Gold Commission 2
by Gary North: Dancing
on the Grave of the Keynesian†System
is talk of a plank in the Republican Party's platform calling for
a gold commission. The commission will study the possibility of
re-establishing a gold standard.
of a positive recommendation coming out of such a commission is
as likely as a positive report of another commission to study the
feasibility of restoring the Articles of Confederation.
I did a Google
search on these terms: "gold commission," Republican, platform.
got 20,000 hits.
too bad. I always like to see public interest in the restoration
of gold as the backing for the U.S. dollar.
is a lot of deja vu about this. We have been down this yellow brick
road before. It is nothing but gold-painted bricks all the way to
the Emerald City: Greenback heaven.
In 1980 Senator
Jesse Helms persuaded a Democrat- controlled Congress and Jimmy
Carter to sign into law a call for a gold commission. Under those
circumstances, you can imagine how seriously the President took
the bill. But Carter was trounced by Reagan later that year. This
offered hope to the more naive gold bugs within the camp of the
Secretary of the Treasury, Donald Regan, plans went forward. In
March 1982, the Gold Commission began meeting. The Secretary of
the Treasury filled the commission with anti-gold Keynesians and
monetarists followers of Milton Friedman who also
favored the Federal Reserve. There were only two pro-gold standard
members: Ron Paul and Lewis Lehrman. Out of the Gold Commission
came a majority report, which opposed the gold standard, a minority
report by Paul and Lerhman, and a detailed history of the legal
foundations of the U.S. dollar by Austrian school legal scholar,
Edwin Vieira. You
can download all three documents here.
did recommend that the U.S. Mint start producing gold and silver
tokens, or medallions, sometimes called coins. The Mint did this.
We can still buy gold and silver eagles.
platform that emerges from a party's national convention in a presidential
election year is one of the great curiosities of American politics.
After the President is elected, no one in the party ever mentions
the political platform again, with the possible exception of a few
political enemies in Congress. This is because nobody took it seriously
when the plank was included. The only thing more useless than a
political platform of a victorious President is the political platform
of his opponent.
It never ceases
to amaze me that political factions within the party work very hard
to get their proposed planks into the platform before the end of
the convention. There is a lot of political maneuvering associated
with a political platform. Why is this?
platform is a statement of faith that the voters ask the politicians
to provide. It is quite comparable to the phrase, "Will you still
respect me in the morning?" Once the platform emerges from the convention,
it will have approximately as much meaning as the assurance, "Why
of course I'll still respect you in the morning."
A plank in
a party platform is usually written in final form by the people
who screen the platforms. The faction within the party that supports
the plank is not going to get anything else out of the party after
the election. It is the one doffing of the cap by the people who
are in charge of the political party. This is all the minority faction
is ever going to receive. The plank is a great pretense on the part
of the people who make the decisions that they are going to pay
attention to the particular faction which is lobbying to get the
plank into the platform. If anyone in the minority faction is so
naïve as to believe that anything will be gained by getting
the plank into the platform, he deserves to attend to the inauguration
ball for $10,000, where he will sit on the far edges of the tables,
right next to the kitchen.
TO AVOID CONTROVERSY
election, the only people who pay any attention to the platform
are politicians in the rival political party, who will use this
or that platform plank to beat their opponents over the head during
the election campaign.
It is not
that anyone running for office actually believes that the opposing
party intends to go to any great length after the election to implement
the platform. Everyone understands that it is a charade that each
party plays with the more extreme voters who are members of the
party. The plank gives the leadership of the party a way to placate
the extreme wings of the party, without actually providing anything
of substance for the factions.
On the other
hand, the leaders of the party do not want to put anything into
the platform that is so radical that it might cost some political
candidate more votes than it gains from the načve within the party.
