For all the identification, however, between Reagan and gold, the law that created the Gold Commission was actually passed by a House and Senate controlled by Democrats, and signed into law in October 1980 by Democrat Jimmy Carter one month before he lost reelection. This did not, of course, occur because the Democrats were keen to evaluate, in the statute’s phrase, “the policy of the United States Government concerning the role of gold in domestic and international systems.” The law was passed in roughly the same way that the return of gold ownership in 1974 had been—a persistent Republican legislator (Helms) with some vocal allies found a way to create a Gold Commission by tacking it onto a bill that Democrats wanted to pass, as a condition for his support.
Like the IDA bill in 1974 that returned gold ownership to Americans, re-upping of America’s commitment to the International Monetary Fund was a vital goal for official Washington—and Helms knew it. When an IMF authorization bill came before Congress in 1980 with an increase in the amount the United States would have to pay, Congress had moved to the right, and even some liberal Democrats began to question whether the money was worth it. After all, 1980 was a presidential election year, and excessive government spending was a powerful issue for the Republican Party; moreover, the IMF had few natural supporters among the general public, even if Treasury and official Washington considered it vital. The National Taxpayers Union, a conservative lobbying group, took on the IMF authorization bill as a rallying cause. Helms sensed that there was political power to be gained by threatening to block the bill. In June of that year, he added an amendment to the bill to create a commission to study “the role of gold in domestic and international monetary systems.” The Democrats calculated that support from Helms and his political allies was more important than whatever political loss a gold commission might cost—and so the Gold Commission was born, although it would not begin its proceedings until the summer of 1981.
To describe the Commission as undisciplined is an understatement. At the outset, chairman Donald Regan announced that the Commission hearings would be held in secret; “I don’t want to see my quotes spread through the newspapers,” the feisty former Merrill Lynch chairman grumbled. Apparently, no record exists of the Commission’s first meeting on July 16.9 The secrecy decision was particularly offensive to those commissioners who wanted publicity for the gold cause, and after much complaint and an astringent attack from syndicated columnists Evans and Novak, Regan relented and opened the Commission’s doors. Gold-standard advocates nonetheless never lost the sense that the deck was stacked against them from the beginning, and in some sense they were right. To get the legislation passed, the Commission had to be bipartisan; all the Democrats opposed a gold standard and most of the Republicans were more inclined to monetarism than metal. Anna J. Schwartz, Milton Friedman’s vital coauthor, implied that the Commission existed not to be a blueprint for genuine reform, but almost entirely for political show. And that was not merely because the Commission’s Democrats were not going to accept a restored gold standard. “I think one of the serious hurdles to a really sympathetic investigation of what a gold standard could achieve was the fact that the Reagan Administration never signaled that it was interested in having that kind of investigation by the Commission,” Schwartz later said. Schwartz noted that Reagan’s own economic advisers appointed to the Commission—Jerry Jordan, who had worked in the Federal Reserve Bank of St. Louis, and Reagan’s head of the Council of Economic Advisers, Murray Weidenbaum—“never really expressed any views that either supported or opposed a gold standard.” It was probably inevitable that a genuine consensus on what seemed to be the central issue—should the United States return to a gold standard?—was going to be impossible.
As a result, the Commission’s hearings and final report became a forum for symbolic pet causes of the Reagan ’80s, some of them obscure even to economists, and took on the atmosphere of an open casting call. Many of the statements the Commission gathered were plucked from the catalogues of long-standing gold-standard advocates, including Henry Holzer and Murray Rothbard. Some were thoughtful comments from economists who, while sympathetic to the goals that a gold standard might try to achieve, nonetheless sternly warned that the remedy was wrong. One such example was conservative economist Allan Meltzer’s “Epistle to the Gold Commissioners,” which began: “The gold standard is an idea whose time is past—long past.” Meltzer continued: “Advocates of a return to the gold standard offer their nostrum as a means of stabilizing prices but offer few details about how this goal would be reached. All that we are usually told is that the gold standard is a ‘supply-side’ solution, a radical change that will reduce interest rates, stabilize prices and eliminate the summer’s excess supply of zucchini. None of these claims is true.”10 Others were more exotic; among those who submitted statements to the Commission was Lyndon Larouche, the gadfly political figure whose views on monetary policy expressed the apocalyptic tone that defined early 1980s economic malaise. “Since approximately October 1981,” Larouche wrote, “the economy of the United States has entered the beginning phase of a new world depression.”11 One of the Commission’s members, Republican congressman Chalmers P. Wylie, called the group—in its own report, on the first page of the introduction—a “runaway” Commission and lamented that “many, many hours were spent debating issues which were extraneous to the Congressional assignment.”12
