August 23 marks the 116th anniversary of the birth of Jacques Rueff. In a speech to the French Parliament in 1996, Lewis E. Lehrman called Rueff “an extraordinary teacher, a selfless servant of the French people, and a peerless citizen of the world – the words of General de Gaulle – ‘une poète de finance.’
In Money and the Coming World Order, first published in 1976, Johns Hopkins’ David Calleo wrote: “Rueff combines an impressive technical mastery and broad historical and philosophical perspective with an engaging modesty and common sense. His ideas, however, never been taken seriously by Anglo-Saxon economists, for reasons, one suspects, which do them little credit. Fundamentally, Rueff’s views reflect a great concern with stability than with growth, a perspective out of fashion in the postwar boom. For Rueff, inflation is the great disease of modern society – the easy way to appease man’s unlimited greed exacerbated by the wiles of a commercialized society. But inflation, Rueff believes, becomes habit forming for the society that adopts it. And the inflationary habit leads not only to a dangerous restlessness among all classes, those who are benefited and those who suffer, but to a decline in saving and hence in investment and real growth. Rueff’s vies have seemed out of touch with an era which has looked to limitless growth, stimulated by government, to resolve fundamental social and political problems.”
Brilliant himself, Rueff understood the limitations of the collective wisdom of central bankers. Lehrman observed that Rueff formulated “an axiom – because the money stock cannot be determined by the Federal reserve bank, nor can it determine a constant rate of inflation, the monetary policy of the central bank must not be to target the money supply or the rate of inflation. The Federal Reserve bank simply cannot determine accurately the manifold decisions to hold money for individual and corporate purposes in order to make necessary payments and to hold precautionary balances.”
Rueff’s wisdom, lamentably, has not been heeded. Several years ago, Bill Bonner wrote the Daily Reckoning-Australia, “Jacques Rueff died in 1978. Had he lived, he probably would have been as surprised as we have been by the stamina of the monetary horses. Except for a brief rest while Paul Volcker was managing the stables, they have run from bubble to bubble...delivering more liquidity wherever it would do the most damage. All the while, inflation continued to cut the price of labor. Between '74 and '84, real wages fell as much as 30%. Then, more moderate levels of inflation held them down for the next 24 years.
But Rueff's insight comes with a warning. The faith-based, dollar- dependent monetary system is like a loaded pistol in front of a depressed man. It is too easy for the US to end its financial troubles, Rueff pointed out, just by printing more dollars. Eventually, this "exorbitant privilege" will be "suicidal" for the western economies, he predicted.
But suicide is not good financial policy. A good monetary policy, Rueff understood, required a gold standard.