The United States Senate moves toward the confirmation of Janet Yellen, now posited for next January 6th, as chair of the Federal Reserve System. Let us in this moment of recess reflect on eerily similar observations by two of history’s most transformational figures: John Maynard Keynes and Nicolas Copernicus.
One of Keynes’s most often-cited observations, from his 1919 The Economic Consequences of the Peace, chapter VI, contains an indictment of policies very like those which the Federal Reserve System has been implementing for the past dozen, and more, years. These policies in slow motion are, in the opinion of this columnist, at the root of the very political, social, and cultural dysphoria — uneasiness or generalized dissatisfaction — predicted by Keynes:
Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become ‘profiteers,’ who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.
Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.
An almost identical point was made almost four centuries before Keynes by iconic savant and polymath Nicolas Copernicus.
Copernicus commenced a study composed for the Prussian and Polish governments around 1525, On the Minting of Money, with these words:
ALTHOUGH THERE ARE COUNTLESS MALADIES that are forever causing the decline of kingdoms, princedoms, and republics, the following four (in my judgment) are the most serious: civil discord, a high death rate, sterility of the soil, and the debasement of coinage. The first three are so obvious that everybody recognizes the damage they cause; but the fourth one, which has to do with money, is noticed by only a few very thoughtful people, since it does not operate all at once and at a single blow, but gradually overthrows governments, and in a hidden, insidious way.
This does not imply plagiarism by Keynes. The coincidence between Keynes’s “[To debauch the currency] engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose” and Copernicus’s “[The debasement of coinage] … is noticed by only a few very thoughtful people, since it does not operate all at once and at a single blow, but gradually overthrows governments, and in a hidden, insidious way” is, however, striking.
Keynes, like Copernicus a paradigm-shifter, was himself extraordinarily erudite. It is not impossible the young Keynes came across Copernicus’s work (which reportedly was first actually published in 1826). The question as to whether Copernicus’s Essay may have inspired Keynes’s observation must be left to authentic scholars such as Lord Skidelsky.
The similarity may be merely that of “great minds working alike.” This columnist has found but one direct reference by Keynes to Copernicus.
Keynes (whose thinking was mostly, although not exclusively, opposed to the gold standard) was fascinated by one of Copernicus’s most accomplished scientific successors, Sir Isaac Newton. Newton, also, achieved iconic status, both for his contributions to physics and, as Master of the Mint of Great Britain, as the architect of the modern classical gold standard. Newton’s gold standard was designed along Copernican principles of close correlation toward nominal and intrinsic value. It served the world very well for almost 200 years.
Keynes was to have addressed the Royal Society of London’s gathering to celebrate the tercentenary of Newton’s birth, an event delayed by the war. Keynes died a few months before he could present his remarks. Maynard’s remarks, Newton, the Man, were presented by his brother Geoffrey (and thus might even be characterized as Keynes’s last words). A brief excerpt:
Why do I call [Newton] a magician? Because he looked on the whole universe and all that is in it as a riddle, as a secret which could be read by applying pure thought to certain evidence, certain mystic clues which God had laid about the world to allow a sort of philosopher’s treasure hunt to the esoteric brotherhood.
[H]e became one of the greatest and most efficient of our civil servants. He was a very successful investor of funds, surmounting the crisis of the South Sea Bubble, and died a rich man. He possessed in exceptional degree almost every kind of intellectual aptitude – lawyer, historian, theologian, not less than mathematician, physicist, astronomer.
As one broods over these queer collections [of Newton's alchemical writings, which Keynes collected], it seems easier to understand – with an understanding which is not, I hope, distorted in the other direction – this strange spirit, who was tempted by the Devil to believe at the time when within these walls he was solving so much, that he could reach all the secrets of God and Nature by the pure power of mind Copernicus and Faustus in one.
As for Copernicus, On the Minting of Money has been translated into English several times yet those translations remained difficult to obtain for students of the monetary arts and sciences. It has remained mostly the property of elite historians. Scant and intriguing references were limited to all-too-brief articles such as “Treatise On the Minting of Coin and Copernicus views on economics” by Leszek Zygner of Nicolaus Copernicus University.
The full text of Copernicus’s fascinating and invaluable essay remained elusive, that is, until last month.
Laissez Faire Books published a meticulous and fresh English translation from the Latin, with prefatory remarks, bibliography, and invaluable critical apparatus by classicist Prof. Gerald Malsbary. (The volume was co-edited by this columnist and by his fellow Forbes.com columnist Charles Kadlec, with a foreword by Reagan Gold Commissioner Lewis E. Lehrman, whose eponymous Institute this columnist professionally serves).
From Prof. Malsbary’s Prefatory Remarks to Copernicus’s Essay on Money:
NICOLAS COPERNICUS the astronomer embodies the modern scientific ideal: the revolutionary revealer of a new, verifiable scientific theory that shocks our conventional perceptions. However, it is not very widely known, outside of Eastern Europe at least, that Copernicus also spent about twenty years working on economic theory. His treatise On the Minting of Money (Monetae Cudendae Ratio), was first printed in 1826, three hundred years after its composition in 1525–1526. At the time, the semi-autonomous ecclesiastical region between Poland and Prussia where he lived (Varmia) was undergoing a political and economic metamorphosis, and his judgment and expertise (a fruit of the best late Scholastic and Humanist learning) was summoned by the Prussian and Polish governments to help stabilize an inflated currency. Was his insight into monetary matters as revolutionary as his astronomy?
Keynes: “The process [of debauching the currency] engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.” Copernicus: “[The debasement of coinage] … is noticed by only a few very thoughtful people, since it does not operate all at once and at a single blow, but gradually overthrows governments, and in a hidden, insidious way.”
Malsbary: “Was [Copernicus's] insight into monetary matters as revolutionary as his astronomy?” In a word, yes.
Madame Yellen? Whether one follows Keynes or Copernicus … it is time to return to the principle of meticulous monetary integrity — as exemplified by the classical gold standard — to restore legitimacy both to to the social order and to government.
This article was previously published at Forbes.com.
A view from America …
The growth gap of the current recovery compared to an average recovery is $1.3 trillion below normal. (Trillion. With a t.)
Current private sector unemployment is nearly 4 million jobs short of an average recovery at this stage. If the labor force participation rate — people who are working or seeking to work — had not collapsed the unemployment rate would be 10.6% rather than 7.4%.
As Joint Economic Committee chairman Rep. Kevin Brady (R-TX) observed: “[S]ince [President Obama’s] taking office only two million more Americans have found a job while 15 ½ million have gone on food stamps. Putting seven people on food stamps for every person that finds a job isn’t the way to strengthen the middle class.”
Such a punk recovery is disheartening, even shocking. Most of all it’s bewildering. Most elements of macroeconomic policy have not changed much (although there has been serious erosion recently) since the days of Reagan through Clinton. That was a policy mix that created millions of good new jobs and sustained a growth rate sufficient to create a federal budget surplus. Still, no growth. Yet while most policy variables have remained constant, one — monetary policy — has changed, and dramatically.
America’s thought leaders, of both parties, are beginning to wonder. Could monetary policy be the primary culprit behind the growth gap?
The latest entrant to this search for the culprit (and the solution) is the Conservative Action Project (to which this columnist belongs). It is expected to call, as early as today, for a national monetary commission to get to the bottom of this. The Conservative Action Project (CAP) is an influential coalition of conservative thought leaders chaired by President Reagan’s counselor, and Attorney General, Edwin Meese III, and by former Congressman and Bradley Foundation genius award winner David McIntosh. “Participants include the CEO’s of over 100 organizations representing all major elements of the conservative movement—economic, social and national security.”
The Center for American Progress — the left’s CAP — sets the Democratic Party’s social democratic policy agenda. The Conservative Action Project — the right’s CAP — sets the Republican Party’s free market, classical liberal, policy agenda. And the Conservative Action Project is expected to release today one of its occasional Memos for the Movement. It is expected to declare:
“Among the critical agenda items that the Conservative Action Project has identified for the 113th Congress is a call to ‘establish a national monetary commission to review the likely outcomes of principled monetary policy prescriptions.’ This directly tracks a plank in the 2012 national GOP Platform calling for a ‘commission to investigate possible ways to set a fixed value for the dollar.’ The Constitution, in Article I Section 8, gives the power exclusively to the Congress to ‘coin money, (and) regulate the value thereof.’”
