The True Gold Standard (Second Edition)
Gold coin standard fundamentalist Dr. Gary North, writing Gold Commission 2 published on August 29th, renders his opinion that the plank in the 2012 National GOP platform calling for a new gold commission is pretense and a charade. (Full disclosure: the August 27 Forbes column which he cites as silly, although not by author's name, was the work of this writer.)
THE SILLINESS OF COMMENTATORS
Forbes ran an article on August 27 that showed optimism regarding the possibility of a pro-gold plank.
While I always welcome the opportunity to terrify Prof. DeLong, secure in his tenure at a tax-supported university, and always faithful to his Keynesianism, I don't think he has anything to worry about.
Price stability has not been a policy goal of the United States government since approximately 1933. I never recall any Keynesian economist calling for price stability in the face of an increase in the consumer price index below 5% per annum. The only year in which there has been a decline in the consumer price index was 1955, when it dropped by about 1%. I assume that a policy objective that has not been obtained more than once in the past 70 years should not be regarded as a serious policy objective by the Federal Reserve or the United States Treasury.
The Left attacks the idea as being out of the mainstream. Our Forbes author protests.
That was true in the nineteenth century, the century of price stability and the most rapid compound growth in human history. But the Democrats abandoned this position in 1896, except for the candidacy of the long-forgotten Alton B. Parker in 1904. That was the last time the Democrats promoted the idea. Eisenhower was the last Republican President to promote it. Nixon killed it.
Generally speaking, when a political idea has been out of favor with all Party nominees running for President for a generation, and has been out of favor by virtually all economists ever since the early 1950s, I think we can safely assume that the idea is no longer mainstream.
The New York Times, in a front page piece (after the jump) published August 28 presents, by contrast, a scholar who has extensively studied the question who has come to the opinion that platforms matter:
[S]ome political scientists say that party platforms do matter. Gerald M. Pomper, a professor emeritus of political science at Rutgers University, studied meaningful platform pledges from 1944 to 1976 — and later updated his work by looking at the 1990s — and found that winning political parties try to redeem roughly 70 percent of their concrete platform pledges. Mr. Pomper said his work found that contrary to popular belief, party platforms should not be casually dismissed as meaningless.
“It seemed strange to me that people would have fights over platforms and would put in a lot of effort to try to influence them if they didn’t mean anything,” he said in an interview. “If they didn’t, why were practical people fighting over this? Putting something into the party platform is a pledge that you’re going to do something about it.”
In summing up the party platform history of the gold standard Dr. North also overlooks the inclusion of monetary reform in the 1980, and the reference to gold in the 1984 GOP national platforms ... on which Ronald Reagan ran, to decisive victories.
From the 1980 GOP Platform:
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.
From the 1984 GOP Platform:
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.
From the 2012 GOP Platform:
Determined to crush the double-digit inflation that was part of the Carter Administration’s economic legacy, President Reagan, shortly after his inauguration, established a commission to consider the feasibility of a metallic basis for U.S. currency. The commission advised against such a move. Now, three decades later, as we face the task of cleaning up the wreckage of the current Administration’s policies, we propose a similar commission to investigate possible ways to set a fixed value for the dollar.
Dr. North's assessment?
It is clear what this is really about. It is about real fear within the Republican Party's hierarchy that those voters who favored Ron Paul's candidacy, and who are now unwilling to support Romney, may not go to the polls in November. They may do something unheard of, namely, writing in Ron Paul's name rather than vote for Romney.
If Romney loses, and Ron Paul's name appears on enough ballots in swing states to cause this loss in the electoral college, the Republican Party establishment will find itself boxed in. It will find itself beholden to the tea party.
This omits a fact almost certainly well known to Dr. North: Dr. Paul is not in favor of restoring the classical gold standard, nor of investigating "possible ways to set a fixed value for the dollar." Rather, Dr. Paul is firmly on record for the creation of a Hayekian denationalization of money, the U.S. dollar to be replaced by competing currencies (a proposition which this writer supports, although not at all to the exclusion of restoring the gold standard). Were the members of the Resolutions Committee which drafted the platform, an astute group, simply attempting to pander to Dr. Paul's supporters they would have done so by calling for a study of competing currencies, not a commission to investigate possible ways to set a fixed value for the dollar.
Also, former presidential candidate Herman Cain, who has endorsed Mr. Romney, is at least as popular a figure within the Tea Party as Dr. Paul. Mr. Cain lucidly supports the restoration of the classical gold standard. Extensive evidence suggests that the Tea Party leans more toward restoring classical gold convertibility than toward a fundamentalist gold coin standard. Newt Gingrich also called for the formation of a gold commission, to be chaired by former Reagan Gold Commissioner Lewis E. Lehrman, and by James Grant, shortly before winning the South Carolina primary. This plank is about much more than an appeal to Dr. Paul's partisans.
Dr. North's and Dr. Paul's pessimism about elected officials is understandable. Yet Dr. North's assessment of the implications of a call for "Gold Commission 2" is at variance with the empirical evidence. As noted, explicitly, during August the FT, the Wall Street Journal, and Forbes.com, recognized the classical gold standard as becoming a mainstream policy option.
No assumptions needed.
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