There was little doubt that the late 1970s saw increased interest in restoring a gold standard, thanks to the political ascendance of figures like Reagan and Alan Greenspan; the growing goldbug movement; the prolonged instability in the US and global economy; and the plethora of Krugerrand sales. But increased popularity is no guarantee of effectiveness. Under the spotlight of Commission hearings, it quickly became evident that there was more than one idea of what a “gold standard” means, and opinions divided sharply on whether such a thing had ever actually existed. After the Commission’s first (four-hour) hearing, chairman Regan proclaimed: “We can’t even agree on the historical facts.”13
At one end of the Commission’s spectrum was Ron Paul, a Texas doctor who launched a political career as a response to Nixon closing the gold window in 1971, and was elected to the House of Representatives in 1978. Paul took the position that the only genuine gold standard was one in which the US monetary system was based on gold coins. This would involve turning the clock back not to the 1930s, but closer to the 1830s. In an echo of Murray Rothbard’s 1964 manifesto (see chapter 8), Paul wanted to “repeal the privilege of banks to create money” by removing the legal-tender laws, outlawing paper money, and allowing anyone who wished to mint gold coins that would become the sole basis for day-to-day commerce. Such a system was often referred to as a “gold coin standard,” and no other commissioner shared Paul’s enthusiasm for it.14
Closest to Paul’s point of view were two commissioners from the private sector, Lewis Lehrman and Arthur Costamagna. Lehrman was a drugstore executive who later ran for governor of New York State as the Republican nominee. He was a close follower of the French economist and DeGaulle adviser Jacques Rueff. Lehrman’s desire for a dollar convertible to gold seemed less ideologically motivated than Paul’s; Lehrman instead believed that a convertible currency was necessary to stabilize that era’s damaging inflation and force interest rates to their most effective level. He called for a new international monetary conference “under the leadership of the United States, with the goal of establishing a true gold standard, one which would rule out the special privilege of official reserve currencies and thus remedy the most profound defect of the Bretton Woods exchange-rate regime.”15 Unfortunately for Lehrman, there was scant evidence in 1981 that the financial leadership of any major economy wanted such a system; even the long-standing French desire for an international gold standard had cooled by the late 1970s. As for Costamagna, an attorney who had worked with Reagan in California, Anna J. Schwartz, the economist who served as the Commission’s executive director, later wrote that “h
is sole concern for the present was to provide the market with U.S.-minted bullion coins.”
This unlikely trio did not come close to swaying the Commission to accept a reform of the monetary system with gold at its heart. The Commission failed even to produce a parade of expert witnesses who genuinely advocated a full return to a gold standard. In the two hearings devoted to the role of gold in domestic and international monetary systems, twenty-three witnesses testified—and only two argued in favor of a return to a traditional gold standard. One of them should have carried a great deal of weight: the economist Arthur Laffer, who was one of the most influential voices among Reagan’s supply-side advisers. He drafted a detailed plan for returning the country to a gold standard, but with a provision to protect US gold reserves from either being depleted or building up too high, to the point where they would be more than 175 percent of a stated target reserve. If such triggers were hit, Laffer’s plan called for a “gold holiday,” during which the official price of gold would be recalculated. Laffer pointed out that the gold market could be subject to sudden variations, such as a brand new discovery of gold. “When there is a disturbance in the gold market, I don’t want to see the whole economy suffer inflation or deflation because of some change in that market.” But as repeatedly happened during the Gold Commission’s life, the people who were most passionate and knowledgeable on the topic of a gold standard were the ones who found it hardest to forge a consensus. Ron Paul would not accept Laffer’s plan, arguing that it would preserve the ability of the Federal Reserve and Congress to “abuse the monetary system.” Paul told Laffer: “This may actually be worse than what we had before.”
The Commission delved deeply into a variety of such proposals, only to determine that they would be wildly impractical to implement. For starters, at what price should dollar-gold convertibility be restored? The stakes were very high, as the Commission report summarized: “An incorrect price might lead to a huge inflow of gold and inflation if it were too high, a huge outflow and economic contraction if it were too low.” (Both Britain and France had experienced versions of these problems when their currencies “reentered” gold convertibility decades before.) But how should the “correct” price be determined? Economists could try to back-calculate the loss of purchasing power since the dollar had last been devalued at $42.22 an ounce; or take some average of market-trading prices for a given period before restoring convertibility; or divide the dollar value of the gross national product of the world by the amount of gold in the world—all of these suggestions, and more, were debated. Depending on the formula, the value of gold might be $50 an ounce—or $3,500 an ounce.
As if that issue weren’t complex enough, the ability of Americans to own gold as an investment had, by 1981, created political pressure over gold’s price that at least some commissioners had to consider. That is, many of the plans being offered seemed highly likely to produce a fall in the market value of gold, which at the time of the Commission’s hearings was north of $400 an ounce and had been higher in 1980. Lehrman’s 1980 paper on the topic, for example, not only implied this downward effect, but put it forward as a goal. The hundreds of thousands of Americans who by then had purchased Krugerrands or similar gold-investment vehicles may or may not have been politically sympathetic to the idea of a gold standard. But presumably few of them would be cheering for a policy change that would make their gold investment worth less.
