What's Behind the Right Wing's Bizarre Obsession with the Gold Standard?
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.
The web site The Aporetic explains why the right is then getting so gold buggy:
People who like the idea of a gold standard like the idea that gold has “real,” “intrinsic” value, which is a fancy way of saying it just is valuable, in the same way that lead is heavy. “Value,” they argue, is a property installed in gold by God or nature. An economy based on gold is thus an economy founded in natural law: gold bugs dream of an economy which government can’t tamper with. All values will be “real” values. The government can’t issue more gold, so it can’t create debt by simply printing more money.
Slate ran a good piece on what would happen if we returned to the gold standard. You can add to that rapid deflation and spikes in interest rates. Deflation sounds good, except that interest rates would spike while the prices manufacturers and businesses could get for their goods would collapse. Deflation was precisely the problem in 1932. But one set of people would benefit to a remarkable degree, and that is, those who hold capital, e.g the rich. The value of their money would sky-rocket, as would the price they could demand for lending it.
Get it? As wages go down, workers rely more and more on credit instead of their own earnings to obtain property and services. In short, the American economy goes from being one made up of upwardly mobile individuals to larger numbers of debtors living in one huge company town. This is not exactly the concept of individual liberty envisioned by Adam Smith in 1776, but instead, dependence.
There is no better example of the way the right is campaigning against the controlled use of inflation than recent comments by Sarah Palin. Palin, echoing Glenn Beck, attempted to take on the Wall Street Journal over the rising costs of groceries, erroneously implying that food prices are a reliable indicator of overall inflation. The problem with her analysis is that food and fuel costs are so volatile that they are not counted as a core indicator of inflation. Paul Krugman pointed out, for example, that over the past decade, food prices have not been that far afield of the general rate of inflation, which in and of itself is practically non-existent. If anything, there is a much greater risk of overall deflation.
What the gold bugs won’t acknowledge is that the economy could use a bit of moderate wage inflation, the type that does not exceed increases in the percentage of worker productivity, but keeps pace with it. The reason they won’t say anything about it is that it requires the use of the other defamed economic tool, taxation. Using deficits to create aggregate demand and then judiciously using taxation to pay down the resulting debt (which simultaneously applying the brake to any possible resulting inflation) has a proven track record.
There is nothing new about gold bugs. But what is new is religious right strategist and well-connected GOP neocon-turned-Tea Party avatar Robert P. George’s emergence as a leader of the contemporary gold bug brigade. With neoconservatism at least for now being out of favor on the right, George has recently been advocating an alliance between social conservatives and a more libertarian-minded doctrine of classical, laissez-faire economics. That’s why it is so significant that the gold standard is a featured issue of George’s American Principles Project.
The goal of Gold Standard 2012 is “…to reach out to lawmakers to advance legislation that will put the U.S. back on the gold standard.” They claim to be alarmed about the “…explosive growth of government and unrestrained deficit spending kicked into high gear by the Obama administration and the 111th Congress…”
Add to the argument the vital role that organized labor plays in increasing wages. We must remember that many of the economists Robert P. George and friends subscribe to (Amity Shlaes, Richard A. Epstein) believe that if workers would just work for lower wages, unemployment ceases to be a problem. This is economic conservatism’s dirty little secret — the exposure of which is liberalism’s opportunity.
And this brings us back to William Jennings Bryan. He is speaking to us from the past, still warning us of the perils of wealth inequality built solely upon political power. To that end, in 1896 Bryan reminded the nation of who creates wealth:
When you come before us and tell us that we shall disturb your business interests, we reply that you have disturbed our business interests by your action. We say to you that you have made too limited in its application the definition of a businessman. The man who is employed for wages is as much a businessman as his employer… The farmer who goes forth in the morning and toils all day, begins in the spring and toils all summer, and by the application of brain and muscle to the natural resources of this country creates wealth, is as much a businessman as the man who goes upon the Board of Trade and bets upon the price of grain. The miners who go 1,000 feet into the earth or climb 2,000 feet upon the cliffs and bring forth from their hiding places the precious metals to be poured in the channels of trade are as much businessmen as the few financial magnates who in a backroom corner the money of the world.
More than a century later, Bryan still refutes the zombie gold bug madness of Robert P. George, Glenn Beck, and Sarah Palin. They and the economic royalists they represent once again aim to crucify common prosperity upon a cross of gold.