The candidates of both parties finally have realized that the defining issue of the 2012 presidential election will be job creation. President Barack Obama leads with a proposal that commentator Larry Kudlow calls, persuasively, a straight jacket rather than a jobs creator. The Wall Street Journalloves the plan put forth by the fast-fading Huntsman and slams the first-tier Romney plan. Meanwhile, a credible key to explosive jobs growth begins to come to the fore: a credible monetary policy prescription for a seriously stable dollar.
A sure signal of a rising policy vector? The Washington Post sends forth a top gunslinger to attack it — “it” being the gold standard and the GOP candidates for considering it. The Washington Post‘s Pulitzer-winning business and economics columnist Steven Pearlstein writes in his Sept. 10 column, “The magical world of voodoo ‘economists’“:
"Republican presidential candidates... wouldn’t mind ... putting the country back on the gold standard.
I realize economics isn’t a science the way biology and physics are sciences, but it’s close enough to one that there are ideas, principles and insights from experience that economists generally agree upon. Listening to the Republicans talk about the economy and economic policy, however, is like entering into an alternative reality." ...
Too facile and too glib, Steve.
Hayek, speaking about the “Pretense of Knowledge” upon his acceptance of the Nobel Prize in Economics (kooky, Steve?), talked about the very “ideas, principles and insights from experience that economists generally agree upon” on which Pearlstein’s confidence depends:
The credit which the apparent conformity with recognized scientific standards can gain for seemingly simple but false theories may, as the present instance shows, have grave consequences.
In fact, in the case discussed, the very measures which the dominant “macroeconomic” theory has recommended as a remedy for unemployment — namely, the increase of aggregate demand — have become a cause of a very extensive misallocation of resources which is likely to make later large-scale unemployment inevitable. ...
There is something more than a little disorienting at seeing one of the soldiers of the Washington Post, red as its coats have grown, conclude his column with a triumphant embrace of the president whose downfall his predecessors at the Post brought about: “It took a while, but even Richard Nixon came around to declaring himself a Keynesian. Maybe there is still hope for Perry and the gang.”
Hope? This seems to say that it is Pearlstein’s hope that GOP candidates like Rick Perry (and the “gang”) will … measure up to … the personal integrity? … the wonderful stagflation? … of Richard Nixon. Yet … Pearlstein writes that “Listening to the Republicanstalk about economic policy … is like entering into an alternative reality.”
Today’s economic conditions reflect a fiat monetary system held together by many tricks and luck over the past 40 years. The world has been awash in paper money since removal of the last vestige of the gold standard by Richard Nixon when he buried the Bretton Woods agreement — the gold exchange standard — on August 15, 1971.
Since then we’ve been on a worldwide paper dollar standard. Quite possibly we are seeing the beginning of the end of that system. If so, tough times are ahead for the United States and the world economy.
In terms of public policy, though, we favor honest money. It works out better for more people. And there is a moral dimension to the question of honest money. This was a matter that was understood — and keenly felt — by the Founders of America, who almost to a man (Benjamin Franklin, a printer of paper notes, was a holdout), cringed with humiliation at the thought of fiat paper money. They’d tried it in the revolution, and it had been the one embarrassment of the struggle. They eventually gave us a Constitution that they hoped would bar us from ever making the same mistake.
Publisher's Note: Originally released in June/July of 1991, this detailed report discusses Jacques Rueff's economic theories and applies them to modern economic events.
By John D. Mueller
Rueff Restates the Quantity Theory of Money
... Rueff argued that the real problem with the monetarists is not that they focus too much, but rather too little on the supply of money; namely, they assign too little importance to the concrete mechanisms by which money is actually created. Most monetarists adopt the convention that the government can control the nominal supply of money, while demanders of money control its value. Rueff pointed out that under a properly functioning monetary system, even the nominal supply of money is determined by people’s demand for it.
"The economist defines money as a medium of exchange. It is the token we supply in order to effect payments for the goods we demand. Money is especially a standard like a yardstick – a unit of measure by which we value and price economic goods. Money units express prices which are the vital information necessary for efficient exchange. Money is surely a store of value."
“Here’s the short story: The U.S. has exited from financial crisis: Asia and Europe have not,” wrote Rana Foroohar in TIME at the beginning of this year. “China, the second largest economy in the world, is pretty much where the U.S. was five years ago – deeply in debt...Japan, where...
Some critics of gold (and of the gold standard) are concerned by the environmental toxicity of the cyanide now used to extract gold from ore. This process may be about to change to something much greener.
Flow chart courtesy of Professor Abrol Kakharov
In the gold-mining process, the precious...