A particularly notorious part of FDR's efforts to find a way to lift the Depression was an executive order requiring all, with very narrow limitations, under threat of prosecution, to turn in their gold holdings for currency. This occurred shortly prior to the revaluation of the dollar from $20.67/oz to, in stages, $35.
Nobody, in the event, was incarcerated (the sole prosecution failing on a technicality). Yet FDR's confiscation of gold may be viewed as the monetary policy equivalent of his regrettable policy, also executed by Executive Order, of interning 110,000 Japanese Americans--a stain upon the great man's reputation.
In his first Fireside Chat, FDR observed:
After all, there is an element in the readjustment of our financial system more important than currency, more important than gold, and that is the confidence of the people themselves. Confidence and courage are the essentials of success in carrying out our plan. You people must have faith; you must not be stampeded by rumors or guesses. Let us unite in banishing fear. We have provided the machinery to restore our financial system; and it is up to you to support and make it work.
It is your problem, my friends, your problem no less than it is mine.
Together we cannot fail.
Liaquat Ahamed’s Pulitzer Prize winning Lords of Finance observes of FDR's varied measures to lift the Depression:
The string of measures was a strange mixture of well-meaning steps at social reform, half-baked schemes for quasi-socialist industrial planning, regulation to protect consumers, welfare programs to help the hardest hit, government support for the cartelization of industry, higher wages for some, lower wages for others, on the one hand government pump priming, on the other public economy. Few elements were well thought out, some were contradictory, large parts were ineffectual.
Revaluing gold to $35/oz to lift the distortions created by the gold-exchange standard was the correct, and essential, approach. Confiscating gold had nothing to do with this, yet both measures remain somewhat conflated in the popular imagination. And the prohibition on owning gold -- which persisted into the 1970s -- left gold with an aura of something contraband and vaguely sinister, an aura only now beginning to be dispelled.
FDR, the icon of Keynesians, concluded his first Fireside Chat with an exaltation of confidence. It therefore is deeply ironic that polemicist Paul Krugman, who worships at the altar of FDR, should consider one of his signal contributions to the culture the coining of the disparaging phrase "the confidence fairy." Krugman:
Critics warned from the beginning that austerity in the face of depression would only make that depression worse. But the “austerians” insisted that the reverse would happen. Why? Confidence! “Confidence-inspiring policies will foster and not hamper economic recovery,” declared Jean-Claude Trichet, the former president of the European Central Bank — a claim echoed by Republicans in Congress here. Or as I put it way back when, the idea was that the confidence fairy would come in and reward policy makers for their fiscal virtue.
The good news is that many influential people are finally admitting that the confidence fairy was a myth.
A myth, indeed. And the mythos that anethematizes the gold standard remains a serious barrier to the resumption of vibrant economic growth.
The China Post: "One platform of the recent U.S. Republican National Convention that, ultimately, could reverberate around the world is a plan to study a possible return of the U.S. to the gold standard. While it was perceived as a move to appease the party's extreme right wing, economists like Mundell think the world needs a limited return to the gold standard."
The Reagan Gold Commission's dissenting report, The Case for Gold, submitted by Gold Commissioners Ron Paul and Lewis Lehrman, is called, by the Cato Institute, a "landmark." It remains widely read and increasingly appreciated, while the majority report, rejecting gold, has become a dead letter. The 2012 GOP platform contains a plank calling for a new commission to reconsider the recommendations of the original Gold Commission. While provincial, Euro-centric, Neo-Keynesians such as Paul Krugman mock the call for a new commission it is being received around the world with great interest and appreciation. The China Post writes, as part of a longer, fascinating article entitled Currencies: Reevaluating the ghost of gold:
One platform of the recent U.S. Republican National Convention that, ultimately, could reverberate around the world is a plan to study a possible return of the U.S. to the gold standard. While it was perceived as a move to appease the party's extreme right wing, economists like Mundell think the world needs a limited return to the gold standard.
“Currencies are the ghost of gold,” Mundell said in a speech to the Asia Society in Hong Kong last year. And while few believe the U.S. will move back to the gold standard, Mundell noted that 40 years is a relatively short period of time to judge the experimental success of a global currency system that circles the U.S. dollar versus gold.
