Econintersect: It has been reported that the Republican platform committee is considering putting a plank in their platform that would support a study of a return to pegging the dollar to gold. This could possibly be a move to strengthen support from backers of Ron Paul who is a long-time advocate for the gold standard. The plank under discussion is reported to couple calling for an audit of the Federal Reserve with the establishment of a commission to study the coupling of gold and the dollar. The decoupling was completed by President Richard Nixon in 1971, at which time the U.S. began operation of a purely fiat currency.
The gold standard has not been mentioned in the Republican platform since 1984. After a supportive statement was included in the 1980 platform, Ronald Reagan appointed a Gold Commission in 1981 which returned a report supporting the continuation of the fiat system.
Reaction to the news has been mixed, but negative comments seem to outnumber the positive. Here are some of the positive reactions:
“There is a growing recognition within the Republican party and in America more generally that we’re not going to be able to print our way to prosperity,” said Sean Fieler, chairman of the American Principles Project, a conservative group that has pushed for a return to the gold standard." (from CNBC)
News that the Republican platform is going to call for the establishment of a new Gold Commission, to explore the route to monetary reform, is the most encouraging thing we’ve heard out of the convention about to gather at Florida. (The New York Sun)
“We like the idea of looking at monetary policy and looking at what we call sound money,” said Russ Walker, an Oregon delegate and a vice president of FreedomWorks, a Washington-based Tea Party umbrella group. (Bloomberg)
Zero Hedge reported in January 2011 that a number of people had spoken out in favor of the gold standard:
After such establishment "luminaries" as World Bank president Robert Zoellick, Warren Buffett's father Howard, Jim Grant and, most recently, Kansas Fed president Thomas Hoenig, all voiced their support for a return to a gold standard, the most recent addition to the motley group . . . . . former Fed Chairman - Alan Greenspan.
An informal poll at CNBC reported that 69% of more than 19,000 respondents favored returning to the gold standard, 24% opposed and 7% weren't sure.
Negative reaction has come from several sources. One of these, leading financial planner Ric Edelman said he didn't think it was worth discussing. He suggested the call could just as well be for a sand standard.
John Taylor, one of 576 economists backing Romney, said “there are better ways” to achieve economic stability than the gold standard. Pegging the dollar to “a broad price index” would be preferable because it would be “more robust,” (Bloomberg)
Historically nations suspend their gold standards in times of war, when they need their economies to function to the max. If a gold standard was so good for an economy, why suspend it when you need max economic performance? Obviously because it is not conducive of maximum real output. (Warren Mosler)
A very readable analysis paper by Douglas Irwin (Dartmouth) discussed the role of gold in The Great Depression; it offers interesting comparisons to the current day financial crisis.
In coming days there should be a number of interesting articles discussing the gold standard question from all sides.
- Republicans Eye Return to Gold Standard (Robin Harding and Anna Fifield, CNBC from the Financial Times, 24 August 2012)
- The Gold Platform (Editorial, The New York Sun via The Gold Standard Now, 24 August 2012)
- Stunner: Gold Standard Fully Supported by . . . Alan Greenspan!? (Tyler Durden, Zero Hedge, 21 January 2011)
- Gold standard? Why not a sand standard, Edelman asks (Investment News, 24 August 2012)
- Gold standard thoughts (Warren Mosler, Mosler Economics, 24 August 2012)
- Did France Cause the Great depression? (Douglas Irwin, GEI Analysis, 08 November 2012)