The political leaders do not want the mainstream media, which is
controlled by the Left, to pick up on a particular platform plank
and use it to embarrass the political party. This is why the planks
in the Republican Party's platform are more important than the planks
in the Democrats' platform. This is because the mainstream media
are always more alert to extreme positions in the Republicans' platform
than they are to the extreme positions in the Democrats' platform.
with any political sophistication believes that a plank in either
platform is going to be taken seriously if members of Congress think
that any attempt to vote for a bill that implements the platform
is going to cost the party a humiliating defeat in Congress. The
leaders are interested in platform positions which they do intend
to pass, assuming that the attempt does not cost them a lot of embarrassment.
So, some of the platform planks will be taken seriously when the
new Congress is installed the ones that cost few lost votes.
few bills are passed by Congress these days, and fewer still get
signed into law under 200 during the two-year term
only those bills that generate very little controversy will be signed
into law. Only if a political party controls both houses of Congress,
and also controls the presidency, is anything even remotely controversial
with voters going to be proposed and passed in Congress. The last
time anything like this happened was Obamacare, which is in fact
Pelosicare. It probably cost the Democrats the House of Representatives
So, I do not
expect anything to come of the call by the Republicans for another
Gold commission, even assuming that Romney wins in November. Any
bill that went through the Democratic Congress and got signed into
law by Jimmy Carter is not what I would call a threat to the Federal
be a gold commission called by President Romney, if there ever is
a President Romney, it will reflect the prevailing opinion in the
Republican Party regarding the legitimacy of the Federal Reserve
and the need to get the Federal Reserve to serve as a lender of
last resort when the Treasury has to raise $1.2 trillion a year
in order to keep the doors open.
LENDER OF LAST RESORT
the last year, mainland China has begun to sell U.S. Treasury
debt. It is not flooding the market, but it has sold a little under
$164 billion worth Treasury debt since June of 2011, or about 11%
of its holdings. Japan increased its holdings, so there has not
been a collapse of demand.
Department does have to face this scary possibility, namely, that
the mainland Chinese central bank is not going to the Treasury any
longer. On the contrary, the People's Bank of China may be selling
Treasury debt for dollars in order to buy other currencies. It can
use these currencies to enable the government to buy commodities
or other assets in international markets.
circumstances, the Treasury has to be sure that the Federal Reserve
is there to purchase its debt, should the increased demand for borrowed
money, when coupled with a decreased demand for Treasury debt, combine
to produce higher interest rates in the capital markets for U.S.
Treasury debt. Under those circumstances, Congress will want the
Federal Reserve to intervene and buy its debt, in order to hold
down the rate of interest the Treasury must pay to persuade lenders
to hand over their money.
the Federal Reserve will have to continue to increase its holdings
of Treasury debt. This means the Federal Reserve must be allowed
to increase the monetary base at any time. As long as commercial
banks are not lending money into the economy, but instead hold excess
reserves of the Federal Reserve, increased purchases of Treasury
debt by the Federal Reserve will not lead to a round of price increases.
But, at some point, banks will start lending to the general public,
if only to get a positive rate of return on their capital, and at
that point consumer prices will begin to move up, as will long-term
is no interest in Washington in the proposition that the way to
gain long-term predictability of the money supply, which means long-term
predictability of prices in general, is to reestablish some form
of a government manipulated fixed-price for gold. The government
would have to deliver gold on demand at this fixed-price, the way
it did prior to August 15, 1971. There is no economic school, other
than Austrian economics, that has called for this kind of gold standard.
I mean a gold coin standard, where citizens who hold dollars have
the ability to exchange those dollars for gold coins at a local
bank at an official price.
mean handing over sovereignty over money to those people who buy
and deposit gold coins in banks. This would mean that those people
who tend to be suspicious of Federal Reserve policy would be given
a tool that they can use to restrict the expansion of the money
supply. It would give holders of gold coins a way to cast a veto
against the deficit spending of Congress. Congress is not interested
in transferring such authority to private citizens.
SILLINESS OF COMMENTATORS
ran an article on August 27 that showed optimism regarding the
possibility of a pro-gold plank.