It is worth noting that Rep. Marsha Blackburn (R-TN), co-chair of the Republican National Platform Committee, widely is considered the godmother of the monetary commission plank, a plank which memorably resonated throughout the world media.
The CAP is expected to call upon Congress to “pass legislation to create a monetary commission to examine how our monetary policy effects economic growth. … Conservative leaders and organizations should support monetary policy reform that is consistent with free-market, limited-government, constitutional principles.”
The draft Memo — which is more of a Manifesto — describes the issue this way:
“A century after the creation of the Federal Reserve, and decades after Congress gave the Fed their ‘dual mandate’ for both price stability and full employment, many policy makers have rightly called for a re-examination of our monetary policy. Especially in light of the extraordinary actions of the Federal Reserve during the financial crisis since 2008, there is strong need for such a review.
“On March 14th, Rep. Kevin Brady (R-TX), chairman of the Congressional Joint Economic Committee, together with 12 original co-sponsors, introduced legislation, which calls for establishing a commission to ‘examine how United States monetary policy since creation of the Federal Reserve has affected the performance of the U.S. economy in terms of output, employment, prices, and financial stability over time.’
“Such a commission would provide an invaluable opportunity to examine the role that monetary policy under Presidents Bush and Obama has played and continues to play in historically low economic growth and historically high unemployment, as well as in in Washington’s failure to facilitate an economic climate in which abundant money is available at affordable rates to working and middle class families with good credit. As demonstrated by President Reagan, good monetary policy is as crucial to economic growth as is good tax, spending, trade, energy, and regulatory policy.”
Notably signing this memo are some of the most influential and respected movement conservative leaders. The list is far too long to include in full but includes heavyweights such as Grover Norquist, head of Americans for Tax Reform, Chris Chocola, president of the Club for Growth, Brent Bozell, Chariman of ForAmerica, the Honorable Becky Norton Dunlap, former Reagan White House advisor, the Honorable Jim Miller, former Reagan OMB Director, the Honorable T. Kenneth Cribb, former Reagan domestic policy advisor, the Honorable Alfred Regnery, the Honorable J. Kenneth Blackwell, Tony Perkins, president of the Family Research Council, Colin Hanna, president of Let Freedom Ring, Al Cardenas, president of the American Conservative Union, Jenny Beth Martin, co-founder of the Tea Party Patriots, Amy Kremer, president of the Tea Party Express EXPR -1.77%, philanthropist Bill Walton, Gary Bauer, present of American Values, Phil Kerpen, president of American Commitment, Jim Ryun, chairman of the Madison Project, Myron Ebell, president of Freedom Action, Ron Robinson, president of Young America’s Foundation, Chuck Cooper, Mallory Factor, Peter Ferrara, Mario Lopez, Andy Blom, and Dan Oliver. (And this columnist as well.)
Rep. Brady’s legislation to assemble a bipartisan, bicameral, commission to study the impact of monetary policy, under various past and proposed policy regimes, is not, in and of itself, a “conservative” proposal. It’s simply good governance. 25 co-sponsors have enlisted, including a first Democratic co-sponsor, Rep. John Delaney (D-MD), a truly significant Democratic Party thought leader.
According to a poll of over 1,000 voters by Scott Rasmussen conducted about two years ago, the most enthusiastic constituencies for good money (at least the version represented by the gold standard per Rasmussen’s formulation) are not conservatives, Tea Partiers, or even libertarians (who registered strong plurality support). They are African-Americans and labor union members — two core Democratic constituencies.
Good money is not a partisan issue. Empirically studying what makes money good is not an ideological exercise. The members of the right’s CAP, the Conservative Action Project, should, in this context, properly be seen as civic rather than ideological thought leaders. This columnist hopes that the left’s CAP, the Center for American Progress, will show the statesmanship to pause from the inevitable skirmishing over the debt ceiling to join in the call for co-sponsorships for the legislation constituting a bipartisan Monetary Commission introduced by Chairman Brady.
Millions of good new jobs, trillions in new national wealth, and the ensuing plummeting deficit that good money can provide is worth putting aside partisan differences. Passing legislation to permit a drilling down to bedrock facts is the highest and best use of the 113th Congress’s time. And it is a “critical agenda item” of the Conservative Action Project for the 113th Congress.
Republican or Democrat, Conservative or Progressive: good money is good policy and good politics. Time to charter a serious commission.
This article was previously published at Forbes.com.
Recently, in the offices of the Mayor of the city of Nablus, Palestine, the missing pieces that would permit a just and lasting peace in the Middle East to flourish may have been presented. If harmony can be restored (as it can) within the social fabric that underlies the political fabric, peace finally becomes a possibility. If women, who are respected, not marginalized, in Palestinian and Israeli society will take center stage a fundamental rapprochement can be effected. Might this happen?
On February 14th, an American resident of Israel, Sharon Sullivan, who leads a gallant, if tiny, new group called “the Fellowship of Mothers” met with nine Palestinian women leaders under the generous auspices of Ghassan W. Shakaa, Mayor of Nablus, and Benyamim and Yefet Tsedaka, two social leaders of the Israelite-Samaritan community, and three members of the Samaritan Committee of the Mount Gerizim Community over Nablus. The meeting was led by Third Deputy Mayor Rima M. Zeid Al-Keilani.
This is not just one more story of an admirable but marginal “women for peace” movement. This is “women for harmony,” a subtle but profound distinction. The Fellowship of Mothers, while tiny, is possessed of an extraordinarily powerful narrative.
Its narrative was formulated with the key guidance of an internationally admired USC management professor, a paradigm shifter, Dave Logan, co-author of Tribal Leadership: Leveraging Natural Groups to Build a Thriving Organization:
God had a plan for the descendants of both Sarah (the Hebrew matriarch of the Israelites) and Hagar (the Egyptian matriarch of the Arabs). To not allow Hagar’s offspring [the Ishmaelites] to be a great nation goes against God’s will. To not allow Sarah’s children to live in peace is also a violation of God’s will. There were promises made, and hope given, by the same God to both women. So God bridges the divide between “us” and “them.”
As Sullivan trenchantly observes: “We are outraged at the idea that the family relationship is denied by claims of Israelis being Western implants and of Palestinians not being accorded equal rights in the land that was, and under conditions of harmony, soon again would be, flowing with milk and honey. We focus on this as a ‘lie of men’ with indignation, rejecting it.”
The essence of the genius of the tiny Fellowship of Mothers is that peace is an outcome, not an input. Peace is the natural state resulting from social harmony. And social harmony comes from a high social rapport … which can be established.
While not implying that any political changes are in order — assuredly that would be premature, political structures typically following, rather than leading, the social consensus — it should be obvious by now that it is impossible to impose peace diplomatically — whether from the United Nations, or Washington, London, Moscow, or Oslo — or politically … from Jerusalem (known by the Arab branch of this family as Al Quds) — the capital both of Israel and Palestine. We now have not peace but an uneasy truce.
Peace can no more be forced to flower than a flower can be forced to blossom. Peace only can be, yet will be, an outcome of social harmony. Men, intrinsically more bellicose than women, have failed to deliver it. People who authentically like and respect one another can work through any problem. Antagonists, however, always will find a pretext for fighting. Only women, and, especially, mothers (such as Sullivan), have the discernment and innate authority to create, indeed insist upon, mutual respect and, with it, social harmony.
So the missing piece for Peace: resolve the underlying cause of strife rather than tussling with the symptoms. This calls for effecting a “family reconciliation” leading to vibrant social harmony. To accomplish this requires the formal recognition of the unique, and necessary, exercise of authority by women. Men have failed, for almost 4,000 years, to effect harmony between the descendants of two of the sons of the same great-grandfather, their mutual Patriarch, Abraham. Time for the daughters of Abraham to take on the responsibility and assert their authority.
Mayor Shakaa, himself a holder of the Samaritan Medal of Peace (2006), courageously organized for Sullivan the opportunity to meet with nine social lionesses of Nablus, among them Miriam Altif, an Israelite Samaritan. It took courage for Sullivan to accept this invitation. The trip from Jerusalem to Nablus is not for the faint of heart. Sullivan was accompanied only by her doughty Israeli fiancée, Haimon Eretz, and by Daniel Estrin, an AP reporter and Sullivan’s friend. She was received in Nablus by, in addition to her Palestinian hosts, a delegation of Israelite-Samaritans from their nearby Mountain of Blessings community, Kiryat Luza.
