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It’s the Money, Stupid

Papering over our economic problems.

Oct 18, 2010, Vol. 16, No. 05 • By JEFFREY BELL and SEAN FIELER
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Instead of praying that the Republicans will not fall victim to the same pressures to spend as everyone else who has served in Congress since the dollar was unmoored from gold, we must limit the power of the federal government in a way that is consistent with the reality that most elected officials, most of the time, act out of self-interest rather than in the public interest. As the past four decades have shown, our system of limited government cannot include an institutional printing press that stands ready to absorb any unwanted government issuance of debt.

That the party ostensibly in favor of limited government has left Hoenig, a reformed Keynesian, to sound the alarm is worrisome. To be effective, the Republicans will now need to show the same courage Hoenig is demonstrating by his willingness to attack his longtime central banking colleagues at Tea Party events. This courage will come only once Republicans realize, as Hoenig already does, the dangerous game the Fed is playing: calling into greater and greater question the currency by which economic values are measured and on which our financial security depends. 

But embracing Hoenig’s critique of the Fed will not be enough. Republicans must go a step further. The debt-driven global monetary system inadvertently started 39 years ago by Nixon is both opaque and dysfunctional. Not a single official any longer seems to understand it, with the possible exception of one regional Fed president, a 64-year-old man who after receiving his doctorate in economics from Iowa State in 1973 went to work at the Kansas City Fed and has worked there ever since. And even Hoenig, in 2003, voted in favor of the policy that he now rightly criticizes.

Conservatives should take this opportunity to swear off the paper dollar standard and monetary micromanagement for good. This needed catharsis will allow the founding republican principles of limited government and human fallibility to inform our monetary policy. As always, the world is looking to the United States for leadership. If we do not begin to return to the simple, transparent workings of the international gold standard, where the world’s final money once again is something of independent value, the future not just of money but of global capitalism itself is likely to be cast into even greater doubt than we’ve seen so far.

Sean Fieler and Jeffrey Bell are chairman and policy director of the American Principles Project, a Washington-based advocacy group.

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