What's Behind the Right Wing's Bizarre Obsession with the Gold Standard?
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Editor's note: There is growing undercurrent among Republicans and conservative pundits who want to ditch the dollar and return to the gold standard for currency. Georgia State Representative Bobby Ryan was the latest to propose this, with his Constitutional Tender Act, which states, "Pre-1965 silver coins, silver eagles, and gold eagles shall be the exclusive medium which the state shall use to make any payments whatsoever to any person or entity, whether private or governmental. As ThinkProgress explains, "Gold or silver standards leave a nation completely powerless to control its own monetary policy, often tying inflation rates to completely arbitrary factors such as the rate that gold is mined in South Africa, rather than to the interests of a national economy. Worse, it leaves a nation without one of its most important tools to push back against economic downturns." This article below shares the fascinating history of America's long debate over the gold standard, and its profound effects on society.
In the wake of the Panic of 1893, the nation was suffering from a period of deflation — the downward spiral of prices and wages. Farmers were among the hardest hit. Crop prices dropped to the point where many faced financial ruin. Something was needed to raise their incomes, since the infamous laissez-faire “invisible hand” was not working for them.
The 1896 Democratic Party presidential candidate William Jennings Bryan campaigned against the Republican economic plan of setting the value of the dollar to the value of the amount of gold the United States held in reserve. The GOP – then as now – were tied to credit interests who are advantaged by the high value of debt. In accepting the nomination, Bryan gave his famous Cross of Gold Speech, in which he declared, “Having behind us the producing masses of this nation and the world, supported by the commercial interests, the laboring interests and the toilers everywhere, we will answer their demand for a gold standard by saying to them: You shall not press down upon the brow of labor this crown of thorns, you shall not you shall not crucify mankind upon a cross of gold.” Bryan was accusing the Republicans of failing to employ commodity or “demand-pull” inflation (as opposed to wage inflation, an increase in prices for commodities such as agricultural products, petroleum or minerals) as a means if checking deflation.
Back then, before the creation of the Federal Reserve System, Bryan was arguing for a monetary standard based upon bimetallism — one that would have established a fixed rate of exchange between gold and silver. The economic landscape has changed since then, but the role of governmental action to improve the standard of living remains an issue.
Now, more than a century after Bryan’s historic speech, and almost eighty years since FDR ended it, the gold standard is rising in our national discourse like a zombie from the grave in a bad horror movie. It is again the mantra of the right, ranging from libertarians Ron and Rand Paul, to Mama Grizzly Sarah Palin, to the populist ramblings of Glenn Beck and even to some on the religious right such as Robert P. George. Interestingly, it was one of several anti-government rants echoed by Tucson shooter Jared Lee Loughner.
But why would conservatives fear the judicious use of inflation? I suspect that their real concern is Keynesian economics.
Inflation pegged to increases in worker productivity is the reason why a couple that bought a house in 1960 saw their fixed mortgage become more manageable with each passing year. Moderate increases in wage inflation make debt more manageable for the employed. It also reduces the reliance upon tenuous credit. In other words, a judicious amount of annual inflation is a vital component of wealth creation and thus, economic liberty for the many, not just the few.