There is authentic historic significance to the presence of the Samaritans, the descendants of the northern Israelite tribes. Few are unfamiliar with the parable, told by Jesus, of the “Good Samaritan.” Far fewer know who the Samaritans are: the authentic representatives of the famed legendary “Lost Tribes of Israel” … who staged a tax revolt upon the death of Solomon.
Solomon’s son, as recorded in the Biblical books of Kings and Chronicles, ascending to power, confronted a very Tea-Party-like revolt by the ten northern tribes of the Kingdom against the crushing taxes imposed by King Solomon. Solomon’s successor to the throne contemptuously ignored pleas for a tax cut and, instead, raised taxes. This precipitated secession by the ten northern tribes, who created the Kingdom of Israel centered in the land of Samaria. When, later, this nation fell to invaders its people became known as “Samaritans,” or, more accurately, the Israelite Samaritans.
Fewer still are aware that a modest, fascinating, community of Samaritans lives on to this day. Mark Twain meeting a Samaritan elder wrote of the experience, in The Innocents Abroad, as to have been “just as one would stare at a living mastodon.” There are, as of this writing, 754 Israelite Samaritans. Almost half reside in Palestine and the balance live in Israel. The Israelite Samaritans live meticulously according to millennia-old Biblical traditions. Their High Priest Aaron b. Ab-Hisda b. High Priest Jacob, is the 132nd lineal descendent of Aaron, the brother of Moses. Yes, Moses’s blood great-grandnephew is alive and well.
Of key importance, this tiny noble community lives on terms of harmony and mutual respect with both the Arabs and the Israelis — possessing dual citizenship. The Mountain of Blessings, of Biblical fame, has given the world not just a “Good Samaritan” but four clans who might be called great Samaritans: Cohen, Tsedaka, Danfi, and Marhib.
The Samaritans, as thoughtfully described by writer Benjamin Balint in Tablet Magazine, tend toward insularity. One of their social leaders, the scholarly Benyamim Tsedaka, publisher of the A-B Samaritan News, translator and editor, with co-editor Ms. Sullivan, of the first English translation of the Israelite Samaritan version of the Holy Scriptures, however, is internationally celebrated. This Great Israelite Samaritan, Tsedaka, over the last three decades, has made an annual international goodwill tour to many of the capitals, and leading cities, of the world.
During one of his goodwill tours, seven years ago, this columnist established an enduring personal friendship with Tsedaka and, later, was given the honor of serving, along with Sullivan, among others, on the board of the Samaritan Medal Foundation that Tsedaka founded and chairs. This body grants medals for Peace, humanitarian achievement, and scholarly studies. The Fellowship works inside the halo of moral authority of the only authentic Biblical Samaritans. Tsedaka, thus, is the moral godfather of the Fellowship of Mothers.
It is early in the process. But the tea party in the office of the Nablus Mayor reportedly was electric. Sullivan:
Each woman introduced herself and told a bit of her background in business, mothering, peacemaking (and in one case – prison). Yes, we had among us a Palestinian woman who had been released in a prisoner exchange between Israelis and Palestinians.
Haimon talked (as the only Israeli there — non-Samaritan — which was a big deal to the group of women there). Haimon’s opening line was ‘I look around and I see family. Look at us. We all look alike. One is no different than the other.’ It was sweet. He spoke of his Grandfather who was born in Gaza, long before this conflict began, to which women from Palestine exclaimed ‘You’re Palestinian!’
The Fellowship of Mothers, like the Samaritan people, is a small group with a powerful narrative and a big commitment. And as Margaret Mead said, “Never doubt that a small group of thoughtful, committed, citizens can change the world. Indeed, it is the only thing that ever has.” May the women of Palestine and Israel now assert, under the auspices of the noble Israelite Samaritans, their authority, bring about this family reconciliation, restore social harmony, and, with harmony firmly established, show the whole world how a just and lasting peace really blossoms.
This article was previously published at Forbes.com.
A view from America …
Last week, the Virginia House of Delegates Rules Committee passed, by an 11 – 1 bipartisan majority, a bill to establish “a joint subcommittee to study the feasibility of a United States monetary unit based on a metallic standard, in keeping with the constitutional precepts and our nation’s founding principles…”. Such a study could prove to be a very big deal indeed.
It would bring a sleeper issue, one crucial to economic growth, to the fore of the national debate. (Full disclosure, this columnist provided, by invitation, a letter in support of this legislation before the subcommittee vote. This respectfully was reported in a wonderful, whimsy-inflected, article by The Washington Post’s Tom Jackman.)
The legislation authorizing this study widely is expected to sail through the House of Delegates. It may well also be embraced by the Virginia Senate and signed by the governor. There’s reason for optimism since it is good policy and good (even bipartisan) politics.
First, this is an excellent piece of legislation. As reported Friday, unemployment remains stuck at 7.9%. This is a national tragedy. Job creation has been punk for over a decade, over three administrations under presidents of both parties. Official Washington leadership — with some important, exceptional, bright lights such as Joint Economic Committee Chairman Kevin Brady, former Republican Study Committee chairman Jim Jordan, House Financial Services Committee chairman Jeb Hensarling, and, in the Senate, Sens. Lee, Cornyn and Rubio — has seemed clueless that the Prime Suspect in punk job creation is lousy monetary policy. Washington will benefit from a nudge from America. And Virginia is quintessential America.
Second, it is a good sign for the Republic that elected officials are listening to the people, a very good thing. This bill has constituencies both Republican and Democratic.
It follows the directive of what may well prove to have been the most vital and innovative plank in the 2012 national Republican Platform: the monetary commission plank. This plank was championed, primarily, by the esteemed Rep. Marsha Blackburn (R-TN), co-chair of the platform committee. Winning this plank was an impressive, savvy, achievement by Blackburn. The call for a monetary commission became the subject of respectful worldwide attention and, obviously, continues to resonate. It can become an important part of Blackburn’s effort to redirect and rebrand the GOP. Blackburn: “What you will see when the platform is opened this afternoon — you’ll see in the preamble how we lay out how we are the ‘Great Opportunity Party….’”
Virginia’s governor, Bob McDonnell (widely considered presidential timber), co-chaired the platform committee. He celebrated the platform as “a conservative vision of governance.” Enactment of this legislation would be seen, nationally, as important evidence that the governor walks the walk as well as he talks the talk. Should the Senate polarize along party lines one expects that McDonnell’s lieutenant governor, Bill Bolling — who also serves in the governor’s cabinet as Chief Jobs Creation Officer — would cast the historic tie-breaking vote in favor.
But the quality of money is not inherently a partisan, nor Republican, issue. A hearty three of the 11 Rules Committee members who voted in favor, Delegates Johnny Joannou, Joe Johnson, and Algie T. Howell, Jr., are Democrats. This is government like it’s supposed to be, “deriving its just powers from the consent of the governed.” This is just as Jefferson declared.
Pollster Scott Rasmussen determined, in polling 1,000+ voters in late 2011, that the two cohorts most enthusiastic for the gold standard are part of the Democratic base: Blacks and members of labor unions. So there is real hope that Virginia’s elected officials from the Democratic Party, whether Blue Dog or Progressive, will honor the founder of their party — that great Virginian Thomas Jefferson — whose legacy included an implacable opposition to bad money.
“Paper money is liable to be abused, has been, is, and forever will be abused, in every country in which it is permitted.” … (To J.W. Eppes, 1813)
“Shall we build an altar to the old money of the Revolution, which ruined individuals but saved the Republic, and burn on that all the bank charters, present and future, and their notes with them? For these are to ruin both Republic and individuals. “ (To John Adams, 1814)
“… instead of funding issues of paper on the hypothecation of specific redeeming taxes … we are trusting to the tricks of jugglers on the cards, to the illusions of banking schemes for the resources of the war, and for the cure of colic to inflations of more wind.” (To M. Correa, 1814)
One sourpuss Democratic Virginia Delegate publicly criticized this legislation. The Washington Post’s canny Ben Pershing was able to get, on record, this statement by “Del. Mark Sickles (Fairfax), the Democratic Caucus chairman. ‘It can cost tens of thousands of dollars. Are we seriously going to spend taxpayer resources studying a replacement to the world’s backbone currency? Are we descending into la la land?” Sickles asked.’”
