Republicans are searching for big, bold ideas that will inspire voters to embrace a conservative agenda. To unite its disparate segments, the GOP needs to uphold our nation’s founding principles—a key requirement for Tea Party adherents—while fostering the aspirations of those who believe the United States should play a strong leadership role in the world. A prime opportunity presents itself in the most compelling problem America faces: the need to restore confidence in its economic future.
Uncertainty over interest rates and the Federal Reserve’s next policy move is discouraging private sector decision-making and hampering growth; without economic growth, we cannot tackle other pressing concerns. On the global front, the disconnect between the money-pumping actions of central banks and the lackluster performance of real economic variables, such as wages, is fueling the political tensions of income inequality.
To reinvigorate faith in democratic capitalism as the best path to liberty, opportunity, and prosperity—at home and abroad—Republicans should focus on sound money as the logical foundation. But “sound money” cannot be invoked as a mere platitude; it’s time to consider profound monetary reform to establish the reliability of America’s currency and help build a new international monetary system.
And yes: We should be prepared to debate the potential role of gold in our nation’s monetary affairs and as an anchor for international monetary stability.
Should the soundness of the dollar be subordinated to other policy objectives, as determined by a small committee of Federal Reserve officials meeting in Washington, D.C., eight times a year? Would private individuals make better economic and financial decisions if they knew the value of the dollar was not slated to deteriorate annually by some unknown percentage?
Rule-of-law versus rule-of-men is a fundamental aspect of the American idea, after all. It seems an anomaly to allow the Fed to conduct monetary policy in ways that rob individuals of purchasing power, suppress returns on savings, and favor stock market investors. If the notion of self-rule based on equal rights that cannot be usurped by government is to resonate universally, as the Founders intended, America must address this glaring incongruity. How can we extol the benefits of free trade and open markets in the absence of an orderly and ethical international monetary system?
The pursuit of honest money through a gold-linked dollar remains the unfinished agenda of the late congressman Jack Kemp, a conservative Republican whose bold ideas reflected his commitment to economic opportunity and justice. For Kemp, sound money had a strong moral dimension: “People trade with each other in time because they believe they will not be defrauded by a change in the currency.” An international gold standard would provide a reliable medium of exchange that would move the whole world toward liberalized trade and strong growth, he contended.
A savvy politician, Kemp thought it was possible to make the case for sound money and stable exchange rates in terms that made sense to the average citizen. “The monetary issue is anything but remote from people’s experience,” he told a congressional summit in November 1985. “In my experience, honest, sound, stable money is a popular, blue-collar, bread-and-butter, winning political issue.”
A Columbia University economics professor gave Kemp’s approach academic validation. Robert Mundell masterminded the pro-growth “supply-side revolution” carried out under President Reagan. He and Kemp co-hosted a monetary conference in May 1983 to focus attention on the negative consequences of unpredictable exchange rate fluctuations. “You will only get confidence in future monetary policy,” Mundell explained, “if you have a monetary system that doesn’t just depend upon pure political, practical politics, and that provides a stable monetary rule such as a gold standard in at least one country.”
Mundell—who would win the Nobel Prize for economics in 1999—emphasized the necessity of reconciling monetary policy with a unified global market for goods and capital investment to avoid the inefficiencies of distorted prices across national boundaries: “The only closed economy is the world economy.”
Yet there has been no mechanism for such reconciliation since the demise of the gold-linked Bretton Woods system in August 1971. The International Monetary Fund was established in 1945 to oversee that system—to enforce the rules of fixed exchange rates among currencies and gold convertibility of the dollar—but today no global anchor exists to impose monetary discipline and curtail excess liquidity. At a Vienna conference in February, former IMF head Jacques de Larosière described the monetary setting leading up to the 2007-2008 crisis as something worse than a nonsystem: an “antisystem.”
International monetary disorder continues to undermine productive growth even as the threat of reflating bubbles -portends yet another financial crash—perhaps on the next American president’s watch. Can anyone doubt that this would devastate the future of democratic capitalism along with the global economy?
When former World Bank chief Robert Zoellick, an intellectual heavyweight in Republican circles, suggested in November 2010 that a new global monetary system might “consider employing gold as an international reference point for gauging market expectations about inflation, deflation, and future currency values,” it caused a stir but no action. Former Alaska governor Sarah Palin similarly argued for fundamental monetary reform, inveighing against “temporary, artificial economic growth” caused by the Fed’s pump priming. “We want a stable dollar combined with real economic reform. It’s the only way we can get our economy back on the right track.”
Republicans need to expound boldly on the need for sound money; it should be a vital campaign issue, as important as fiscal responsibility and coherent foreign policy. Leadership and vision are required if America is to recover its economic strength and reassert its moral purpose.
Judy Shelton, author of Money Meltdown: Restoring Order to the Global Currency System, is a senior fellow at the Atlas Economic Research Foundation and codirector of its Sound Money Project.