A recent article in The Week by progressive columnist Jeff Spross, How modern capitalism killed self-reliance, observed that “The gold standard is a niche enthusiasm rejected by most economists.” Why that is so is curious. The hyperlink to his observation goes right to Episode 252 of NPR’s Planet Money, an interview with “charming curmudgeon” James Grant which first aired in February 2011.
This is the same James Grant who furnished the Foreword to Seth Lipsky’s delightful new book The Floating Kilogram… and Other Editorials on Money from The New York Sun.
The Floating Kilogram was described by Steve Forbes as “This brilliant book is The Federalist Papers for a gold standard. It succeeds, dazzlingly — and convincingly — makes the irrefutable case for re-linking the battered dollar to gold.”
The New York Sun, in its heyday, was an iconic newspaper, possibly most remembered for its “Yes, Virginia, there is a Santa Claus” editorial. Seth Lipsky, and some investors, revived the old Sun brand, and its motto “It Shines For All,” publishing a paper edition in New York City from 2002 to 2008, moving to Web-only publication in 2009. And the Sun, probably second only to Forbes.com, is the most prominent venue from which the virtues of the gold standard consistently are sung. Lipsky sings with near perfect pitch. His book compiles 130 of the Sun’s lapidary editorials on this topic.
To better appreciate this wonderful book it is useful to understand just why the classical gold standard has been (surely temporarily) relegated to the status of a “niche enthusiasm.” In an interview during my then-capacity as editor of the Lehrman Institute’s monetary website, Professor Brian Domitrovic, himself a Forbes.com contributor, addressed this very question:
Academic economic history has hitched its wagon to a particular star, the trashing of the gold standard. The funny thing is that this stuff really didn’t intensify, in academic economic history, until the 1980s, when the conditions were actually beautiful for a return to the gold standard. Students of economic history were not so foolish as to endorse fiat currency in the 1940s, as Bretton Woods was gathering, even though Keynes was urging just that. Paul Samuelson and a few others were trashing gold in the 1950s and 60s, but that was not the norm. Sadly, I think, it was the misconstrual of Milton Friedman’s argument about a “free market for money” that gave the patina of respectability to the anti-gold argument.
The 1970s were such terrible egg-on-the-face of the fiat-money argument it is astounding that fiat money ever survived the episode. It is an irony of the success of the Reagan Revolution that it permitted fiat money to continue apace.
The publication of Barry Eichengreen’s Golden Fetters, his essays from the 1980s, was a decisive event in cementing the anti-gold standard position in the academy. And Ben Bernanke was such a lionizer of Eichengreen’s that it would prove very fateful if he were accorded high governmental office, which happened twice (Chair of the Council of Economic Advisors and the Fed). So the anti-gold view became part of the dominant political culture.
There is much more to the gold standard than is recognized by most contemporary economists. Lipsky lays out the reasoned arguments, with many beautiful and witty turns of phrase, within the context of daily politics and economics. A sample of the Sun‘s incisive commentary, an editorial titled Piketty’s Gold:
We’re speaking here about the timing of the rapid rise of the blasted inequality over which Professor Piketty is so upset. After all, this inequality has become the cause celebre of the season for President Obama and his entire political party. It’s the issue of the hour. Yet when it comes to the timing at which this phenomenon presented itself, nada. Omerta.
Well, feature the chart that Professor Piketty publishes showing inequality in America. …It plunged during the Great Depression and edged down in World War II, and then steadied out, until we get to the 1970s. Something happened then that caused income inequality to start soaring. The top decile’s share of income went from something like 33% in 1971 to above 47% by 2010.
Hmmmm. What could account for that? … But, say, what about the possibility that it was in the middle of 1971, in August, that America closed its gold window…. That was the default that ended the era of the Bretton Woods monetary system.
That’s the default that opened the age of fiat money. …. Before that date, unemployment was, by today’s standards, low. … From 1947 to 1971, unemployment in America ran at the average rate of 4.7%; since 1971 the average unemployment rate has averaged 6.4%. Could this have been a factor in the soaring income inequality that also emerged in the age of fiat money?
We don’t belittle the skills of the top decile. We tend to view them the way we view great baseball players or violinists — heroic figures. Neither do we make a totem out of economic equality; in inequality, after all, are found incentives.
There is an irony here for Monsieur Piketty. It was France who gave us Jacques Rueff, the economist who had the clearest comprehension of the importance of sound money based on gold specie. He was, among other things, an adviser to Charles De Gaulle. It was De Gaulle who in 1965, called a thousand newspapermen together and spoke of the importance of gold as the central element of an international monetary system that would put large and small, rich and poor nations on the same plane. We ran the complete text of Professor Piketty’s book “Capital” through the Sun’s own “Electrically-operated Savvy Sifter” and were unable to find, even once, the name of Rueff.
Let’s give the last word on Lipsky’s excellent compilation to that very “charming curmudgeon” James Grant, from his Foreword to The Floating Kilogram:
In monetary matters, as Lipsky observes, America is busily going backwards: from the gold standard to the PhD standard, and from central banking to a kind of new-age central planning.
The Founders did foresee the growth of a free press, however, and the Fed and the Congress proceed in these cockeyed experiments under the fierce, yet scintillating, gaze of the Sun. Lipsky’s mentor on the Wall Street Journal, Robert L. Bartley, once quipped, “It takes 75 editorials to pass a law.” He was dealing with mere tax reform. With 130 editorials already in print, though, Lipsky is fast approaching the point of policy crystallization.
Buy and enjoy The Floating Kilogram, “The Federalist Papers for a gold standard.”
Originating at Forbes.com