It, of course, is ludicrous to begrudge the spending of “tens(!) of thousands(!) of dollars” to help bring our multitrillion dollar economy back to vibrant economic growth. And it is hoped that Del. Sickles will recognize that Americans are really, really, sick of seeing every intelligent effort to restore vibrant job creation get turned into a partisan football. And that Mr. Sickles will rethink the wisdom of spitting in the face of his own party’s founder, Jefferson.
Good money isn’t a Republican or a Democratic issue. It is an issue of integrity, and of the day. Del. Sickles is right about the dollar being the “world’s backbone currency”. He, perforce, is on untenable ground in characterizing a study of the U.S. monetary unit as “descending into la la land”. Rather the opposite, such a joint subcommittee may just prove a ladder out of la la land.
Constitutional monetary policy is no fringe issue. Much of the elite financial and political media recently has called the gold standard “mainstream”:
(The last two authored by this columnist.)
It’s not just media. The immensely sober-sided Bank of England issued, just over a year ago, a severe critique of contemporary monetary policy, Financial Stability Report No. 13, scoring it as far worse performing, empirically, than the gold standard. And it’s not just for conservatives. As Ernest Hemingway noted, in Esquire, September 1935, “The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.”
Virginia need not reach to London, to New York, to dignified yet bygone American figures like Ernest Hemingway, or even deep into its past for the wisdom of such great Virginians as Jefferson (and, for that matter, George Washington, James Madison, and John Marshall, also on record in this matter). The gold standard is a fully contemporary prescription, celebrated by scores of public intellectuals. Prominent among these, of course, is a good Virginia citizen, Dr. Judy Shelton, of the Atlas Economic Research Foundation. A commission will create access to many learned scholars, such as Dr. Shelton, to create a dignified venue in which to address what seems to be emerging as the issue of the day.
The Virginia legislature, members of both houses, and parties, have an historic opportunity to enact and conduct a joint subcommittee to study the feasibility of a United States monetary unit based on a metallic standard. That would put the Commonwealth, whose flag depicts the Goddess of Virtue, in extremely virtuous national company. Gov. McDonnell’s signature would distinguish his office … and add to his national stature.
Yes Virginia, there is a Constitutional monetary unit. Your House of Delegates, with special credit to prime original sponsor Del. Bob Marshall, is greatly to be commended for offering to create a venue for America to rediscover that unit. And a venue to help America recall the vibrant, equitable, prosperity that unit brought and promises, upon its rediscovery, to bring again.
This article was previously published at Forbes.com.
A view from America …
The only plank remaining under notable discussion from either national convention platform of 2012 is the GOP platform’s call for a national monetary commission. Although widely reported as a call for a new “Gold Commission”, the actual text calls for a “commission to investigate possible ways to set a fixed value for the dollar.”
While this plank was caricatured as a sop to the good Dr. Ron Paul, the evidence is persuasive that it was a substantive triumph by the Resolutions Committee editorial team and the co-chairs Rep. Marsha Blackburn and (rumored 2016 presidential aspirant) Virginia governor Bob McDonnell.
Reports about the call for such a commission continued (and continue) to resound around the world. Often commissions are a device for sidetracking — rather than taking on — a proposed reform. This is not necessarily their intention or effect. Some commentators have minimized the potential impact of a national monetary commission. These critics fail fully to appreciate how powerful such a commission can prove … if smartly structured as a neutral forum to tackle what may well be the most important macroeconomic variable required to restore economic growth and job creation: good money.
Clearly the prognostications of some of the smartest and most influential economists of both the right and left have been stymied by the Federal Reserve’s policy of monetary adventurism. The great Arthur Laffer sounded a klaxon of alarm in the Wall Street Journal about the explosion in the monetary base … and the high likelihood that the evil inflation djinn had been let out of the bottle … in his June 11, 2009 piece entitled Get Ready for Inflation and Higher Interest Rates The unprecedented expansion of the money supply could make the ’70s look benign: “as bad as the fiscal picture is, panic-driven monetary policies portend to have even more dire consequences. We can expect rapidly rising prices and much, much higher interest rates over the next four or five years, and a concomitant deleterious impact on output and employment not unlike the late 1970s.”
While one ignores Dr. Laffer’s prognostications at peril, three and a half years into the “next four or five” and there is no sign of “rapidly rising prices and much, much higher interest rates.”
But it would take even more hubris than most Neo-Keynesians possess (which is saying rather a lot) for the left to make sport of the confounded expectations of Dr. Laffer (and a great many of his colleagues on the right). Time Magazine’s Christopher Matthews summed up the left’s predicament neatly, last September, in Ben Bernanke’s Heavy Artillery: Will Open-Ended Bond Buying Drive Down Unemployment?:
“America has been mired in its worst unemployment crisis since the Depression, and everything policymakers in Washington have tried to fix the problem has — at best — been not good enough. Huge stimulus programs from Congress and low interest rates paired with massive asset purchases on the part of the Federal Reserve have by most accounts improved the unemployment situation. But four years after the financial crisis, the unemployment rate remains above 8%, and would be even higher if not for the hundreds of thousands of workers who have abandoned the workforce entirely.”
While the political and policy tussle has remained fixated on tax policy there is a growing view that it was bad monetary policy that was the real culprit for the Panic, which followed the bursting of the Fed-induced real estate bubble in 2008 and was followed by the Great Recession. Chief stimulus and QE advocate Paul Krugman, it might be said in passing, may have been the chief culprit behind the financial markets meltdown and ensuing recession and is in no position to mock those who may be ready for a closer look at monetary policy. Krugman, 2002, affirmatively called for the very housing bubble which caused the 2008 meltdown that plunged the world into the Great Recession. Krugman: “To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.”
Level-headed public intellectuals are publishing an increasing amount of informative work focusing on the importance of monetary policy. Atlas Economic Research Foundation (the Atlas that doesn’t shrug) recently delivered a cornucopia of a book entitled Roads to Sound Money . It is edited by Atlas president Alex Chafuen, who furnishes the closing essay, and Dr. Judy Shelton, who contributes the Foreword. Contributors to this volume include some of the most important thinkers on monetary policy working today. These include financier/philanthropists Lewis E. Lehrman and Sean Fieler (both of whom chair nonprofit organizations professionally advised by this columnist); one of Cato’s most respected monetary thinkers, Gerald P. O’Driscoll, Jr.; Fraser Institute Fellow’s Jerry Jordan; and Professors Steve Hanke, George Selgin, Lawrence White and Alan Meltzer, the last being recognized as the dean of Federal Reserve studies and founder of the Shadow Open Market Committee.
Dr. Shelton’s Foreword opens forcefully: “While the United States still goes through a frail and feeble economic recovery and the Euro faces severe problems of its own, monetary policy ought to be one of the first items in the economic reform agenda. At a time when the Federal Reserve continues to engage in unprecedented discretionary behavior and the United States faces a fiscal cliff, the message that the nine contributors to this book are trying to convey is more important than ever.”
Monetary policy no longer is dismissed on Capitol Hill as an esoteric matter. Incoming Joint Economic Committee chairman Rep. Kevin Brady, incoming chairman of the House Financial Affairs Committee Jeb Hensarling, outgoing chairman of the House Republican Study Committee Jim Jordan all have good monetary policy as a top tier agenda item.
The Senate GOP’s second ranking figure, Sen. John Cornyn, recently became the first Senate co-sponsor of Sen. Mike Lee’s counterpart to Rep. Brady’s Sound Dollar Act. That Act already has attracted almost 50 House co-sponsors and this columnist has termed it the most important monetary legislation in 40 years. Sen. Ted Cruz, a new political rock star, included sound money in his widely watched speech before the American Principles Project (which this columnist professionally advises) just last week.
The list of monetary reformers — advocates of something like the Taylor Rule and advocates of the gold standard — continues to grow and gain distinction. The credentials of the contributors to Roads to Sound Money demonstrate how respectable monetary reform, in general, and the mainstream version of the gold standard, specifically, is becoming.
