Lincoln, Lehrman, Butler, & Specie

Written by Kathleen Packard

Wednesday, July 04, 2012

In his second Annual Message to Congress in December 1862, President Lincoln wrote:

A return to specie payments, however, at the earliest period compatible with due regard to all interests concerned, should ever be kept in view. Fluctuations in the value of currency are always injurious, and to reduce these fluctuations to the lowest possible point will always be a leading purpose in wise legislation. Convertibility —prompt and certain convertibility—into coin is generally acknowledged to be the best and surest safeguard against them; and it is extremely doubtful whether a circulation of United States notes, payable in coin and sufficiently large for the wants of the people, can be permanently, usefully and safely maintained.”

The lack of a hard currency and the use of the dollar as an international reserve currency has contributed to our current global problems.  In Money in the Coming World Order, Lewis E. Lehrman wrote in 1976: “In the end, nations and individuals will conduct their financial operations in those currencies which minimize the financial cost of doing business. Men and nations seek stable currency values in which to denominate financial assets. Accordingly, one might argue that if it is within the power of men and nations to determine their financial policies, then it must be within the reach of the same nations to stabilize and thereby to encourage the domestic use of their own currencies. Moreover, if it is within the power of a nation-state to determine its own monetary policy, then it must be equally within its power to exclude foreign-exchange reserve from its official monetary base. To exclude foreign-exchange reserves from the official national monetary base would, then and there, terminate the privilege of the reserve-currency country to run permanent balance-of-payments deficits.”

The need to replace the reserve currency system with a gold standard is clear once some of the old myths are dispelled. In an interview with ValueWalk, John Butler, author of The Golden Revolution: How to Prepare for the Coming Gold Standard,, argued that a gold standard is “a good idea for a number of reasons, the most important of which is that a gold standard restrains money and credit growth. While that is seen as inconvenient following a crisis, a gold standard generally prevents large crises from arising in the first place, absent major wars or revolutions.

Butler said: “The Great Depression is widely misunderstood in this regard. It is best understood as a long-term consequence of the economically devastating (and highly inflationary) WWI combined with counterproductive activism in economic policy. US economic policy was highly laissez faire in the early 1920s but by 1927 that had changed. The Federal Reserve, for example, eased monetary policy notwithstanding a booming economy. Why? Well the US was trying to do the UK a favor. The UK was stuck in a deep recession and asked the US to stimulate domestic demand to help UK exports. The US obliged. What was already the Roaring 20s entered a crescendo and finally came crashing down in 1929-31. More interventions followed.”

“President Hoover prided himself of being an interventionist president, bragging, for example, in 1931, that thanks to his policies, US workers had the highest wages in the world,” said Butler. “Now think about that for a moment: Your economy is falling apart and unemployment is soaring. Then the president comes out and says, in effect, “our labor costs are the highest in the world”. You would have thought he was pointing out the problem—which he was, inadvertently—rather than claiming credit for something.”

In a world where credit is cheap, inflation is rising, and employment is shrinking, perhaps someone needs to point out the problem.