Introduction
by A. Lawrence Chickering & James S. Turner
Today we publish our colleague and advisor Ralph Benko’s current thinking on the Gold Standard as a transpartisan issue. We do so as a conversation starter about how to finance government in a transpartisan society and the implication of government financing choices for society at large.
Ralph explores an important topic when visiting the Gold Standard issue. He points out how Nixon going off the Gold Standard threw everything into a significantly different financial context. According to Ralph we are still sorting out the consequences of this decision.
The existential difficulty comes from assigning a value to gold, any value, to make the system work, such as $2000-an-ounce as Ralph suggests. How the value, currently at $1,775-per-ounce, is determined and maintained are the “devils’ questions in the details”, making Ralph’s overarching view, which is so hopeful, an absolute scare-the-bejesus out of anyone with authority when they hear the word “gold standard”. Especially when combined with the words “lets’ go back to the”. Setting the value of gold is a political task that cannot be sidestepped.
There is a conversation to be held here. The Gold Standard, Modern Monetary Theory (MMT), Cryptocurrency, and the Automated Payments Transactions Tax (APT) all lie at the heart of the transpartisan – “how-do-we-pay-for-government” – conversation. We have pursued this conversation in the article The Transpartisan Effect, taking to heart John Maynard Keynes observation made during a 1942 BBC address that “anything we can actually do, we can afford”:
“Why should we not add in every substantial city the dignity of an ancient university or a European capital … an ample theater, a concert hall, a dance hall, a gallery, cafes, and so forth. Assuredly we can afford this and so much more. Anything we can actually do, we can afford. … We are immeasurably richer than our predecessors. Is it not evident that some sophistry, some fallacy, governs our collective action if we are forced to be so much meaner than they in the embellishments of life?…” (For more on Keynes, see the 09/17/21 NYT op-ed podcast by Ezra Klein.1)
Ralph’s article could give this conversation a boost. We look forward to hearing from and will be sure to respond to those who comment on this article. Let’s talk about money.
(1) Covid Showed Us What Keynes Always Knew, The Ezra Klein Show, NYTimes, September 18, 2021.
“The world discovered that John Maynard Keynes was right when he declared during World War II that ‘anything we can actually do, we can afford,’” writes Adam Tooze. “Budget constraints don’t seem to exist; money is a mere technicality. The hard limits of financial sustainability, policed, we used to think, by ferocious bond markets, were blurred by the 2008 financial crisis. In 2020, they were erased.”
You Can End Inflation Mr. Biden, by Convening Bretton Woods II
by Ralph Benko
(This article originally appeared 11/23/2021 on Newsmax.)
There is one, unconventional way to quell inflation without recession; it would save Joe Biden’s presidency. Conventional folk think the gold standard an anachronism.
Think different.
Inflation is putting Biden into desperate political peril. His popularity rating is lower than any modern president (except Trump) at the comparable time in his presidency.
Sending shockwaves through the political class, the Republicans dominate Democrats in the generic poll. I’m not an alarmist. But this scenario is, as it should be, alarming to Democrats.
It’s also alarming to me, a paleoconservative Republican. I, the “second most conservative man in the world” (per a Washington Post columnist), fear that a GOP political hegemony will degenerate into the Republicans’ default country-club Republican policies of mercantilist oligarchy in supply-side drag.
The reversion to Republican mean, ThurstonHowellIIIconomics, “freshen Lovey’s martini Gilligan, chop chop!” Pretty mean!
Mr. President? Go for the gold!
It’s curious. Yet political transformation often comes from the unexpected source.
Nixon’s anti-communist credentials from his congressional days persecuting Soviet gentleman-spy Alger Hiss immunized him to claims of softness on Communism.
Nixon to China!
Welcome to the “Twilight Zone” of politics where the right does the left thing, and the left does the right thing. And everybody grumble-cheers.
It goes both ways. From out of left field, wholesale deregulation was pioneered by President Jimmy Carter.
The big push for dropping the top income tax rate, attributed to Reagan, came from top Democrats: Rep. Dan Rostenkowski, D-Ill., and Speaker Tip O’Neill, D-Mass., dropping the top rate from 70% to 50% (Sen. Joe Biden, D-Del., voted aye).
Then, Sen. Bill Bradley, D-N.J., and Rep. Dick Gephardt, D-Mo., to 28% (Sen. Joe Biden voting aye). President Bill Clinton gave the capital gains tax rate a whopping cut. (Sen. Joe Biden voted aye.)
Now? Inflation is a dagger at the jugular of the Biden presidency.
What to do that would be safe and effective and dramatic enough to persuade us pesky voters that Biden has a firm grip on ending inflation?
Let’s walk the cat backwards. President Lyndon B. Johnson, who shut down the London gold pool, and President Richard M. Nixon, who “temporarily” closed the “gold window,” were the perps letting the inflation genie out of the bottle.
The world monetary order of the prosperous, low inflation, post-war era was constituted by the Bretton Woods Agreement. This was an international gold standard, with a critical flaw.
Making the dollar, as well as gold, the official reserve asset for central banks was a subtle, fatal error. It led to a “melancholy, long, withdrawing” of gold from America’s reserves, plaguing both America and the world.
As foreseen by distinguished French economist Jacques Rueff, mentor of supply-side titan Lewis E. Lehrman (my own mentor), that world monetary order was doomed to a slow death.
On Nixon’s watch, the final nail was driven in.
Nixon, under the insidious influence of his treasury secretary John Connally – a moral bankrupt who died a spectacular literal bankrupt – officially closed the gold window. The pernicious Nixonian system of floating exchange rates today curses us to inequitable economic stagnation.
The fiduciary (paper) dollar is the last remnant of the “Nixon Shock.”
Republicans have proven incapable of unwinding it for very parochial reasons.
The classical gold standard, which had collapsed at the very start of World War I, was falsely indicted for causing the Great Depression under Herbert Hoover a generation later.
It wasn’t the Republicans’ fault.
It was, in the words of Rueff, a grotesque caricature of the gold standard that collapsed, an earlier gold-exchange standard.
Then FDR, under the guidance of the leading commodities economist of his day, George Warren, properly revalued the dollar from $20.67 to $35. The Great Depression lifted immediately and spectacularly. Per Pulitzer Prize-winning Liaquat Ahamed’s definitive account:
“During the following three months, wholesale prices jumped by 45% and stock prices doubled. With prices rising, the real cost of borrowing money plummeted. New orders for heavy machinery soared by 100%, auto sales doubled, and overall industrial production shot up 50%.”
Bad monetary policy by FDR’s Treasury, in which FDR acquiesced, thereafter caused a second dip in the Great Depression. That said, that first prosperity surge points the way out.
Joe Biden has an opportunity to go down in history as equal to or greater than FDR. How?
By convening a new Bretton Woods conference. Just as the late, great Paul Volcker, who quelled inflation in the 1980s, called for.
There, Biden should legally remove the dollar’s (and all currencies) reserve currency status while revaluing the dollar to around $2,000/ounce, or slightly higher, to preempt a worker/debtor damaging deflation such as crushed Britain in 1925.
Thereby, Mr. President, forge a legacy to rival that of FDR’s.
End inflation, restore equitable prosperity; enjoy the popularity and golden age legacy that Bretton Woods II, done right, would bring you.
Read more of Ralph Benko’s exploration of this topic with his latest piece, Biden’s Whiff on Inflation Makes the Gold Standard a Great 2024 Campaign Issue, from Newsmax.com, December 6, 2021.
ABOUT THE AUTHOR
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 advisor, 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.
(Feature image by Noah Zeitlin on Flickr.com, CC BY-NC-SA 2.0.)