Good monetary policy also has a rich history within the Democratic Party. The cheap money William Jennings Bryan lost, repeatedly. Gold standard champion and classical liberal Grover Cleveland won. Good monetary policy, which is essential for good jobs at good wages, is not inherently a partisan issue. Pollster Scott Rasmussen has demonstrated a strong constituency for a golden alternative to the job-destroying anti-policy of “Federal Reserve Adventurism” among pro-labor and ethnic Democrats. Monetary reform just might even be a good candidate for the first bipartisan issue to emerge from the wreckage of the Fiscal Cliff Drama. Mr. Obama, if you genuinely are looking for issues on which to collaborate… begin here.
Winston Churchill (apocryphally) is said to have said, “You can always count on Americans to do the right thing – after they’ve tried everything else.” Elected officials now are turning their attention to the chief suspect in the crime of ghastly unemployment that continues to haunt America and the world. The chief suspect behind punk job growth is poor monetary policy. We’ve tried everything else. So… count on the Americans, next, to do the right thing. Good money is good policy and good politics.
This article was previously published at Forbes.com.
Americans just cast ballots for president, for the House, and for a third of the U.S. Senate, plus various local offices and referenda in our splendid Quadriennale. It is a moment for reflection … about our expectations of our elected officials. Our national political Narrative is fixated on the presidency while, Constitutionally, the House of Representatives is our key governing body. The presidency — as well as the campaign for that splendid star turn — turns out to be 90% theater and 10% substance.
But rather than getting cynical about the theatrical component of politics, let’s look to the source of it. As that great and humble populist Pogo famously said, “We have met the enemy and he is us.” We, the people, simultaneously revile and revere our officials. According to Gallup Politics, Congress has a popular approval rating of … 13%, the lowest ever recorded in an election year. And yet… we voters will re-elect almost all Congressional incumbents … just as we ought to do. What’s up with that?
This columnist spends a considerable time on Capitol Hill meeting with legislative staff from both sides of the aisle. Reporting back from the front, the House is Occupied by generally delightful, smart, publicly spirited people who are underpaid relative to the level of responsibility they shoulder. And they — officials and staff both — uniformly are deeply eager to please their bosses … the voters.
And their bosses, the voters, see these pleasant, if plain, folks as some kind of superheroes who must demonstrate to the voters that they are … faster than a speeding bullet, able to bend steel in their bare hands, more powerful than a locomotive, capable of changing the course of mighty rivers, and leaping tall buildings in a single bound. Look. Up in the sky! It’s a bird! It’s a plane! It’s … Congressman!
The Sage of Baltimore, H.L. Mencken, at base a great populist humanitarian, summed up the fundamental predicament in his Last Words (written in 1926, considerably before his actual last words):
I have alluded somewhat vaguely to the merits of democracy. One of them is quite obvious: it is, perhaps, the most charming form of government ever devised by man. The reason is not far to seek. It is based upon propositions that are palpably not true and what is not true, as everyone knows, is always immensely more fascinating and satisfying to the vast majority of men than what is true. Truth has a harshness that alarms them, and an air of finality that collides with their incurable romanticism. … The mob man, functioning as citizen, gets a feeling that he is really important to the world – that he is genuinely running things. Out of his maudlin herding after rogues and mountebanks there comes to him a sense of vast and mysterious power—which is what makes archbishops, police sergeants, the grand goblins of the Ku Klux and other such magnificoes happy. And out of it there comes, too, a conviction that he is somehow wise, that his views are taken seriously by his betters – which is what makes United States Senators, fortune tellers and Young Intellectuals happy. Finally, there comes out of it a glowing consciousness of a high duty triumphantly done which is what makes hangmen and husbands happy.
All these forms of happiness, of course, are illusory. They don’t last. The democrat, leaping into the air to flap his wings and praise God, is for ever coming down with a thump. The seeds of his disaster, as I have shown, lie in his own stupidity: he can never get rid of the naive delusion – so beautifully Christian – that happiness is something to be got by taking it away from the other fellow. But there are seeds, too, in the very nature of things: a promise, after all, is only a promise, even when it is supported by divine revelation, and the chances against its fulfillment may be put into a depressing mathematical formula. Here the irony that lies under all human aspiration shows itself: the quest for happiness, as always, brings only unhappiness in the end. But saying that is merely saying that the true charm of democracy is not for the democrat but for the spectator. That spectator, it seems to me, is favoured with a show of the first cut and calibre. Try to imagine anything more heroically absurd! What grotesque false pretenses! What a parade of obvious imbecilities! What a welter of fraud! But is fraud unamusing? … Go into your praying-chamber and give sober thought to any of the more characteristic democratic inventions: say, Law Enforcement. Or to any of the typical democratic prophets: say, the late Archangel Bryan. If you don’t come out paled and palsied by mirth then you will not laugh on the Last Day itself, when Presbyterians step out of the grave like chicks from the egg, and wings blossom from their scapulae, and they leap into interstellar space with roars of joy.
I enjoy democracy immensely. … Does it exalt dunderheads, cowards, trimmers, frauds, cads? Then the pain of seeing them go up is balanced and obliterated by the joy of seeing them come down. Is it inordinately wasteful, extravagant, dishonest? Then so is every other form of government: all alike are enemies to laborious and virtuous men. Is rascality at the very heart of it? Well, we have borne that rascality since 1776, and continue to survive. In the long run, it may turn out that rascality is necessary to human government, and even to civilization itself – that civilization, at bottom, is nothing but a colossal swindle.
L. Frank Baum, in the original Wizard of Oz (itself a political parable), showed a shrewd understanding of the politician’s predicament.
Oz, left to himself, smiled to think of his success in giving the Scarecrow and the Tin Woodman and the Lion exactly what they thought they wanted. “How can I help being a humbug,” he said, “when all these people make me do things that everybody knows can’t be done? It was easy to make the Scarecrow and the Lion and the Woodman happy, because they imagined I could do anything. But it will take more than imagination to carry Dorothy back to Kansas, and I’m sure I don’t know how it can be done.
We, the people (yes Paul Krugman, I’m talking to you!), well might stop demanding that our elected officials “do things that everybody knows can’t be done.” Then Congress can go back to its Constitutionally enumerated jobs of coining Money, regulating the Value thereof, and of foreign Coin, and fixing the Standard of Weights and Measures; providing for the Punishment of counterfeiting the Securities and current Coin of the United States, and other sensible, authentically doable, things.
There are straws of sanity in the wind. Irrespective of who wins the presidency, the governing agenda — and the true hope for economic growth and jobs — will be driven, mainly, from within the 113th Congress, not the White House. As the New York Times observed last April 15th, “House Republicans said Mr. Romney … must understand that they are driving the policy agenda for the party now. ‘We’re not a cheerleading squad,’ said Representative Jeff Landry, an outspoken freshman from Louisiana. ‘We’re the conductor. We’re supposed to drive the train.’”
The presidency? Pay no attention to that man behind the curtain. It falls to Congress — the People’s House — not the White House — to unleash the imprisoned lightning of a prosperous future.
This article was previously published at Forbes.com.
As noted in last week’s column about the rising recognition by authorities in Germany about the virtues of gold, the gold standard is receiving impressive new recognition internationally. The GOP plank calling for a commission to study “possible ways to set a fixed value for the dollar” — with an unmistakable nod to gold — is the most prominent element of the 2012 GOP platform still being heard to “reverberate around the world.” Meanwhile, it continues to gain impressive momentum in the United States.
CNN’s Kevin Voigt writes, in The China Post, “Currencies: Re-evaluating the ghost of gold:”
One platform of the recent U.S. Republican National Convention that, ultimately, could reverberate around the world is a plan to study a possible return of the U.S. to the gold standard. While it was perceived as a move to appease the party’s extreme right wing, economists like Mundell think the world needs a limited return to the gold standard.
This is by no means an isolated blip on the economic radar screen of China watchers. As Christopher Potter, president of Northern Border Capital Management, so astutely observed in a column entitled China’s Preparing for the End Game — Are We Paying Attention, published in The Lehrman Institute’s TheGoldStandardNow.org — which Potter advises (and this columnist professionally edits):
- China is … increasing its monetary gold reserves at an alarming rate. Five years ago China surpassed the US in gold production and five years from now it will own more gold than the US Federal government.
- China is preparing for a world beyond the inconvertible paper dollar, a world in which the renminbi, buttressed by gold, becomes the dominant reserve currency.
