The Gold Standard is no fairy tale

by Ralph Benko

gold-standard-liberty-coinOnce upon a time — September 17th — Reuters published a delightfully preposterous blunderbuss of a blog. It served up a one-sided attack on conservatives.  It did so as part of what it calls The Great Debate. Well, a debate has two sides. This was A Great Soliloquy.

Here’s the side Reuters declined to publish.

The very distinguished author of that blog, Prof. Charles Postel, author of The Populist Vision, purported to tell his readers why conservatives spin fairytales about the gold standard. The good  professor manages to defame both conservatives and the gold standard.  He, subtly, misrepresents even fairy tales. And he did not deliver the  goods.

Prof. Postel begins, auspiciously, with two astute observations.  “Today,” he writes, “gold is king of conservative economic thinking.”  And: “Financial magnate Steve Forbes has turned Forbes magazine into a tool of gold advocacy.” Postel then goes off the rails entirely, turning from a blogger into a fabulist.

Alas, Postel fills poor Reuters’ readers’ heads with the most  astonishing errors and omissions (contemporary and historical). The  conservative position he conjures is a grotesque caricature of reality.  He indefensibly impugns the motives of the gold standard’s proponents  (my own, presumably, included in his blanket anathema). A few minutes of research would have revealed to him that much of his argument was  distorted, exaggerated, or just plain counterfactual.

This writer, a conservative, gladly picks up the gauntlet. (In truth  it is more kid glove than gauntlet. Yet honor must be served.)

Debates are two-sided. This is the other side.

This actual conservative insider will reveal the real inside story of why conservatives spin fairy-tales about the gold standard. The real  scoop. And the gold standard “fairy tale” is a fascinating subject.

This columnist contributes this weekly column for Forbes’s online edition, Forbes.com, entitled A Golden Age. The gold standard is a regular topic. This columnist also, professionally, is the editor of the thegoldstandardnow.org  … the World Wide Web’s top ranking autonomous gold standard policy  site. The Lehrman Institute — whose founder and chairman is Reagan Gold  Commissioner, scholar, businessman and philanthropist, Lewis E. Lehrman —  maintains that site. This columnist also is senior advisor, economics,  of American Principles in Action, demonstrably the most influential  “action tank” for monetary reform — including the gold standard — at  work in Washington today.

The most risible element of Prof. Postel’s argument is his unfounded  allegation that proponents of gold are partisans of the wealthy rather  than the middle class — of Wall Street rather than Main Street. Postel:  “Conservatives are again fervently pushing gold as a means to protect  the wealth and power of Wall Street financiers and the corporate elite.”

Not only is this allegation wrong.

It is shockingly wrong.

The primary argument being made on the right, in the capital, for the gold standard is its potential to boost creation of abundant good jobs. Only secondarily is it presented as a counter to inflation and nowhere  as a means further to privilege the overprivileged. Unlike what Postel  implies, few of the serious gold standard proponents are recommending  gold as a speculative commodity investment. Most important, virtually  all proponents of the gold standard (whether the proponents be the  historicist classical or aspirational Austrian) wholeheartedly are  committed to the prosperity of workers.

Lewis E. Lehrman, himself a historian of note, repeatedly takes the pro-labor position. For example: “The prudent middle class on Main  Street is dispossessed; the reckless on Wall Street, bailed out.”

Another leading proponent of the gold standard is Sean Fieler, chairman of American Principles in Action. He writes in the Wall Street Journal: “In the past four years alone, since the Federal Reserve started  aggressively expanding its balance sheet, the declines in the middle  class’s real income have been particularly severe.”

Steve Forbes himself, having, apparently, transformed Forbes from a  mere “Capitalist Tool” to a “Tool of Gold Advocacy” (Steve, time to  design a new tie?), is on record, recently, with this worker-friendly observation : “If the world’s people are to realize their full economic potential,  relinking the dollar to gold is essential. Without it we will experience more debilitating financial disasters and economic stagnation.”

That’s only the tip of the iceberg. One of the world’s premier econobloggers, John Aziz, writing from London, repeatedly has addressed the matter of, as he once put it, “Why the Left Misunderstands Income Inequality.”  I myself, at Forbes.com, repeatedly have argued that gold equals more and better jobs.

