The True Gold Standard (Second Edition)
The Roosevelt Institute, a leading Progressive policy institute, is preparing a reprise of William Jennings Bryan's famous 1896 critique of gold: "you shall not press down upon the brow of labor this crown of thorns."
Mike Konczal, a Roosevelt Institute Fellow and influential liberal blogger, in announcing "The Future of the Federal Reserve Event," writes:
Conservatives are organizing against a full employment mandate and rallying around the gold standard wing of their party, and I believe it is time progressives and liberals start to play offense.
Mr. Konczal is correct about conservatives organizing around the gold standard. Yet he is deeply misinformed, or being mischievous, in claiming that conservatives are "organizing against a full employment mandate." The gold standard is the full employment mandate. Perhaps the primary reason that conservatives are rallying for the gold standard is because of its extensively documented success, in the laboratory of history, as job creator.
Proposed legislation by Rep. Mike Pence to end the Fed's "dual mandate" was by no means an attack on full employment. It was a well-grounded criticism of the Fed's record at creating full employment. As Mr. Pence stated upon introducing his legislation,
"The Fed’s full employment mandate has, too often, led to short-term fixes with long-term inflationary consequences that will not lead to job creation."
Charles W. Kadlec, in Gold vs. the Fed: The Record Is Clear, published in the Wall Street Journal, observes:
From 1947 through 1967, the year before the U.S. began to weasel out of its commitment to dollar-gold convertibility, unemployment averaged only 4.7% and never rose above 7%. Real growth averaged 4% a year. Low unemployment and high growth coincided with low inflation. During the 21 years ending in 1967, consumer-price inflation averaged just 1.9% a year. Interest rates, too, were low and stable—the yield on triple-A corporate bonds averaged less than 4% and never rose above 6%.
What's happened since 1971, when President Nixon formally broke the link between the dollar and gold? Higher average unemployment, slower growth, greater instability and a decline in the economy's resilience. For the period 1971 through 2009, unemployment averaged 6.2%, a full 1.5 percentage points above the 1947-67 average, and real growth rates averaged less than 3%. We have since experienced the three worst recessions since the end of World War II, with the unemployment rate averaging 8.5% in 1975, 9.7% in 1982, and above 9.5% for the past 14 months.
Why gold-convertible currency is essential to full employment has been argued with exceptional power by Mexico's Hugo Salinas-Price in an important analysis entitled "The gold standard: generator and protector of jobs." It commences:
"The abandonment of the gold standard in 1971 is closely tied to the massive unemployment the industrialized world has suffered in recent years...."
Mr. Salinas-Price makes a compelling case for the gold standard as essential to a full employment mandate. "The gold standard: generator and protector of jobs" quietly has begun to circulate among leading advocates of the gold standard and is having impact upon the discourse. Meanwhile...
A note of respect for William Jennings Bryan.
It was the re-institution of the gold standard at pre-Civil War parity, and not the gold standard itself, that caused a long, painful, deflation giving rise to the Prairie Populist movement and to Mr. Bryan's political career. His heartfelt outcry was based in something very real. Yet Bryan's prescription, as noted by advisor to The Gold Standard Now Professor Brian Domitrovic in Forbes.com, "As the Fed Splintered the Cross of Gold, Farmers Held the Bag," was faulty.
Winston Churchill's colossal 1925 blunder, also in restoring the gold standard at a pre-war parity, also led to massive unemployment.
Both were instances of elite mismanagement of the gold standard. Neither demonstrated a flaw in the workings of a well-run gold standard.
Before facilely dismissing the gold standard as in opposition to full employment the Roosevelt Institute might well ponder the worlds of no less a figure than Ben Bernanke, on record as stating that "The proximate cause of the world depression was a structurally flawed and poorly managed international gold standard." Not the gold standard itself.
Gold standard advocates welcome the voice of labor at the table of a humane re-institution of classical convertibility. The gold standard is not inherently prejudiced toward capital over labor. Its leading modern advocates are committed, completely, to going forward with gold in a way that, above all, is job creating.
Full employment is a moral, as well as utilitarian, imperative. There are an abundance of data demonstrating superior job creation, both in quantity and quality of jobs, under a well-managed gold-convertible currency, especially compared to the track record of the world dollar standard managed by the elite civil servants of the Federal Reserve Board.
Is Roosevelt Institute genuinely is concerned with full employment? Or is it engaging in a propaganda exercise to defend a legacy institution from the Progressive Era, the Federal Reserve System, irrespective of its record?
If operating in good faith Progressives will desist from further mischievous aspersions of the motives of conservatives. And Progressives are invited to show their good faith by inviting leading exponents of the gold standard publicly to debate the evidence as to whether gold-convertible, or pure paper, money has the better track record in creating more and better jobs.
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Key Monetary Writings
THE most disturbing aspect of the current financial crisis is that no U.S. official has correctly identified its primary cause.
Why the Gold Standard?