- The Chinese government has recently removed all restrictions on personal ownership of gold; legalized domestic gold exchange traded funds; is currently purchasing 100% of domestic gold mine production; has imported over 750 tons of gold (27% of global output) in the last 12 months; stated publicly its intention to add 1,000 tons per year to its central bank gold reserves; and is buying major stakes in foreign gold mining companies. The scale of this initiative is extraordinary.
Commenting on the recently announced acquisition of African Barrick Gold Ltd. by state-owned China National, CEO Sun Zhaoxue stated,
As gold is a currency in nature, no matter if it’s for state economic security or for the acceleration of renminbi internationalization, increasing the gold reserve should be one of the key strategies of China.
This is not the first emergence of authoritative attention to the power of gold as the monetary unit by China in recent years.
Wikileaks provided a notable cable dated February 8, 2010 sent from the U.S. embassy in Beijing excerpting a story from Shanghai’s China Business News that observed:
If we use all of our foreign exchange reserves to buy U.S. Treasury bonds, then when someday the U.S. Federal Reserve suddenly announces that the original ten old U.S. dollars are now worth only one new U.S. dollar, and the new U.S. dollar is pegged to the gold – we will be dumbfounded.
This implies a preposterous devaluation, which is not the direction toward which the key gold standard proponents are progressing. Gold’s proponents have no interest in scalding creditors … or debtors.
A better grasp of the implications of gold is demonstrated by Zhou Qiren, Dean of Peking University’s National School of Development and a member of the People’s Bank of China Monetary Policy Committee. Zhou was interviewed by China 2011 Economy staff reporter Ye Weikian last year.
Q: Proposals to go back to the gold standard are now reappearing. Do you think this is feasible?
A; If the currency of each major country is bound to gold, financial headaches would of course be reduced. Taking QE2 as an example, if this were the 1880s, the currencies of the major western countries would be measured in gold. Unless the U.S.Treasury suddenly gained a large quantity of gold reserves, it would be impossible for (U.S. Federal Reserve Chairman Ben) Bernanke to print US$ 600 billion to purchase long-term debt. If there is a commitment to a gold standard system, such as the Bretton Woods system in place until 1971, the Fed could not easily ease its monetary policy, because not only could each country with dollar holdings hold them accountable, they could also redeem their dollars for gold to see how much Uncle Sam’s promise is worth.
A gold standard also would eliminate exchange rate wars. Since all major currencies could be exchanged for gold or other currencies pegged to a currency that follows the gold standard, exchange rates would remain stable without anyone doing anything. Where would exchange rate disputes come from? In short, the gold standard would effectively prevent each country’s government from recklessly levying ‘inflation taxes’ domestically and passing troubles to others by manipulating currency exchange internationally.
Of course, this is an excellent monetary system.
Dean Zhou presented, later in the interview, as pessimistic about the political possibilities of implementing the gold standard. He shouldn’t be.
Respected figures from the United States are now taking a more forward leaning stance in growing recognition of gold’s potential significance. Joint Economic Committee Vice Chairman Kevin Brady addressed the Prosperity Caucus on September 19th in Washington DC. He alerted the Caucus to the significant and rapidly growing support for the Sound Dollar Act. This columnist has termed that bill, sponsored in the Senate by Sen. Mike Lee, the most important monetary reform legislation in 40 years.
The Sound Dollar Act isn’t the gold standard. Yet it is widely seen as a major step toward creating a process to enable the reform of American monetary policy to a rule-based one. Furthermore, the Sound Dollar act is well designed to provide a context in which official reconsideration of which rule — the Taylor Rule or the classical gold standard — is, empirically considered, the better foundation for American monetary policy.
The day after Rep. Brady’s address Rep. Ron Paul held what likely will prove his final hearing as chairman of the House Domestic Monetary Policy subcommittee. Its purpose was to review the economic distortions caused by artificial manipulation of interest rates by the Fed. The hearing featured two of the leading proponents of what could be called the “American Principle” gold standard: journalist/belle-lettrist James Grant and financier/philanthropist Lewis Lehrman.
Both Grant and Lehrman outlined the severe problems that the Fed’s central planning of our financial system are causing. Rather than focusing on the fiendish problems caused by paper money, Lehrman extolled the dignity and moral heroism of Ron Paul for keeping the issue of monetary reform alive and concluded:
Now we are able to formulate an authentic, bipartisan program to restore 4 percent American economic growth over the long term. … [T]hese reforms can be made effective for America and the world by a modernized gold standard and stable exchange rates.
The most riveting political commercial of the 2010 election cycle was an independent expenditure by Citizens Against Government Waste entitled “Why do great nations fail?” — generally known as “the Chinese Professor.” It portrays a Chinese Professor, in Beijing 2030, attacking Obama’s profligate spending policies and the debts America incurred. It concludes, to the laughter of the audience, “and now they work for us,” and received millions of YouTube views.
Chinese mercantilist policies are beginning to emerge as a subject of the 2012 presidential race. Rather than engaging in a blame — and maybe trade — war, however, a more optimistic possibility is emerging: the gold standard.
The road to the restoration of harmony, and mutual prosperity, is becoming the subject of renewed recognition both in China and America (as well, as noted last week, in Germany both by Deutsche Bank and the Bundesbank president Jens Weidmann).The classical gold standard, conjoined with other free market policies, offers the very real, very attractive, possibility of renewed worldwide prosperity. To quote one of the great supply-siders of modern history, Deng Xiaopiing: 致富光荣:“To get rich is glorious.” There is a dawning recognition, the hilariously reactionary Paul Krugman notwithstanding, that the road to prosperity is paved with gold.
This article was previously published at Forbes.com.
“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.”
— Jens Weidmann, president the Bundesbank, September 18, 2012
On September 18th, the London office of Deutsche Bank — one of the most respected banks in the world, and a bellwether of elite opinion — published a Global Markets Research paper entitled Gold: Adjusting for Zero. It was written by two esteemed, mainstream analysts Daniel Brebner and Xiao Fu:
[G]old is not really a commodity at all. While it is included in the commodities basket it is in fact a medium of exchange and one that is officially recognised (if not publicly used as such). We see gold as an officially recognised form of money for one primary reason: it is widely held by most of the world’’s larger central banks as a component of reserves. We would go further however, and argue that gold could be characterised as ‘‘good’’ money as opposed to ‘bad’ money which would be represented by many of today’s fiat currencies.
The conclusion from our overview of gold functionality is that the key difference between good and bad money is scarcity (imposed supply discipline could be another way of describing this). Fiat currencies can be scarce but this scarcity may change on a whim which may both impact its tenure as currency and/or relegate it to being characterised as bad money. Gold is truly scarce, having a concentration of around 3 parts per billion in the Earth’s crust.
In 2011 Deutsche Bank enjoyed revenues of €33.2 bn. In 2009 Deutsche Bank was the largest foreign exchange dealer in the world, with a market share of 21%. We have come a long way from the view of gold as an artifact of the “bleak” and “dystopian” (as characterized by the Wall Street Journal).
On the very same day of the Deutsche Bank report Herr Dr. Jens Weidmann, president of the Bundesbank, gave a speech entitled Money Creation and Responsibility. The Bundesbank is the only member of the ECB’s governing board to oppose Mario Draghi’s sovereign debt purchase policy, a policy disturbingly like that of Bernanke’s “Buzz Lightyear” monetary strategy of QE “to Infinity and Beyond.”
Weidmann stated that “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.”
Most of his speech was devoted to recounting an iconic work of German (and world) culture, Goethe’s Faust, Part II.
Let me remind you briefly of the “money creation” scene in Act One of the Second Part of Faust. Mephistopheles, disguised as a fool, talks to the Emperor, who is in severe financial distress, and says
“In this world, what isn’t lacking, somewhere, though? Sometimes it’s this, or that: here what’s missing’s gold”“
In the commotion of the nocturnal masquerade ball, he persuades the Emperor to sign a document – a document which Mephistopheles has reproduced over night and then distributed as paper money.
Those concerned are so overjoyed by this apparent blessing that they do not even suspect that things could get out of hand.
In the Second Part of Faust, the state can get rid of its debt to begin with. At the same time, private consumer demand rises sharply, fuelling an upswing. In due course, however, all this activity degenerates into inflation, destroying the monetary system because the money rapidly loses it value.
