When my Lithuanian great grandparents arrived in the United States of the late 19th Century, we had beautiful gold money with images of Indians and Big Game Animals, there were no gun laws and there were no drug laws, and there was no Income Tax. No wonder they came here!
Ralph Benko, in Forbes, argues that if Trump really means to make America great again, restoring a gold standard would be a great first step.
In 1971 President Nixon, under the influence of his Svengali-like Treasury Secretary John Connally, “suspend[ed] temporarily the convertibility of the dollar into gold.” That closure proved durable instead of temporary. The dollar became, and remains, the world’s global currency.
What had been an â€œexorbitant privilegeâ€ devolved into an exorbitant liability. As my former professional colleague John D. Mueller, of the Ethics and Public Policy Center, formerly Rep. Jack Kemp’s chief economist, writing in the Wall Street Journal in Trump’s Real Trade Problem Is Money recently and astutely observed:
a monetary system based on a reserve currency is unsustainable, since foreign official dollar reserves (for example) are acquired and must be repaid in goods. In other words, the increase in official dollar reserves equals the net exports of the rest of the world, which means it must also equal U.S. international payments deficitsâ€”an unsustainable situation.
In other words, if President Trump wishes to address Americaâ€™s merchandise trade deficit (balanced to perfection, of course, by a capital accounts surplus) he will find that allowing the dollar to be used as the global currency is the real snake in the economic woodpile. The dollarâ€™s burden as the international reserve currency, not currency manipulation by our trading partners or bad treaties, is the true villain in the ongoing melodrama of crummy job creation.
Muellerâ€™s Wall Street Journal column enumerates the three options open to President Trump:
First, muddle along under the current â€œdollar standard,â€ a position supported by resigned foreigners and some nostalgic Americansâ€”among them Bryan Riley and William Wilson at the Heritage Foundation, and James Pethokoukis at the American Enterprise Institute.
Second, turn the International Monetary Fund into a world central bank issuing paper (e.g., special drawing rights) reservesâ€”as proposed in 1943 by Keynes, since the 1960s by Robert A. Mundell, and in 2009 by Zhou Xiaochuan, governor of the Peopleâ€™s Bank of China. Drawbacks: This kind of standard is highly political and the allocation of special drawing rights essentially arbitrary, since the IMF produces no goods.
Third, adopt a modernized international gold standard, as proposed in the 1960s by Rueff and in 1984 by his protÃ©gÃ© Lewis E. Lehrman â€¦and then-Rep. Jack Kemp.
To â€œmuddle alongâ€ would, of course, be entirely antithetical to Trumpâ€™s promise to Make America Great Again. It would destroy his crucial commitment to get the economy growing at 3%+ — vastly faster than it has for the past 17 years — which also happens to be the recipe for robust job creation and upward income mobility for workers. It also is the essential ingredient for balancing the federal budget while rebuilding our infrastructure and military.
To turn the IMF into a world central bank would, of course, be anathema to Trumpâ€™s economic nationalism. To subordinate the dollar to the IMFâ€™s SDR would be equivalent to lowering Old Glory and replacing the American flag with the flag of the United Nations on every flagpole in America. Unthinkable under a Trump administration.
That leaves the third option, to â€œadopt a modernized international gold standard, as proposed in the 1960s by Rueff and in 1984 by his protÃ©gÃ© Lewis E. Lehrman â€¦ and then-Rep. Jack Kempâ€ (whose eponymous foundation I advise). To this one should add, as Forbes.com contributor Nathan Lewis has shrewdly observed, the removal of tax and regulatory barriers to the use of gold as currency.
President McKinley would be proud.