Fifty Years Hence: Rueff and Lehrman on Worldwide Economic Disorder

A grave peril hangs over the economy of the West.  Everyday its situation more and more resembles the one that turned the 1929 recession into the Great Depression.  The instability in our monetary system is such that a minor international incident or small economic or financial disturbance could set off worldwide disaster.  There is a great deal of concern about this instability, though rarely expressed in terms as stark as I have used, and a number of measures have been suggested for dealing with it.  But instead of going to the roost of what is wrong, these would rather prolong for several months or years the erring ways that are responsible for the danger.

The West has no task more urgent than to recognize the disease that infects it, and by curing it, to re-establish in the free world a monetary system that generates lasting stability.

Fifty years ago, the great French economist, Jacques Rueff, penned this introduction to an article in Fortune. Entitled, “The West is Risking a Credit Collapse,” the essay explores what Rueff calls, “the disease,” providing a damning indictment of American monetary policy. Ever prescient, Rueff’s critique may well have been written in 2011 rather than 1961.

Looking at the chronic balance-of-payments deficits, Rueff declares that the “United States was not really required to settle its debts abroad.” That is, “the country with [the reserve] currency is in the deceptively euphoric position of never having to pay off its international debts. The money it pays to foreign creditors comes back home, like a boomerang.” Effectively, then, a duplication of worldwide purchasing power occurs.

In a ground-breaking new book, The True Gold Standard, Lewis E. Lehrman updates and reinvigorates this argument. Lehrman describes the post-Bretton Woods era mechanism of credit-creation sanctioned by the Fed. He says, “The world dollar standard enables America to buy without paying, This perverse mechanism, whereby the reserve currency country issues its own money to finance and refinance its deficits and debts increases potential global purchasing power, creating a demand for goods and assets without producing an increased supply of them—leading, of course, to inflation at home and abroad.

Rueff’s monetary restoration of France’s Fifth Republic provides historical evidence that a program of “truth and rigor” may be carried out, returning an entire nation to prosperity under a stable, convertible currency.

Lehrman—a student of Rueff—outlines a five-step Monetary Reform Plan for America and the world, establishing once again a Constitutional dollar defined in law as a certain weight unit of gold.

As Rueff aptly concluded in his essay some fifty years ago and as Lehrman concludes his new monograph, “America and the world need a twenty-first century international gold standard” to restore financial order and a stable monetary system.

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