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...
...Hence the theory of monetary supply as the prime determinant of GNP...
...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 is the one thing that cannot be Changed if confidence in the gold standard is to be maintained, once embarked upon...
...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...
...His house was shadowed...
...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...
...Some...
...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...
...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...
...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...
...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...
...It is not...
...Money can only be "pulled" into existence by the goods that money can buy...
...His telephones were tapped...
...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...
...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...
...Bruno's neighbors realized his fine humane qualities...
...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...
...This happened between 1949 and 1971 in the United States, when the nation's gold reserve declined by more than one half...
...When dollars and gold are convertible at a fixed price, the price of gold is thereby regulated and inflation disappears...
...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...
...Champion: Arthur Laffer...
...The donors organize themselves into tax revolts and the recipients are strongly inclined to shirk...
...This is because the very existence of capital so readily available for fragmentation and consumption in itself refutes the need for labor...
...When that is achieved, there is no net inflow or outflow of gold, and there is neither inflation nor deflation...
...When Lillian Hellman made a similar gesture the American intelligentsia made her into a hero...
...It is logical to argue, then, that the overall quantity of money can elicit a given quantity of work, or goods...
...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...
...This is more commonly, and more misleadingly, expressed by saying that gold was "undervalued...
...Money should be thought of as ex, isting on the demand side of life, not in Friedmanite terms of supply...
...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...
...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...
...The purpose of gold-dollar convertibility is to increase the demand for dollars, not gold...
...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...
...As a result, deflation persisted...
...The monetary authorities ignored the "error signal" indicating it was time to expand the money supply...
...It is paper money that must grow along with the economy, not gold...
...They even made her into an important playwright, despite all the evidence to the contrary...
...On the other hand, when the nation's gold reserve is allowed to run out, the authorities are ignoring the signal indicating inflation...
...But why were so many people bringing in gold...
...It is a system that takes away a lot of power from the government, and even more power away from monetarist economists...
...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...
...supply, otherwise known as supplyside economics...
...Now comes monetary demand, and it in turn is the logical corollary to supply-side economics...
...If it comes to such a conclusion, then it (the gold price) moves upward in response to gold purchasing by dollardumpers...
...The aim of the monetary authorities is to get the lines at the two windows the same length...
...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...
...One Mr...
...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...
...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...
...Actually, that is a touch oversimplified...
...Bruno, too, was a hero in his way...
...People are best paid at the end of the day, after the work is done...
...His police record was practically without blemish...
...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...
...Even during his funeral the relentless FBI was ever present...
...In a word, Keynesianism...
...He shared their lifestyle they said, dressing and eating~ conservatively...
...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...
...Yet he was constantly under surveillance...
...The prioritists can argue over that one...
...The Treasury at that time was accumulating gold...
...He drove a 1973 Chevrolet...
...Because there were not enough dollars in circulation...
...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...
...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...
...The only result is bitternes.~ and the destruction of capital...
...If demand creates supply, then money creates labor...
...And indeed they did...
...Both have special rates for prisoners...
...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...
...It goes like this...
...The demand fi~r money, it turns out, is best measured by . . . gold...
...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...
...Therefore, it is a mistake to believe that each and every dollar is "backed" by a constant quantity of gold in Fort Knox...
...This theory soon elicited its logical corollary, monetarism, which is impticii in Keynesianism...
...When something is made, then and only then does there come into existence the demand for its monetary counterpart...
...Likewise, Jude Wanniski has suggested cinder blocks...
...In a growing economy, paper money grows commensurately, but the gold stock in the central bank remains constant...
...What for...
...Those who like to resist new ideas on the grounds that they are old will have a lot of fun with this one...
...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...
...Think of it this way...
...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...
...Worst of all, the press continued to refer to him in such pejoratives as mobster, Mafia Don, and so forth...
...But they are both surely wrong...
...Foreign governments were exchanging paper dollars for gold because the paper was continually declining in purchasing power...
...Milton Friedman says that the selection of goldto play a monetary role is arbitrary and that other commodities, like pork bellies, would do...
...His ideas on this and related topics are of considerable interest, and I plan to discuss them at greater length in a coming installment...
...at the other window he can bring gold and demand paper money...
...His neighbors remembered him as a kind, warm man whose friendship they cherished...
...How about the prisoners of endless FBI surveillance...
...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...
...You cannot use money to "push" things into exis-' tence...
...L e t us say that we return to the gold standard in the United States today...
...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...
...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...
...If things are allowed to "pull" into existence the money needed 4o buy them, then the correct amount of money will appear...
...Bruno died full of years and honors...
...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...
...The fourth and final stage is now beginning to be discussed serio u s l y - t h e theory of monetary demand...
...Its agents hounded him all his adult life...
...Let us recap briefly...
...In a sense, then, Bryan was right...
...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...
...6 THE AMERICAN SPECTATOR JULY 1980...
...The supply of goods creates the demand for money...
...It exists merely to provide the "error signal," indicating to the authorities that there is either too much or too little money in existence...
...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...
...arguments in favor of a monetary role for gold...
...economics has unfolded with a perfect symmetry, in four stages...
...Will Mother Jones or the Progressive pause to memorialize him...
...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...
...This is how gold works to measure the demand for paper money...
...people think that the purpose of a gold standard is to encourage people to go around with pieces of yellow metal in their pockets...
...Here at last "things" take precedence over money, supply over demand...
...This is known as inflation...
...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...
...In two words, the gospel according to Milton Friedman...
...Gold and dollars become mutually convertible, at a fixed price (say $500 per ounce...
...They would be more likely to increase the discount rate...
...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...
...At one window he can bring $500 (or any number) and demand an ounce of gold...
...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...
...Such a system has existed for hundreds of years at a s.tretch and it is called the gold standard...
Vol. 13 • July 1980 • No. 7