Left is going into full "Sound Money Derangement Syndrome." Reuters
captured leading Birkenstock School economist Brad DeLong in full
seizure: "Brad DeLong, a Berkeley economics professor who served
as a Treasury official during the Clinton administration, said
(of Paul Ryan's commitment to a rule-based monetary policy): Quite
frankly it is terrifying. Price stability is one goal of macroeconomic
management, but only one goal: there are others. To command the
Federal Reserve to pursue price stability alone is to create the
preconditions for macroeconomic disaster.'"
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.
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
The Left attacks
the idea as being out of the mainstream. Our Forbes author
the gold standard as "out of the mainstream" Left, showing its
fashionable alienation from core American values, takes a jackhammer
to much of Mt. Rushmore and other of America's iconic founders.
Anti-paper-money stalwarts include such weirdos as George Washington,
John Adams, Thomas Jefferson, James Madison, Alexander Hamilton,
Thomas Paine, and John Marshall. Paper money had very few, and
no distinguished, defenders.
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.
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.
FEAR OF RON PAUL
It is clear
what this is really about. It is about real fear within the Republican
Party's hierarchy that those voters who favored Ron Paul's candidacy,
and who are now unwilling to support Romney, may not go to the polls
in November. They may do something unheard of, namely, writing in
Ron Paul's name rather than vote for Romney.
loses, and Ron Paul's name appears on enough ballots in swing states
to cause this loss in the electoral college, the Republican Party
establishment will find itself boxed in. It will find itself beholden
to the tea party. If it thinks that he cannot win without the tea
party, the leadership will decide not to win.
If it is a
question of surrendering to the tea party, especially on the issue
of gold, the American establishment at the highest levels would
be perfectly willing to see the election of nothing but Democrats
for the foreseeable future. It is a question between the sovereignty
of the Federal Reserve to inflate and the sovereignty of gold coin
owners establishing the terms of exchange, the Republican establishment
will do exactly what it did in 1964 at the Republican national convention.
It will walk out, and it will get behind the Democrat.
on the gold commission is not a meaningless gesture. It is not meaningless,
because the establishment believes that it is required. It is not
meaningless, because the platform acknowledges the existence of
a significant faction within the Republican Party. The biggest swing
vote faction is now the tea party. It used to be the New Christian
Right. These days, however, the hard-core free market members of
the New Christian Right have defected. They have moved to Ron Paul,
which means they have moved to a position totally opposed to the
Federal Reserve. This means they have moved to the idea of a gold
coin standard. No one else in politics supports it. No one else
openly calls for ending the FED. When he moves to the next phase
of his career, he will keep this idea alive.
while it is true that Prof. DeLong does not have anything to worry
about in the near-term, he does have something to worry about in
the long term. When the government of the United States finally
declares bankruptcy, either openly or by a series of defaults on
its Medicare and Social Security obligations, there is going to
be an opportunity for a serious political transformation of the
United States if the tea party begins at the lowest levels of government,
namely, the county level, and works for a decade or two to establish
a stronghold politically at the local level. Whenever the default
comes, as it must inevitably come, the Republican Party is going
to fall into the hands of the tea party. That is worth worrying
about if you are a Keynesian professor employed by a tax-funded
Pay no attention
to any call by the Republican Party to set up a commission to study
the feasibility of restoring the gold standard. It has no meaning
in terms of policies that are going to be established by the Republican
Party, should Mitt Romney win in November. But you should pay attention
if the Republican Party establishment decides that it is necessary
to put the plank into the platform. This has nothing to do with
the content of the plank. This has everything to do with the fear
of the Republican Party establishment that the tea party is going
to stay home in November. If it does, Romney is going to lose the
North [send him mail]
is the author of Mises
on Money. Visit http://www.garynorth.com.
He is also the author of a free 31-volume series, An
Economic Commentary on the Bible.
2012 Gary North
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