The True Gold Standard (Second Edition)
A call for the gold standard has been a recurring theme in the Republican Party's national platform.
In 1952, the platform called for "a dollar on a fully-convertible gold basis," in 1980, the platform observed "The severing of the dollar's link with real commodities in the 1960s and 1970s, in order to pursue economic goals other than dollar stability, has unleashed hyper-inflationary forces at home and monetary disorder abroad, without bringing any of the desired economic benefits. One of the most urgent tasks in the period ahead will be the restoration of a dependable monetary standard...," and in 1984, "A dollar now should be worth a dollar in the future. This allows real economic growth without inflation and is the primary goal of our monetary policy.... The Gold Standard may be a useful mechanism for realizing the Federal Reserve's determination to adopt monetary policies needed to sustain price stability."
In 1896: "...the existing gold standard must be preserved. All our silver and paper currency must be maintained at parity with gold, and we favor all measures designed to maintain inviolable the obligations of the United States and all our money, whether coin or paper, at the present standard, the standard of the most enlightened nations of the earth."
We advocate the following monetary policies:
1. A Federal Reserve System exercising its functions in the money and credit system without pressure for political purposes from the Treasury or the White House.
2. To restore a domestic economy, and to use our influence for a world economy, of such stability as will permit the realization of our aim of a dollar on a fully-convertible gold basis.
We consider inflation and its impact on jobs to be the greatest domestic threat facing our nation today. Mr. Carter must go! For what he has done to the dollar; for what he has done to the life savings of millions of Americans; for what he has done to retirees seeking a secure old age; for what he has done to young families aspiring to a home, an education for their children, and a rising living standard, Mr. Carter must not have another four years in office.
In his three and one-half years in office, Mr. Carter has presented and supported policies which carried inflation from 4.8 percent in 1976 to a peak of 18 percent during 1980.
He has fostered a 50 percent increase in federal spending, an increase of more than $200 billion, boosting spending in an era of scarce resources, and driving up prices.
He has through both inaction and deliberate policy permitted or forced tax increases of more than 70 percent, more than $250 billion, directly increasing the cost of living and the costs of hiring and producing. This has crippled living standards, productivity, and our ability to compete in the world. It has led to reduced output, scarcity, and higher prices.
He has imposed burdensome regulations and controls on production which have reduced the availability of domestic goods and energy resources, increased our dependence on imports, particularly in the energy area, driven down the value of the dollar, and driven up prices.
He has permitted continuing federal budget deficits and increased federal borrowing, forcing higher interest rates and inflationary money creation, increasing prices.
The inflation policies of the Carter Administration have been inconsistent, counterproductive, and tragically inept. Mr. Carter has blamed everyone from OPEC to the American people themselves for this crisis of inflation—everyone, that is, but his own Administration and its policies which have been the true cause of inflation.
Inflation is too much money chasing too few goods. Much can be done to increase the growth of real output. But ultimately price stability requires a non-inflationary rate of growth of the money supply in line with the real growth of the economy. If the supply of dollars rapidly outstrips the quantity of goods, year in, year out, inflation is inevitable.
Ultimately, inflation is a decline in the value of the dollar, the monetary standard, in terms of the goods it can buy. Until the decade of the 1970s, monetary policy was automatically linked to the overriding objective of maintaining a stable dollar value. The severing of the dollar's link with real commodities in the 1960s and 1970s, in order to pursue economic goals other than dollar stability, has unleashed hyper-inflationary forces at home and monetary disorder abroad, without bringing any of the desired economic benefits. One of the most urgent tasks in the period ahead will be the restoration of a dependable monetary standard—that is, an end to inflation.
Our 1980 Platform promised to bring inflation under control. We did it. This cruelest tax—hitting hardest at the poor, the aged, and those on fixed incomes—raged up to 13.3 percent under Carter-Mondale. We have brought it down to about 4 percent and we strive for lower levels. The effects of our program have been dramatic. Real, after-tax incomes are rising. Food prices are stable. Interest rates have fallen dramatically, leading to a resurgence in home building, auto purchases, and capital investment.
Just as our tax policy has only laid the groundwork for a new era of prosperity, reducing inflation is only the first step in restoring a stable currency. A dollar now should be worth a dollar in the future. This allows real economic growth without inflation and is the primary goal of our monetary policy.
The Federal Reserve Board's destabilizing actions must therefore stop. We need coordination between fiscal and monetary policy, timely information about Fed decisions, and an end to the uncertainties people face in obtaining money and credit. The Gold Standard may be a useful mechanism for realizing the Federal Reserve's determination to adopt monetary policies needed to sustain price stability.
Domestically, a stable dollar will mean lower interest rates, rising real wages, guaranteed value for retirement and education savings, growth of assets through productive investment, affordable housing, and greater job security.
Internationally, a stable dollar will mean stable exchange rates, protection for contract prices, commodity prices which change only when real production changes, greater resources devoted to job-creating investment, less protectionist pressure, and increased trade and income for all nations.
The GOP's platform's monetary policy plank has rarely been so unequivocally golden as it was, for McKinley, in 1896:
The Republican party is unreservedly for sound money. It caused the enactment of the law providing for the resumption of specie payment in 1879; since then every dollar has been as good as gold.
We are unalterably opposed to every measure calculated to debase our currency or impair the credit of our country. We are, therefore, opposed to the free coinage of silver, except by international agreement with the leading commercial nations of the world, which we pledge ourselves to promote; and, until such agreement can be obtained, the existing gold standard must be preserved. All our silver and paper currency must be maintained at parity with gold, and we favor all measures designed to maintain inviolable the obligations of the United States and all our money, whether coin or paper, at the present standard, the standard of the most enlightened nations of the earth.
What will 2012 hold?
Oct 20, 2014
Lawrence H. White is an economics professor at George Mason University who teaches graduate level monetary theory and policy. Lawrence White As described by the Wikipedia, "White earned his BA at Harvard University (1977) and PhD at the University of California at Los Angeles (1982). Before his current role at George Mason...
The Federal Reserve System's James Narron and David Skeie, career officials with the Federal Reserve System, are two eminent historically erudite figures. Writing in the New York Federal Reserve Bank's online publication, Liberty Street Economics, they recently provided a continuation of their valuable historical "revue," Crisis Chronicles: The Collapse of the...
Jul 23, 2014
An article headline in Saturday’s Wall Street Journalread “Rate Talk Heats Up Within The Fed.” As Journalreporters Jon Hilsenrath and Michael Derby...
Oct 05, 2012
Key Monetary Writings
Ezra Klein (2012) comments: In 1981, the country really was facing an inflation problem. It made sense that people would be...
Why the Gold Standard?