Capitol Ideas / Sheer Gold
Bethell, Tom
"Capitol Ideas / Sheer Gold" anniversary of Harry Truman's 1947 signing of Executive. Order 9835, authorizing loyalty investigations of federal employees. He died of gunshot wounds and a broken heart. Mr. Bruno, born...
...People are best paid at the end of the day, after the work is done...
...The confusion arises because (1) the discount rate for several weeks has been well above market interest rates (e.g., in Treasury bills), which causes a contraction of the money supply (deflationary...
...In a word, Keynesianism...
...For these reasons it seems certain that the government as presently constituted will not permit a return to the gold standard until there is a total monetary collapse...
...In two words, the gospel according to Milton Friedman...
...Bruno, too, was a hero in his way...
...He drove a 1973 Chevrolet...
...One champion of the idea that the gold price is rational, and in fact closely related to such other indicators as total Federal Reserve credit, interest rates, and the inflation rate, is Lewis E. Lehrman, president of the Lehrman Institute and former president of the Rite Aid Corporation...
...But why were so many people bringing in gold...
...Gold's role is to "stand in" as a proxy for all other commodities and it has been selected, historically, to play this role because of its compactness, rarity, indestructibility, and beauty...
...These qualities make gold an ideal commodity with which to measure the demand for paper because gold itself simultaneously has a Worldwide appeal as actual money...
...Worst of all, the press continued to refer to him in such pejoratives as mobster, Mafia Don, and so forth...
...Ernest Coccia, who lived but three doors away from the Bruno manse, (continued on page 44) C A P I T O L I D E A S SHEER GOLD by Tom Bethell Modern...
...But they are both surely wrong...
...The purpose of gold-dollar convertibility is to increase the demand for dollars, not gold...
...If demand creates supply, then money creates labor...
...If things are allowed to "pull" into existence the money needed 4o buy them, then the correct amount of money will appear...
...It is important to note that the function of the gold standard is to observe the relative desirability of paper money and gold, not to accumulate gold at a rate commensurate with the growth of GNP...
...Jude Wanniski has observed that the beauty of this system is that it puts the people in control of the money supply--a nice point...
...economics has unfolded with a perfect symmetry, in four stages...
...Since the British monetary authorities were operating with quill pens and dusty ledgers throughout this period, and yet managed the currency so that the pound's value neither rose nor fell, they must have known something that is now forgotten...
...When Lillian Hellman made a similar gesture the American intelligentsia made her into a hero...
...Money should be thought of as ex, isting on the demand side of life, not in Friedmanite terms of supply...
...As a result, deflation persisted...
...According to this theory, a reduction in high marginal (as opposed to average) tax r a t e s will stimulate production, becau~;e the effect of such tax rates is to deter economic activity...
...For this reason, I believe that Professor Laffer is incorrect to suggest, as he does in his recent paper, "The Reinstatement of the Dollar," that supply interruptions and vagaries of the gold market such as have been suggested by Lindley Clark of the Wall Street Journal might require a change in the convertibility price...
...Stephen Entin of the J o i n t Economic Committee of Congress tells me that, although Laffer gets all the credit, fiscal supply theory first emerged from the JEC...
...The demand fi~r money, it turns out, is best measured by . . . gold...
...The only result is bitternes.~ and the destruction of capital...
...Such a system has existed for hundreds of years at a s.tretch and it is called the gold standard...
...It is a system that takes away a lot of power from the government, and even more power away from monetarist economists...
...Gold and dollars become mutually convertible, at a fixed price (say $500 per ounce...
...He was 69 and his only jail term did not come until 1973, and that jugging came about only because he had refused to answer questions before the New Jersey State Commission of Investigation...
...Will Mother Jones or the Progressive pause to memorialize him...
...Those who like to resist new ideas on the grounds that they are old will have a lot of fun with this one...
...people think that the purpose of a gold standard is to encourage people to go around with pieces of yellow metal in their pockets...
...L e t us say that we return to the gold standard in the United States today...
...How about the prisoners of endless FBI surveillance...
...That is monetarism, which could be characterized as the theory of "up-front money," explaining, for example, why many authors fail to deliver manuscripts when they are paid lavish sums in advance...
...arguments in favor of a monetary role for gold...
...It is a simple mechanism, brilliantly so, and it worked successfully in England for 200 years, during which period there was no inflation, except during the Napoleonic Wars, when the mechanism was suspended...
...Its agents hounded him all his adult life...
...Foreign governments were exchanging paper dollars for gold because the paper was continually declining in purchasing power...
...at the other window he can bring gold and demand paper money...
...This is known as inflation...
...Then.came-stage three, much discussed recently in the press: fiscal Tom Bethell is The American Spect a t o r ' s Washington columnist and Washington editor o f Harper's...
...Some...
...They know they have printed too much of it and so they phone up the Bureau of Engraving and Printing and order the printing presses slowed down or halted...
...Champion: Arthur Laffer...
...This theory soon elicited its logical corollary, monetarism, which is impticii in Keynesianism...
...Unless I am mistaken, this is what happened in the United States in the 1890s, when William Jennings Bryan made his well known complaint about the cross of gold...
...You cannot use money to "push" things into exis-' tence...
...In a sense, then, Bryan was right...
...On the other hand, when the nation's gold reserve is allowed to run out, the authorities are ignoring the signal indicating inflation...
...He shared their lifestyle they said, dressing and eating~ conservatively...
...They even made her into an important playwright, despite all the evidence to the contrary...
...His police record was practically without blemish...
...Even during his funeral the relentless FBI was ever present...
...His ideas on this and related topics are of considerable interest, and I plan to discuss them at greater length in a coming installment...
...Let us recap briefly...
...This is more commonly, and more misleadingly, expressed by saying that gold was "undervalued...