You can see this U.S. dollar universe at play in the way global investors awaited word last month whether the Fed would introduce QE3, printing cash to help bring down the value of the dollar and make U.S. goods more competitive in the global markets. But central banks in Asia and elsewhere cringe at these moves — the extra U.S. cash sloshes around the global economy, seeking the best places for return, which these days are developing markets like Indonesia, Mongolia and Brazil.
But that influx of U.S. dollars — as we saw in the early rounds of “currency wars” in 2010 and 2011 — both can spur inflation and raise the value of local currencies, hurting their competitiveness abroad.
Erratic currency value slides in 2008 were an under-reported catalyst of the recent financial crisis, Mundell said.
"For currency printers, like undertakers and journalists, upheaval and tumult are good for business." -- The New York Times
Hardly any thought is given to the business of printing currency ... a business that proved very lucrative for founding father, and commercial printer, Ben Franklin.
It's quite a fascinating line of business. The New York Times gave it a grand overview in a piece entitled All About/Currency Printers; the Companies that Make Money From Making Money, in 1992.
Whether they are creating a new monetary unit, redesigning notes that now bear the "wrong" portrait or just replacing bills after their 15 months or so of life, all but about 30 countries in the world rely on a small, interlocked world of "security printers."
The unit of sale is a thousand bills ... and currency usually costs $26 to $45 per thousand to make, depending on what optional features a government orders, either to foil counterfeiters or for other reasons. (Some of Israel's shekels printed by Johan Enschede, for example, have special bumps for blind people to read.)
How much a country orders depends on its population and, more important, its inflation rate, said Mr. Kreitman, "though an order is rarely for less than 50 million notes."
For currency printers, like undertakers and journalists, upheaval and tumult are good for business.
The Economist recently gave an updated glimpse at the industry in Cash Machine:
FEW businesses do well in a climate of global political instability and mistrust of banks. De La Rue, the world’s largest commercial banknote printer, is one of them. The Basingstoke-based firm’s profits rose by a fifth in 2003 thanks in part to a contract to supply a new currency to Iraq. It also created a currency for the world’s newest country, South Sudan, in time for its independence a year ago. Disintegration of the euro zone would be terrible for most businesses but an opportunity for De La Rue.
Indeed, the financial crisis has broadly been good for banknote printers. The collapse of Lehman Brothers in 2008 led to a surge in demand for the folding stuff, which has not ebbed. Low interest rates have cut the opportunity cost of holding cash. With banks looking wobbly, many prefer to keep their money stuffed in the mattress, creating extra demand for banknotes. After falling steadily during the 1970s and 1980s, as the use of chequebooks and credit cards spread, cash in circulation has been rising again (see chart).
Private-sector printers like De La Rue inhabit a small but vital corner of a huge business. State-owned print works make around 85% of the 150 billion banknotes produced each year. But commercial outfits can be asked to step in when central banks fret that state printers may not be able to meet demand, as De La Rue did for the European Central Bank in 2001. Small countries are more likely to contract out banknote supply to commercial printers, who can harness economies of scale. That logic prompted the Bank of England to outsource its printing to De La Rue in 2003.
The firm devises 100 or so new banknotes each year as well as around 2,000 “design concepts”—a security feature, say, or a new image for a big-denomination bill. It has helped produce more than 150 currencies and won design awards for the banknotes it crafted for the central banks of Kazakhstan and Uganda, among others. De La Rue also prints identity documents, including British passports.
Trust creates a high entry barrier into the industry. “Few firms can do what we do and those that can have a long history and established relationships with central-bank clients,” says Tim Cobbold, De La Rue’s chief executive. The business was founded in 1813. Portals, a firm it acquired in 1995, has an even longer heritage: it began supplying banknote paper to the Bank of England in 1724. De La Rue’s two main rivals, Munich-based Giesecke & Devrient (G&D), and Oberthur Fiduciaire, a French firm, date back to the mid-19th century.
"...government of the people, by the people, for the people...." Abraham Lincoln
Gold has intrinsic value, and centuries of history as the least imperfect of all monetary systems ever implemented.
The dollar defined as a fixed weight of gold, with currency legally convertible thereto, is the one true people's money -- a monetary system with integrity and a shining example of "government of the people, by the people, for the people."
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.”