Postel betrays an astonishing unfamiliarity with the monetary reform  discourse on the right. He conflates those committed to “audit the fed”  with gold standard proponents. This helps him pad an otherwise slender  argument — at the cost of collapsing critical intellectual distinctions.

Postel, for instance, misrepresents the focus of Sen. Rand Paul. Sen. Paul’s main financial legislative focus is auditing the Fed. He merely  has mentioned a commission twice, in passing. The key proponent of a monetary commission rapidly gaining momentum is Joint Economic  Committee Chairman Rep. Kevin Brady (R-Tx). And … this isn’t a gold  commission. It is much broader based and being readied to study, on a bipartisan basis, both fiduciary monetary policy and the gold standard, among  other prescriptions.

From the center, the Bank of England, in its assessment of the  performance of the world monetary and financial system, in Financial  Stability Report Number 13, “Reform of the International Monetary and  Financial System,” issued in December of 2011 (not, apparently,  consulted by Prof. Postel) found that the fiduciary currency standard  propounded by the left either substantially or dramatically  underperformed both the Bretton Woods gold-exchange standard and the  classical gold standard on all fronts — including robust, middle class  supporting, job creation.

As an aside, it is mystifying that so many left wing public  intellectuals, exemplified by Prof. Postel, so bitterly cling to a  monetary system established, on August 15, 1971, by President Richard  Nixon. This writer presumes (perhaps presumptuously) that Nixon is not  in Prof. Postel’s pantheon of progressive heroes.

Readers familiar with actual history must have scratched their heads  about Prof. Postel’s version. Postel: “But claims that the old gold  standard made for a more stable economy have no basis in the historical  record. Those years witnessed the terrible depressions of the 1870s and  1890s, and some of the most severe financial busts and economic storms  in U.S. history.”

As noted by Forbes.com columnist Nathan Lewis (author of Gold: the Monetary Polaris):

For some reason, it is conventional wisdom today that the years  1870-1914, the era of the Most Perfect Monetary System Ever Created, was a time of chronic recession and disaster.

But how could that be? The United States was the world’s greatest economic success story of the last two centuries. When did that happen? It didn’t happen during the Civil War and the Great Depression.

That’s why Professor Brian Domitrovic says the usual story you hear about the gold standard years is completely wrong.

The United States actually did not return to a gold standard  until 1879. However, by 1870, most of the rubble of the Civil War,  including the floating “greenback” dollar, had been cleared up. Between  1870 and 1912, a period of forty-two years, industrial production in the United States rose by 682%.

Prof. Brian Domitrovic, himself an award-winning economic historian, had this to say about the baleful influence of one of Prof. Postel’s icons, William Jennings Bryan:

One of the reasons the Fed was created in 1913 was to give ear to the concerns, such as they were, of the down-and-out farmers. Yet the  doubling of the dollar float did nothing to alter the real economics of  farming in a modernized economy. Instead, the effect of the Fed policy  was to visit wild gyrations on the price level – and hence the values of assets – on the nation as a whole, which culminated in a Great  Depression for everybody, farmer and non-farmer alike.

That the “cross of gold” line continues to be the rhetorical  swipe of choice against any advocacy for a collateralized dollar not  only plays a role in depriving this nation of the salutary, gold-based  monetary system it deserves. It perpetuates misunderstanding of the  great achievements of our nation’s industrial revolution and makes  common cause with the mistakes of the past.

Domitrovic hardly is alone in his assessment of Bryan. As recited in  “Historical Beginnings. The Federal Reserve” by historian Roger T.  Johnson, (published by The Federal Reserve Bank of Boston, revised 2010)  “One of [Bryan’s] cabinet colleagues later sneered: ‘I discovered that  one could drive a prairie schooner through any part of his argument and  never scrape against a fact or a sound statement.’’

Moreover, Bryan was a Biblical literalist. “Bryan enjoyed a long and distinguished career in public service. Nevertheless, today he mostly is remembered … for Clarence Darrow’s cross examination of his  Creationist views in the famous ‘Scopes Monkey Trial.’”

It is a weird thing to see good progressives like Prof.  Postel joining arms with a creationist (in, one notes, both the monetary and theological sense of that word), Bryan. Bryan and Postel make an  uncanny tag team in defense of the Nixonian monetary legacy. Strange  bedfellows indeed.