Even interpreting Weidmann’s remarks as mainly a critique of the ECB’s monetary promiscuity, his speech throughout treats the classical gold standard with respect, rather than — as with Mr. Bernanke — cheap disdain.
Weidmann’s praise for the integrity of gold, and indictment of paper, is not presented as a whimsical metaphor. It is drawn from deep wells of German monetary scholarship:
The fact that Faust can indeed be interpreted in economic terms has been demonstrated, not least, by Professor Adolf Hüttl, who used to be Vice-President of the former Land Central Bank in Hesse. I am delighted that he is in attendance here today. Back in 1965, he wrote a very insightful article in the Bundesbank’s staff magazine about “Money in the Second Part of Goethe’s Faust”.
In the mid-1980s, while teaching in Sankt Gallen, Professor Hans Christoph Binswanger – who I am pleased to say is also here today – took a similar line and brought out a book entitled “Money and Magic: a Critique of the Modern Economy in the Light of Goethe’s Faust”.
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.
That both scholars he references attended this speech, and were acknowledged, gives a graceful reinforcement of Weidmann’s message. And, had he cared to do so, Weidmann also could have underscored his message with Ludwig Erhard’s Wirtschaftswunder — and its crucial currency reform.
Good money is not only a counsel of rectitude. It is critical path to restoring vibrant prosperity and social health. Erhard (as previously noted here) reprised the characterization of Pietrre and Rueff in his memoir Prosperity Through Competition. Germany’s economic miracle
began as the clocks struck on the day of currency reform. 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 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 in their faces while on the next a whole nation looked hopefully into the future.
A counsel of “good money,” as gold is referred to by Deutsche Bank, is an essential part of the recipe for the revival for all, and especially Mediterranean, Europe. Rueff is a soulmate to Weidmann, his legacy a powerful authority for the Bundesbank’s opposition to the ECB’s easy money policies.
As recalled to this columnist by Rueff’s greatest living disciple, Lewis Lehrman (whose institute I professionally serve), Rueff, in his 1952 speech to the Committee for Action and Economic Expansion, reproduced in The Age of Inflation (Henry Regnery and Company, Chicago, 1964, pp. 62-64), also extols Goethe:
[I]t was Germany which gave the world its greatest money theorist—Goethe. He was, to be sure, no economist, yet it was he who in Faust (Part II) clearly demonstrated that inflation was and could only be an invention of the devil. … He then fully sets forth the theories of exchange media and fully employment. …But in his commentary on the festivities, the Herald foresees an unhappy outcome. … Nothing is missing: the technical formula, the political advantages, the social consequences. The poet was indubitably more clear-sighted than are most economists; he understood and clearly demon-started (sic, delightfully) that inflation was the work of the devil because it respected appearances but destroyed reality.
Green shoots of respect for the classical gold standard are beginning to pierce the decaying concrete of Neo-Keynesianism monetary theory all over the world. The gold standard’s purpose is by no means to privilege the wealthy and prejudice workers or debtors. The purpose of gold is to unwind the Faustian bargain throttling our economy and stifling job creation. The purpose of the gold standard is to propel the world economy into a new era of vibrant, widespread prosperity. And as Goethe, as if to cheer on future advocates of gold, wrote in in the concluding pages of Faust, Part II: Whoever strives, in his endeavour,/ We can rescue from the devil.
This article was previously published at Forbes.com.
In this world, what isn’t lacking, somewhere, though?
Sometimes it’s this, or that: here what’s missing’s gold.
- Goethe, Faust, Part II, translated by A.S. Kline
Paul Krugman, in his New York Times column of August 24, “Galt, Gold and God,” rails against an interest in the gold standard, which he attributes to Paul Ryan. Krugman lambastes Ryan, ironically enough, for an observation the latter made paraphrasing Keynes: “‘There is nothing more insidious that a country can do to its citizens,’ he intoned, ‘than debase its currency.’”
Rather than alluding to Ayn Rand’s Atlas Shrugged, however, Krugman would do well to dig into a classic: Goethe’s Faust, Part II. Scott Minerd, chief investment officer at Guggenheim, writing in the Financial Times recently, brilliantly called contemporary monetary policy “the ultimate Faustian bargain.”
Paper money comes straight from Mephistopheles. The History of Money by Jack Weatherford recounts the story.
Faust and Mephistopheles visit the court of the emperor during the pre-Lentin carnival season of masquerades and tricks. The emperor is besieged by his treasurer and stewards reporting the lack of funds and the need to pay the wages of the soldiers and servants. His moneylenders demand payment on debts, and even the wine bill has come due.
Mephistopheles offers the emperor a way out of his financial mess. He has found the key to making gold, the secret that all alchemists had sought for centuries. He obtains from the emperor permission to print paper money-”the heaven-sent leaf.”
Faust comes to the emperor’s carnival ball dressed appropriately as Plutus, the god of wealth, and through magic, he and Mephistopheles show the emperor the riches he can have by printing money. … He has based the value of his money on the future mining of gold, the untapped treasures still buried in the earth. … The new money has been unleashed to the great joy of creditors, debtors, soldiers, and other citizens. Already people are ordering new clothes, and business booms for the butcher and baker. Wine is flowing freely in the taverns, and even the dice roll more easily. Priests and prostitutes scurry about their business with greater enthusiasm because of the new money, and even the moneylenders are enjoying a brisk new business.
At first, the spread of Faust’s new money brings happiness and improvement, but soon the hidden costs begin bubbling to the surface. … Soon social unrest in the newly enriched nation leads to rebellion, and a new anti-emperor rises to challenge the old one.
The perversity? Monetary shenanigans represent a short-term fix but the long-term cause of economic, social, and political woe. Thus do Neo-Keynesian economists such as Krugman enlist in the Devil’s Party. “Easy money” advocates propound QEs and Twists and other weird devices to generate a brief relief for the economy. They ignore the seeds of destruction thereby sown.
The story of Faust is a secular, not a religious story. It is a play, not Scripture. Barack Obama is a secular Protestant, not a Satanist. But Goethe, notwithstanding his invocation of sacred symbols, wasn’t propounding theology. He was an empiricist. Weatherford: ”As a scientist and statesman as well as a poet and playwright, [Goethe] foresaw the great accomplishments and the shortcomings of the emerging industrial world that would be financed on the newly emerging monetary system of paper money.”
America and the world remain stuck in somewhat terrifying stagnation. Aggressive monetary easings have failed to reignite the economy. The authorities proposed solution? More easings. The August 22 Washington Post reports that “[m]inutes of the last meeting of the Federal Reserve reveal that many board members see the need for additional monetary action ‘fairly soon’ to boost the pace of economic recovery.”
This is inconsistent with the spirit of FDR, who, rather than perseverating on failed solutions, kept trying new alternatives…until he found one that worked. Most classical proponents of gold do not take the position that easing necessarily is wrong. They take the position that, empirically, we cannot know. Eviscerating the definition of the dollar as a fixed weight of gold garbles the indicators that would allow the authorities to take the correct steps. Monetary policy that does not define the dollar as a fixed weight of gold is like a jet without a gyroscope.
As financier and philanthropist Sean Fieler, chairman of the American Principles Project (with which this columnist is professionally associated) stated to a conference conducted last year by gold-standard advocate James Grant:
Some argue that we can reform the current fiat money system and unmuffle money’s message by going to a single mandate, accurately state CPI and even manage it to 0%. Not only is this proposal exactly opposed to the combination of higher inflation and lower interest rates currently favored amongst most policy makers, it is at odds with the Fed’s effort to preserve financial system stability. And, more fundamentally still, it is based on the fantasy that a group of experts will overcome institutional incentives to lie and become stubborn truth tellers.
Others, notably Jim Grant and Lew Lehrman, who prefer to deal in reality rather than fantasy, clearly see the problems intrinsic to the current system and argue that we should move directly to the gold standard. They correctly point out that this move would bring discipline back to the system; simultaneously addressing our fiscal and trade and savings deficits, and more importantly once again make money truthful.
The economy remains stalled. Epic unemployment persists. Obama appears paralyzed by Krugmanian dogma. Progressive icon Franklin Delano Roosevelt at least showed the capacity for pragmatism: noting what works. To be sure, FDR made many, and arguably mostly, mistakes. Yet his fundamental empiricism allowed FDR to seek, and thus find, a key that would cause the Great Depression to lift. Thereby he was able to restore a climate for rapid jobs growth.
