Plan To Return America To the Gold Standard Set To Be Offered at Washington
NEW YORK — The next big step in the gold standard debate is going to be taken next month at Washington, when one of the original members of the Reagan-era United States Gold Commission offers a five-step plan to return America to sound money.
The architect of the plan, Lewis Lehrman, a businessman and scholar, will present his program in an address October 5 at a conference in Washington on the how to return to a stable dollar. He will outline a five-step program to return America to a gold-backed currency within five years.
What is significant about the event is its aim of shifting the discussion to practical steps that could be taken to rescue the American monetary system. It comes as the value of the United States dollar has collapsed to record lows, sinking at one point this month to less than an 1,800th of an ounce of gold. The value of the dollar has recovered marginally in recent days, but still lurks below a 1,600th of an ounce of gold, a level that would have been nearly unimaginable — at least in policy terms — as recently as the start of President George W. Bush’s first term, when the dollar had a value of a 265th of an ounce of gold.
“The stand-pat defenders of today’s paper-dollar system turn back every argument in favor of the gold standard by claiming that there’s no practical way to re-establish it,” says the editor of Grant’s Interest Rate Observer, James Grant. “What Lehrman has done is to devise a practical and persuasive plan to do just that.” He predicts “the ball is now — or soon will be — in the paper-money court as it has not been for a long time.”
In recent months, a growing chorus of serious observers have started to speak in favor of the restoration of a link between the dollar and gold. Some of them have been establishment figures, such as the president of the World Bank, Robert Zoellick, who in November last year startled the debate by issuing in the London Financial Times an op-ed piece suggesting there might be a role for gold in a reformed monetary system.
Since then a number of the nation’s most respected journalists — led most notably by Mr. Grant — have come out publicly for a return to the gold standard. Mr. Grant’s demarche came on the op-ed page of the New York Times. Several Republican candidates for president, ranging from Congressman Ron Paul to Congresswoman Michele Bachmann and Governor Perry, among others, have signaled that they view that the restoration of a sound dollar as being a component of returning America to the path of economic growth and full employment.
Mr. Lehrman, however, is the first of the leading figures in the debate to step forward with a plan, which he is expected to lay out in the Washington conference on a stable dollar. The conference is being hosted by the Heritage Foundation think tank. Mr. Lehrman’s plan is elaborated on at length in a book his institute will publish next month called, “The True Gold Standard: A Monetary Reform Plan Without Official Reserve Currencies.”
Although Mr. Lehrman was once a member of the United States Gold Commission, the plan he will announce next month has no official status. But when Mr. Lehrman was with the Commission, he co-authored with Dr. Paul a famous dissent, which made the case for gold and has been widely consulted in the decades since the Commission majority made its recommendation to continue with a system of fiat money, which in turn, advocates of stable money argue, culminated in America’s current travail.
The first step Mr. Lehrman will speak of in Washington would be for America to announce the “unilateral resumption of the gold monetary standard” at “a date certain,” as Mr. Lehrman put it to earlier this month in a wire to The New York Sun. What Mr. Lehrman means is that the U.S. dollar would “be defined by law as a certain weight unit of gold” and the “Treasury, the Federal Reserve, and the entire banking system” would be “obligated” to “maintain the gold value of the dollar.”
Mr. Lehrman foresees a transition in which, on the date that Congress authorizes the resumption of unrestricted convertibility between dollars and gold, Federal Reserve Bank notes and American dollar bank demand deposits would be “redeemable in gold on demand at the statutory gold parity.”
Step two in the Lehrman Plan would be the minting by the Treasury and authorized private mints of what Mr. Lehrman calls “legal tender gold coin in appropriate denominations, free of any and all taxation.” The taxation point is a key one. Currently, if the value of the dollar collapses while one is holding gold coins, one can be taxed when one spends those coins.
That the act of spending exposes one to a tax is a controversial feature of the current system of fiat money. So intense have been feelings on the point that a movement to remove state-level capital gains taxes on gold coins has already begun in the states. Utah was this year the first to formally take such a step.
The third step Mr. Lehrman will propose at Washington is an international monetary conference that would, as Mr. Lehrman sketches it, “to provide for the deliberate termination of the dollar-based official reserve currency system and the consolidation and refunding of foreign official dollar reserves.”
He reckons that the international agreement to be negotiated would “inaugurate the reformed international monetary system,” or what he calls the “multilateral currency convertibility to gold, without official reserve currencies.”
Step four would be the establishment by the conference of gold as “the sole means by which nations would settle residual balance of payments deficits.” The idea would be to designate gold, “in place of reserve currencies, as the sole official monetary reserve asset.” Once official foreign currency reserves were consolidated and refunded, Mr. Lehrman argues, “table exchange rates would result.”
Finally, the fifth step would be that so-called “floating” and “pegged-undervalued exchange rates,” as Mr. Lehrman terms them, would go out of use, and the “reformed international monetary system would establish and uphold stable exchange rates and free and fair trade — based on the mutual convertibility to gold of major currencies.”
One headwind Mr. Lehrman’s plan might face is any sign that value is starting to flow back into the dollar. In recent days the value of the dollar has risen somewhat, though not by a large amount in percentage terms. If the trend continues, it is possible it could take some of the steam out of the movement for monetary reform.
This is one of the reasons momentum fell away from monetary reform at the start of the Reagan administration. Even while the Gold Commission was meeting, the new chairman of the Federal Reserve Board at the time, Paul Volcker, was putting in place the regime that defeat the great inflation into which the country had been plunged in the 1970s.
The conference in Washington, however, is pursuing a strategy designed to get past the question of which way the dollar is moving at any given moment to the question of what many believe to be the paramount principle, namely the stability of the dollar in terms of gold. That is, its usefulness as a measure of value. Mr. Lehrman stresses that a true gold standard is as effective in preventing deflation as it is against inflation, a point that may become central, if the value continues to flow into the dollar.
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