This columnist finds most poignant, however, neither Postel’s  misunderstanding of the gold standard nor of gold’s proponents. Most  poignant is his incomprehension of … fairy tales. Postel seems to have  cut his collegiate classes in postmodernism. Perhaps he considered that  important aspect of philosophy unimportant to a historian. This is a  terrible oversight.

Postel fails to grasp the essence of the postmodernist insight as  defined, so succinctly and perfectly, by Lyotard: “incredulity toward  metanarratives.” Thus Postel, the historian, presents as a cultural  anachronism. He betrays a modernist’s presumption that his own  metanarrative somehow reflects “truth” while the narrative of his  opponent represents a “fairytale.” To be able to hold to such a  discredited position with a straight face, Postel must also have cut his classes in modern cognitive psychology.

So, let this columnist, who resides inside the conservative narrative to which Prof. Postel proves only a hostile stranger, now reveal the  true reason why conservatives spin fairy tales about the gold standard.  Or, rather, let us invite G.K. Chesterton to so. In Fairy Tales (from All Things Considered, New World Chesterton, Sheed and Ward, New York, 1956, p. 188-9)  Chesterton, with characteristic charm, reveals the true nature of fairy  tales … and the power they exert over conservatives. It is a power they  might exert beneficially over all.

If you really read the fairy-tales, you will observe that one  idea runs from one end of them to the other—the idea that peace and  happiness can only exist on some condition. This idea, which is the core of ethics, is the core of the nursery-tales. The whole happiness of  fairyland hangs upon a thread, upon one thread. Cinderella may have a  dress woven on supernatural looms and blazing with unearthly brilliance; but she must be back when the clock strikes twelve. The king may invite fairies to the christening, but he must invite all the fairies or  frightful results will follow. …

This great idea, then, is the backbone of all folk-lore—the idea  that all happiness hangs on one thin veto; all positive joy depends on  one negative. Now it is obvious that there are many philosophical and  religious ideas akin to or symbolized by this; but it is not with them I wish to deal here. It is surely obvious that all ethics ought to be  taught to this fairy-tale tune; that if one does the thing forbidden,  one imperils all the things provided. …

This, it is submitted, is the real story of why conservatives spin  fairy tales around the gold standard. Ignore Prof. Postel’s attempt to  turn us into cartoon villains. Call me Snidely Whiplash but … we  conservatives, to a man, side with Bob Cratchit … and Tiny Tim. Not  Ebenezer Scrooge.

Conservatives, a modern species of classical liberals, simply believe in a natural order. The data persuade us that the gold standard is the  most viable path to the creation of a climate of equitable prosperity,  most especially for the middle class.

Any Austrian economist can tutor us in the — decisive — utilitarian  arguments why the gold standard makes labor (as well as capital) better  off.  But to put it simply, as President Kennedy so neatly phrased it,  “a rising tide lifts all boats.’

Meanwhile, we classical liberals called conservatives, rather than  libertarians, spin fairy tales about the gold standard because we  believe (at least this columnist believes), with Chesterton, that “if  one does the thing forbidden, one imperils all the things provided. …  This is the profound morality of fairy-tales; which so far from being  lawless, go to the root of all law.”

And tampering with the unit of account is, in our view, “the thing  forbidden” that “imperils all the things provided.” Classical liberal  conservatives believe that the federal government, in order to promote  the general welfare, must maintain the integrity of the definition of  the economy’s most fundamental unit of account — the dollar.  History  shows that only bad things come from fiddling with the dollar’s  definition.

We believe that if Uncle Sam solemnly fulfills this duty we all —  rich man, poor man, beggar man, thief — are far more likely to thrive  than if the government “does the thing forbidden.” Principled arguments  can be asserted that there may be better ways than the gold standard to  foment equitable prosperity. The empirical evidence for this proposition presents as deeply unpersuasive. But at least such an argument has more integrity, and interest, than maligning our motives and relying upon  concocted history.

So here’s the story. Conservatives spin fairy tales about the gold  standard, dear Reader, because our reading of history shows gold to be  unrivaled as a mechanism by which working families may prosper. We  propose it to constrain the powerful and privileged and to lift humanity out of this “Little Dark Age” and onward to a Golden Age.

Where they all lived happily ever after.

Republished with permission from Forbes,com

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