Part 2 of a Series
As noted in my previous column, Donald Trump has the power, through gold, to turn the current economic debacle into an American Economic Miracle. Will he?
At the end of World War II, Germany was a bombed-out ruin. Germany was far worse off than we are today. David Henderson, a research fellow with the Hoover Institution and editor of Econlib, points out: "20% of the housing stock had been destroyed; each person could expect half as much food as before the war; industrial output was just a third of its pre-war level ..." Policymakers despaired of a German revival.
Then came the Soziale Marktwirtschaft ("socially conscious free market") led by Ludwig Erhard, Wilhelm Röpke and a few others. Their prescription? Restore integrity to the German currency. Also, end price controls. Simple.
First, though, they had to fight off the Social Democratic Party, which, together with Big Labor, desired government control of the economy. Reminiscent of today's Democratic Party. Most Big Businesses agreed. Reminiscent of today's Republican Party governing class.
The experts opposed their plan.
Erhard, in charge, was unfazed.
After Erhard abolished rationing of food and ended price controls, Gen. Lucius Clay, administrator of American-occupied Germany, stated: "Herr Erhard, my advisers tell me what you have done is a terrible mistake. What do you say to that?" Erhard replied: "Herr General, pay no attention to them! My advisers tell me the same thing."
Erhard, unintimidated, wielded his power. Sizzling prosperity quickly followed.
This became celebrated as the "German Economic Miracle," the Wirtschaftswunder. In the words of economist Henry Wallich, "The spirit of the country changed overnight. The gray, hungry, dead-looking figures wandering about the streets in their everlasting search for food came to life."
As the great French economist Jacques Rueff — the architect of France's own post-war economic miracle, the "Trente Glorieuses" — observed, "Only an eye-witness can give an account of the sudden effect which currency reform had on the size of stocks and the wealth of goods on display. Shops filled up with goods from one day to the next; the factories began to work. On the eve of currency reform the Germans were aimlessly wandering about their towns in search of a few additional items of food. A day later they thought of nothing but producing them. One day apathy was mirrored on their faces while on the next a whole nation looked hopefully into the future."
What has all this to do with our current economic crisis? As reported in Bloomberg, "A Dollar Surge Upends Currency Market With Dislocations Mounting." It would be ruinous if the inch or the ounce were to "surge" in "strength." As the astute Steve Forbes tirelessly points out the excellence, the very definition, of a unit of account is its stability.
The same clause in the Constitution that gives Congress the power to "fix the standard of weights and measures" (a power well delegated to the National Institute of Standards and Technology) gives it the power to "regulate the value of" money (currently less well delegated to the Federal Reserve.)
Even in an emerging pandemic America is in better shape than it was during the Great Depression. Even with a full-blown pandemic America would be in better shape than was post-WWII Germany. President Trump could turn the attendant economic crisis around on a quarter eagle.
There is a lot more history to commend this. The great polymath Copernicus, who recognized that the Earth revolves around the sun, wrote an essay, On The Minting of Money (of whose modern translation I served as lead co-editor) explaining how a flourishing economy needs high integrity money. Copernicus, analyzing the gold standard, listed the debasement of money as the most insidious of the causes of decline of nations.
The politicians ignored him. Their kingdoms declined. Those who consider the gold standard to be atavistic might remind themselves that even 500 years later the Earth continues to orbit the sun.
Fast forward 200 years to 1717. The classical gold standard itself was coined, so to speak, in a happy accident on the part of Master of the Royal Mint Sir Isaac Newton, the father of modern science. Later, the pioneering chemist Joseph Priestly, discoverer of oxygen, wrote at length about the virtues of the gold standard.
Gold is reviled by economists. Yet it has a distinguished scientific provenance and historically has contributed much to world prosperity. With gold Trump would find himself in proud company.
To be concluded.
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 $83T. 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. To read more of his reports — Click Here Now.
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