Then there was the issue of other countries. Given the unlikelihood of getting the rest of the world to cooperate with a gold standard, restoring the dollar-gold convertibility raised serious questions of enforcement. What would prevent outside individuals or institutions from using American proxies to trade dollars for gold? Presumably, US citizens buying gold would have to sign oaths that they were not making purchases on behalf of foreign entities. That measure would probably have to be combined with reinstating the legal restrictions against importing or exporting gold. And, as the Commission’s report acknowledged, “In both cases, an enforcement army of inspectors would appear to be needed.”16 For those hoping to promote gold as an instrument of free markets and human liberty, capital controls and gold-snooping Treasury agents represented unwanted steps backward.
The closest thing to monetary gold that a majority of commissioners would accept was an agreement that the United States should get back into the business of minting gold coins. But even here, there was a disagreement over the ultimate goal. Should the United States try to create a gold coin that would compete as an investment vehicle comparable to the Krugerrand? Or was the objective to get Americans accustomed to using gold coins as daily money? In which case, should the coins be designed for commercial transactions and given legal-tender status, to restore the United States to a nineteenth-century metallic money basis? Or was the most important goal, from a macroeconomic point of view, to use the coins to anchor the value of the dollar to a physical amount of gold?
From his purist’s perch, Helms was disappointed by the failure of the Commission he’d created to take a hard stand in favor of a return to the gold standard. In a letter to the Wall Street Journal, Helms wrote: “As a longtime friend and supporter of President Reagan, I am sorry that his advisers—and the Gold Commission—have not been more attentive to the 1980 Republican platform with respect to monetary reform. The people deserve better than a continuation of monetary disorder.”17
Monetary disorder, however, was not exclusive to those who disagreed with Helms. The Gold Commission exposed an undeniable rift in the “Reaganomic” coalition of conservatives, populists, Wall Street titans, and independent financial experts. There was an uneasy relationship between the ideal of a gold standard, the role that gold would play in the day-to-day running of the world’s largest economy, and the state of American politics. The Reagan administration and many of its top economic advisers keenly appreciated that the idea of a gold standard had a powerful appeal to the modern-day Republican Party. In addition to all of gold’s traditional atavistic lure, it was an easily understood and potent symbol of many of the messages of modern Republican politics. A gold standard had come to be a political shorthand for lower government spending, a balanced budget, and a reliance on market forces—and by extension a mistrust of government and its institutions.
But the power of gold’s symbolism was capable of outstripping what the metal could actually do. This was a place and a time when symbolism and political reality became jumbled. Modern conservatives hold Ronald Reagan in the highest regard, and for many of them the emblematic weight that Reagan tried to lend to a gold standard reinforces that reverence. Nonetheless, the fact remains that Reagan’s key cabinet members, Donald Regan and George Shultz, were never disposed to actually bringing about gold-based monetary reform. The president’s economic advisers were no friendlier to the idea. In his diary in June 1981, Reagan wrote of a meeting with his economic advisory council: “Art Laffer dropped a grenade on his colleagues when he said we weren’t going to solve the fiscal program until we returned to convertibility of money for gold. I would like to have heard the discussion among those economists after I left.”18 Decades after the Commission rejected a return to a gold standard, Reagan economic adviser Weidenbaum said he viewed his role on the Commission as a “damage-limitation function or the avoidance of economic harm.”19
Even Alan Greenspan was not able to square his once-fervent theoretical belief in a gold standard with the responsibilities of power, much to the disappointment of goldbugs. Here, after all, was a true friend and disciple of Ayn Rand, a man whose 1966 essay in her newsletter had ignited followers with its absolutist stand on a gold basis for money and its swipes at excessive government spending. But during his 1987 Senate confirmation hearings to become chairman of the Federal Reserve, Greenspan had to climb down from Randian idealism to a position more befitting the steward of the world’s largest economy. Asked by Banking Committee chairman William Proxmire if, as Fed chair, he would make a return to the gold standard a “top priority,
” Greenspan gave a response very much in line with the Gold Commission’s conclusions about infeasibility. “Under the conditions of the nineteenth century the gold standard probably worked more effectively than critics assert today, and if the key conditions could be replicated we might be well served by such a standard,” Greenspan said. “However, considering the huge block of currently outstanding dollar claims in world markets, fixing the price of gold by central bank intervention seems out of reach.”20
It is nonetheless short-sighted to dismiss the Gold Commission as unsuccessful. The Gold Commission succeeded in its support for a program of US government-minted gold medallions and coins. To most Americans, this might seem like merely a matter for coin collectors. But the US gold coin program also played at least two important political roles: it lent legitimacy to gold advocates within American politics, mostly among Republicans, and it helped the American gold industry to reposition itself against the gold giant South Africa. The US Treasury had begun selling gold medallions in 1980 via the US Post Office, but demand for them had been well below Treasury’s target sales of one million ounces a year. In the spring of 1983, less than a year after the Commission released its report, Treasury switched the marketing effort to a private-sector firm with deep experience in the gold market: J. Aron & Company, a division of the investment bank Goldman Sachs. (Conveniently, J. Aron’s chairman Herb Coyne had served as one of the gold panel’s commissioners.)
One Nation Under Gold Page 31
