adviser, economics, to APIA as an advocate of the gold standard, senior counselor to the Chamber of Digital Commerce and serves as general counsel to Frax.finance, a stablecoin venture. Read Ralph Benko's reports — More Here.
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