In FDR’s case, the right move proved to be revaluing the dollar from $20.67/oz to $35/oz of gold. This adjusted for the distortions accumulated into the system by a “grotesque caricature,” in the words of noted economist Jacques Rueff, that had supplanted the gold standard in 1922. This “provided the second leg … that coursed through the economy that spring. … New orders for heavy machinery soared by 100 percent, auto sales doubled, and overall industrial production shot up 50 percent.” So wrote Liaquat Ahamed in his superb Lords of Finance: The Bankers Who Broke the World (The Penguin Press, New York, 2009, pp. 462-463).
Obama appears to be transfixed by Keynesian dogma, the worst of which is a confused monetary policy. As it happens, the confusion has a rich, weird, and sinister pedigree. Krugman mocks Ryan’s inspiration by Rand, but if he would but consult Goethe, he would discover that Ryan’s stand, and the GOP’s draft platform call, for sound money is very sound.
It is time to “unmuffle” money and let it stubbornly speak Truth to Power. The draft GOP platform’s call for “creation of a commission to ‘consider the feasibility’ of returning the U.S. dollar to the gold standard” “to set a fixed value for the currency” could prove a vehicle to begin the process to implement Paul Ryan’s call for sound money.
This article was previously published at American Thinker.
A view from America …
8+% unemployment, now. The GDP, last we checked, crawls along at a 1.5% growth rate, slower than population growth. Washington is paralyzed.
Neither political party is presenting a compelling solution. In the words of Frank Cannon, president of American Principles Project (which this writer professionally advises) and former Kemp presidential campaign aide, the GOP has reverted to its pre-Kemp status as a party of severe rectitude rather than a party of equitable prosperity. How little political sense does it make to turn to the voters to say, “Times are tough. Our solution is to… cut your benefits”?
What the voters want to hear is a credible plan to create jobs (which also will allow Uncle Sam to balance its budget, fast). Several rising leaders are beginning seriously to grapple with how to reignite high level economic growth and good job creation.
Much depends on the GOP getting the importance of growth… and getting the recipe right. Reps. Kevin Brady and Jim Jordan are leading figures among the rising stars on whom may depend the future of the Republican Party and, maybe, the republic. Brady, as vice chairman of the Joint Economic Committee, and Jordan, chairman of the Republican Study Committee, are beginning to take seriously monetary reform as a critical, perhaps even the critical, missing growth factor.
Daredevil glider pilot – and University of Chicago Booth School of Business’s Professor of Finance — John Cochrane is the most recent voice to weigh in on the conservative consensus against discretionary activism and for rule-based monetary reform. Cochrane enters the debate via a recently published meditation on the gold standard in the Wall Street Journal. (Prof. Cochrane then reprised a “director’s cut” — with choice material restored — at his blog The Grumpy Economist.)
Cochrane leads with an acknowledgement that “many people believe the United States should adopt a gold standard.” Interesting. Cochrane teaches at Chicago’s Booth School which recently polled 40 economists, all residents of the ivoriest of ivory towers –
“distinguished experts with a keen interest in public policy from the major areas of economics, to be geographically diverse, and to include Democrats, Republicans and Independents as well as older and younger scholars. The panel members are all senior faculty at the most elite research universities in the United States.” –
to dispute the proposition that “If the US replaced its discretionary monetary policy regime with a gold standard, defining a ‘dollar’ as a specific number of ounces of gold, the price-stability and employment outcomes would be better for the average American.”
The discrepancy between Prof. Cochrane’s observation that “many people believe the United States should adopt a gold standard” and his own institution’s plenary anathema on gold is … noteworthy. Cochrane cheers for rules and inventories some of the leading theories:
Since the demise of the gold standard, thoughtful economists have been searching for a replacement rule—Milton Friedman’s money-growth rule, for example, John Taylor’s interest-rate rule, and inflation or nominal GDP targets. Rules advocates understand that the economy works better overall with stable units, rather than the government manipulating units to trick us into buying more or less. A price-level standard is a firm rule.
Prof. Cochrane laudably relies, in describing monetary policy’s past, on history rather than theory. He then departs from history to rely upon … hypothesis: “The success of a gold standard in achieving stable prices depends heavily on its rules and commitments against devaluation—rules honored in the past, until they weren’t.”
While technically correct, this ignores how very much honored, over long periods, were the gold standard’s rules and commitments against devaluation — except in circumstances of war. The valuation was, until the abdication under presidents Johnson and Nixon, far more often politically defended than debauched.
Prof. Cochrane concludes:
With these warnings, a modern version of the gold standard is attractive.
Why not the old version? …
First, in the past, inventory demand for gold coins linked the value of gold to other goods. If prices rose, people needed to hold more gold coins to make transactions. They would spend less on other goods and services, which brought prices down again. But that channel is absent in a modern economy. Since people could buy and transfer gold deposits with a click of a mouse, nobody would have to hold substantial inventories. And we are not going back to a 19th-century payments system based on lugging around gold coins.
… Second, features that made gold such good money in the past—it is hard to produce and has few other uses—make its price especially badly connected to other prices….
The solution is pretty simple. A gold standard is ultimately a commitment to exchange each dollar for something real. An inflation-indexed bond also has a constant, real value. If the Consumer Price Index (CPI) rises to 120 from 100, the bond pays 20% more, so your real purchasing power is protected. CPI futures work in much the same way.
Conservative proponents of gold click a mouse with equal dexterity to the very best financiers (and better, apparently, than those at Knight Capital Group). Gold proponent Nathan Lewis, recently published a column at Forbes.com entitled To Achieve A Successful Gold Standard, You Don’t Need Gold Coins. Conservative gold proponents are not Ebenezer Scrooge and by no means advocate lugging around gold coins.
The Achilles heel of Prof. Cochrane’s argument is his claim that the policy he advocates “could achieve a stable price level and avoid the many disruptions brought upon the economy by monetary instability.” This is a proposition entirely, of course, based on theory and not at all on history.
Propositions such as this are what this writer calls “the chalk-dust standard” — in which yet another clever but untested theory of elite central planning is propounded as (theoretically) superior to the straightforward restoration of the tried and true gold standard as meticulously expounded by monetary scholars such as Lewis E. Lehrman, author of The True Gold Standard and chairman of the Lehrman Institute (which this writer professionally advises). Another species of chalk-dust was neatly disposed of by Forbes.com Opinions editor John Tamny in an devastating analysis, National Review’s Ramesh Ponnuru Embraces the Failed Religion of Monetarism . Possibly the most outré of the “chalk-dust standard” advocates, until demolished by Tamny, were the proponents of the “Nominal GDP Targeting” rule. (Scott and David, please take your target off our backs!)
Claims of superiority for different forms of fiduciary currency have been propounded for thousands of years. Innumerable permutations have been tried innumerable times. Every effort fails: quickly or slowly, stubbornly and mystifyingly, yet fails always. Each time new proponents wipe clear the chalkboard and replace old nostrums with new nostrums. “Meet the new boss, same as the old boss.”
Yet the appearance of Prof. Cochrane’s analysis is extraordinary. It may indicate an inflection point in the discourse. It appears to be the first contemporary significant attempt by a member of the elite academy to begin to come to terms with the arguments of the modern proponents of the classical gold standard.
Arguments for a CPI standard, of course, are a reminder of the old joke about the economist marooned on a deserted island with a crate full of canned food. He assumes the existence of a can-opener and settles down to eat. Good luck with that.
Back in the real world some in Congress actively are looking for the missing growth factor, good money. It took an obscure member of the House of Representatives, Jack Kemp, to take the idea of low marginal tax rates from the fringe to world-wide (except for denizens of 1600 Pennsylvania Avenue, apparently) common sense.
Neither of the presidential contenders is likely to put monetary policy into play. But as Prof. Cochrane’s editorial shows the argument between gold and chalk-dust is heating up. Democracy, like any good pulp medium, has a way of finding dramatic plot twists. So do not be surprised to find some Congressional star rising to national visibility next year with the golden ticket to explosive economic growth. As Kemp, quoting Shakespeare, liked to say, “There is a tide in the affairs of men which, taken at the flood, leads on to fortune.” On to gold.
This article was previously published at Forbes.com