...When it is unregulated, as today, the gold price acts as a leading economic indicator of great sensitivity, feeling out in a well informed way the future inflation rate and deciding whether it is going to move up higher than interest rates...
...Actually, that is a touch oversimplified...
...Therefore, it is a mistake to believe that each and every dollar is "backed" by a constant quantity of gold in Fort Knox...
...The Treasury at that time was accumulating gold...
...Bruno, born abroad, rose to become one of the most prosperous vending machine salesmen ever heard of, nonetheless the FBI would not leave him alone...
...Pork bellies and cinder blocks would successfully measure the demand for money only if they were themselves acceptable as money, and there is no evidence that they are or ever have been...
...Bruno died full of years and honors...
...It is paper money that must grow along with the economy, not gold...
...That is why people are demanding metal now, when we are not on a gold standard (observe the ads for Krugerrands...
...His paper, "Monetary Policy, The Federal Reserve System, and Gold," published earlier this year by Morgap Stanley, convinces me that he is today the leading exponent of the...
...Think of it this way...
...When dollars and gold are convertible at a fixed price, the price of gold is thereby regulated and inflation disappears...
...And indeed they did...
...His house was shadowed...
...When that is achieved, there is no net inflow or outflow of gold, and there is neither inflation nor deflation...
...Because there were not enough dollars in circulation...
...It exists merely to provide the "error signal," indicating to the authorities that there is either too much or too little money in existence...
...First came the theory of fiscal demand, the .word "fiscal" in economics referring to the taxing a n d / o r spending power of the state...
...At that point they will "command" a wage, and the thing that they have made will result in a demand for an addition to the money stock equal to its value...
...If the authorities begin to notice that more people are standing in line with paper in their hands, demanding gold, than vice versa, then they know that the demand for money is dropping...
...Its purpose THE AMERICAN SPECTATOR JULY 1980 5 is to give the monetary authorities a way of observing the demand for money--and I mean paper money...
...This happened between 1949 and 1971 in the United States, when the nation's gold reserve declined by more than one half...
...It is logical to argue, then, that the overall quantity of money can elicit a given quantity of work, or goods...
...One Mr...
...Bruno's neighbors realized his fine humane qualities...
...Yet he was constantly under surveillance...
...The prioritists can argue over that one...
...Both have special rates for prisoners...
...They would be more likely to increase the discount rate...
...Hence the theory of monetary supply as the prime determinant of GNP...
...Now comes monetary demand, and it in turn is the logical corollary to supply-side economics...
...Money can only be "pulled" into existence by the goods that money can buy...
...They entail taking away from some people the money they were paid at the end of the day and then giving it to others at the beginning of the day (in the belief that only money can "push" labor...
...The donors organize themselves into tax revolts and the recipients are strongly inclined to shirk...
...The fourth and final stage is now beginning to be discussed serio u s l y - t h e theory of monetary demand...
...The aim of the monetary authorities is to get the lines at the two windows the same length...
...It is not...
...This theory posits that the way to stimulate economic growth is to allow government spending to march boldly ahead of r e v e n u e s , which will stimulate demand...
...On the contrary, its purpose is to encourage people to carry paper, something they are reluctant to do when it loses 15 percent of its value in a year...
...What for...
...Thus, if we can set up a system whereby the amount of money that is allowed to come into existence is regulated by an observed demand for money, then inflation will cease to exist...
...This is because the very existence of capital so readily available for fragmentation and consumption in itself refutes the need for labor...
...His neighbors remembered him as a kind, warm man whose friendship they cherished...
...This is the one thing that cannot be Changed if confidence in the gold standard is to be maintained, once embarked upon...
...Like the suspicious antennae at the tip of an insect's nose, the puzzled gold price has been trying to figure out what lies ahead...
...One of the main problems with the gold standard is that it is possible for a country to be "on" it and yet still not understand how to operate it correctly...
...On the other hand, as the last decade has shown, the attempt to "push" an economy with money created for that purpose (monetarism) tendsto result in an imbatance--a shortage of goods relative to money...
...Likewise, Jude Wanniski has suggested cinder blocks...
...Here at last "things" take precedence over money, supply over demand...
...At one window he can bring $500 (or any number) and demand an ounce of gold...
...Milton Friedman says that the selection of goldto play a monetary role is arbitrary and that other commodities, like pork bellies, would do...
...The monetary authorities ignored the "error signal" indicating it was time to expand the money supply...
...For the last month or so (May and late April) the gold price has stayed in a remarkably narrow range, around $500, indicating that it is " t h i n k i n g , " trying to predict the effect of contradictory signals emerging from the Federal Reserve Bank...
...Any citizen, or anyone in the world, is then free to stand in line at one of two windows at the central bank, or Treasury...
...In a growing economy, paper money grows commensurately, but the gold stock in the central bank remains constant...
...6 THE AMERICAN SPECTATOR JULY 1980...
...If it comes to such a conclusion, then it (the gold price) moves upward in response to gold purchasing by dollardumpers...
...His telephones were tapped...
...All attempts by governments to create jobs, whether in this country by transfer payments or in the Third World by foreign aid--in short, by the coerced redistribution of cash-are bound to fail in the vast majority of cases...
...supply, otherwise known as supplyside economics...
...When something is made, then and only then does there come into existence the demand for its monetary counterpart...
...This is how gold works to measure the demand for paper money...
...After a while, dollars would become scarcer, and people would begin showing up at the other window, gold in hand, saying: "Give us some of those good dollars you've got, in exchange for this useless metal...
...The supply of goods creates the demand for money...
...while (2) the Federal Reserve Board's Open Market committee has continued to buy government securities, thus injecting new, "high powered" money into the system (inflationary...
...It goes like this...
Vol. 13 • July 1980 • No. 7
