"(Lewis) Lehrman had in mind a traditional gold standard, restoring dollar convertibility into gold, although he also proposed changing Federal Reserve institutional arrangements, prohibiting open market operations and making the discount rate a penalty rate." -- from "Reflections on the Gold Commission Report," by Anna J. Schwartz, 1987
The 2012 Republican Party platform observes: "President Reagan, shortly after his inauguration, established a commission to consider the feasibility of a metallic basis for U.S. currency," referring to the Gold Commission. It goes on to "propose a similar commission to investigate possible ways to set a fixed value for the dollar." This provision elicited observations carried by four of the most prestigious financial or political publications in the world -- the FT, the Wall Street Journal, Forbes.com and the National Interest online, as to how the gold standard is going mainstream.
Indeed it is. And that brings renewed pertinence to the record of the original Gold Commission, assembled under gold-opponents serving in the Reagan administration. Anna Schwartz, executive director of the Commission -- and a self-described opponent of the gold standard -- wrote a thoughtful and informative backstory on the Commission's work entitled "Reflections on the Gold Commission Report" -- published in Money in Historical Perspective, edited by Anna J. Schwartz, University of Chicago Press, 1987. Dr. Schwartz, who lived a long and distinguished life of academic scholarship, departed from this life last June.
Some of her more noteworthy reflections on the Gold Commission Report:
Sponsors of a commission may have a variety of objectives. One objective may be to focus public attention on a problem that they regard as important. The sponsors may have a solution for the problem but lack the support for its implementation. One indication that the sponsors of the Commission set great store by this objective was their insistence that meetings of the Commission be open to the public. They objected strongly to the first closed meeting; thereafter, all meetings were open. Another objective may be to educate the public. Commissions can perform a genuine public service by collecting and summarizing facts and opinions on a national problem. They may make old ideas respectable, publicizing them and giving them legitimacy. Ideas that may have been limited to special groups may be given wider currency by a commission’s study. Commissions may also serve to develop a consensus. The sponsors of the Gold Commission may well have had all these objectives in mind.
The 1980 Republican Party platform included a paragraph on monetary reform that could be interpreted as a veiled reference to a projected return to a gold standard. The sponsors of the establishment of the Gold Commission possibly were counting on the White House to signal its interest in a strong pro-gold recommendation by the Commission. Such a signal would have influenced the designation of members. In that event, the number of members subject to White House influence would have formed a majority: four Republican Congressional members, the four public members, two members from the Council of Economic Advisers, and the chairman. No signal, however, apparently came from the White House. As a result, the Commission came into existence with no sense of direction.
By the time the Commission had concluded its sessions, it was clear that the pro-gold group consisted of an awkward coalition of Congressman Paul and two of the public members, Lehrman and Costamagna. It was awkward because neither of the latter supported the conception of the monetary system that Paul advocated. Lehrman had in mind a traditional gold standard, restoring dollar convertibility into gold, although he also proposed changing Federal Reserve institutional arrangements, prohibiting open market operations and making the dis- count rate a penalty rate. As for Costamagna, his sole concern for the present was to provide the market with U.S.-minted bullion coins.
The majority rejected the proposal that the United States should fix the price of gold and restore gold reserve requirements for the Federal Reserve. Except for Lehrman, no member of the Commission advocated such a course. They rejected a return to fixed exchange rates and endorsed a floating exchange rate system. Again, only Lehrman held a brief for fixed exchange rates.
Volume 2 of the Report is described as “annexes.” The bulk of the volume is occupied by a minority report.
The existence of a minority report was not revealed to the Gold Commission until a few days before the final revision of the Report that was intended to represent all views. The minority report was prepared under the direction of Congressman Paul and mirrors his views rather than those of Lewis Lehrman who endorsed it. Arthur Costamagna gave the minority report a qualified endorsement.
The majority rejected the proposal that the United States should fix the price of gold and restore gold reserve requirements for the Federal Reserve. Except for Lehrman, no member of the Commission advocated such a course. They rejected a return to fixed exchange rates and endorsed a floating exchange rate system. Again, only Lehrman held a brief for fixed exchange rates
Two meetings of the Commission were devoted to hearings on the role of gold in domestic and international monetary systems. Twenty- three witnesses testified. In addition, forty-seven individuals submitted written statements of their views.
The hearings validated Senator Helms’s expectation that “there is little unanimity among the experts.” The hearings provided an opportunity for views of Keynesians, monetarists, and neoclassical economists, as defined by Helms and Paul, to be heard. Of the twenty-three witnesses, only two forthrightly supported a return to a traditional gold standard. Two advocated nontraditional forms of a gold standard; one urged that gold be part of the solution to current problems, but prescribed no specific model. Two attorneys attacked the present monetary system as unconstitutional.
One of the two attorneys referred as testifying that the present monetary system as unconstitutional is the author of this blog, called upon to testify at the request of Gold Commissioner Lewis Lehrman. And with no disrespect to Prof. Schwartz, her characterization doesn't quite capture the spirit of my argument, which was entitled "The Constitutional Requirement that U.S. Currency Be Backed by Precious Metals."
Rather than attacking fiduciary money as unconstitutional it presented the evidence from the Debates in the Constitutional Convention of 1787, and elsewhere in Constitutional history, demonstrating that the true gold standard is true constitutional money -- and for good, empirical, reasons. These reasons were valid at the birth of this nation. They continue to be valid, throughout its history through 1981 (when the testimony was delivered) to this very day.
The gold standard has integrity and is an essential part of the recipe for prosperity, stability, liberty and human dignity. For many, many reasons, a new, 21st Century, Gold Commission is highly likely to offer far more pro-gold recommendations than the first Gold Commission.