By CJ Maloney
Reporter: Mr. President, is it still the desire of the United States to go back on the international gold standard?
Pres. Franklin Roosevelt: Absolutely.
(FDR Press Conference, April 19, 1933)
Just a few months ago, Federal Reserve big wigs and other assorted muckety-mucks gathered at a swank resort on the aptly named Jekyll Island (a spit of land off the coast of Georgia where our current Mr. Hyde of a monetary system was birthed) to celebrate the release 100 years ago of the Aldrich Plan that created a bank cartel of Wall Street, by Wall Street, for Wall Street, so it shall not perish from the earth no matter what slack-jawed fools they may prove themselves to be.
It was that Aldrich Plan that set in motion the creation of the Federal Reserve System that we all know and love. Actually, however we may love it we don’t know much about our Federal Reserve, as its secretiveness is legendary; they make the CIA look in comparison like a gabby teenaged girl. So forgive me if I beg the question – what accomplishments, exactly, were they all celebrating on Jekyll Island?
Maybe the Panic of 1920, created in the newly birthed Federal Reserve’s cauldron of easy money that sent wholesale prices skyrocketing by 126% between 1913 and1920? Or was it the speculative mania of their Roaring 20’s inflation binge (with the money supply rising by 7.7% per annum from 1921-1929), or the inhuman length of the Great Depression when that bubble popped and the Federal Reserve did everything to prevent prices from adjusting to clear things out?
Maybe it was their enthusiastic funding of LBJ’s Wars on Vietnam and Poverty that forced Nixon to declare their huge emissions of paper money to be just that – paper? Or maybe it was the Arthur Burns Reign of Stagflation during the 1970s or the 44% debasement of the U.S. dollar under Bubbles Greenspan? Or maybe it was our current low economic state, a depression now three years of age, healthy and robust?
Forgive the rant, but their gall to celebrate anything with a 96% depreciation of the US dollar’s value since 1913 resting firmly on their shoulders is a bit much. Only government-enforced monopolies like the Federal Reserve could destroy 96% of something turned over to their care and celebrate a job well done.
The standards they hold themselves to have collapsed to the point they call depreciation “stable” and have morphed from promising to make paper money “as good as gold” to espousing a monetary theory that positively ordains endless inflation. Again, just what do they have to celebrate?
Over the course of my years I’ve morphed into one of those sad, lonely lunatics, a “gold bug”. Despite a top-notch graduate school education, years spent on Wall Street, and a decade plus of immersion in economic questions, I cannot for the life of me but wonder at the widespread insistence among my contemporaries that a central bank fights inflation, especially considering the Federal Reserve’s historic track record and the clear superiority for the job that the gold standard delivered.
In a recent piece on the Asia Times website the authors outlined the facts, which are not in dispute.
Looking at the pre-Fed era, the US consumer price index (CPI) declined at an annual average of 0.5% and real gross domestic product (GDP) grew at an annual 4% during 1800-1912; this would have been labeled grave deflation by Bernanke and would have been considered as a danger to the economy.
During the Fed era, the CPI rose at 3.5% per year and real GDP at 3.25% per year during 1913-2009. Hence a dollar bought almost twice as much goods in 1912 as it did in 1800; and in 2009 it bought less than 5% of the goods it bought in 1913.
Yet, if I fail to suppress a laugh whenever someone starts yapping about the Federal Reserve’s “inflation fighting” reputation I’m the one wearing a tin foil hat. And now, protected by a wall of popular delusion, the Federal Reserve the past few years has engaged in an unprecedented frenzy of money creation. To be honest, though, it wouldn’t concern me so much if I weren’t bound by law to accept the U.S. paper dollar as payment of any debts due to me and to pretend that they are “money”. Of this last, embodied by our legal tender laws, I wonder – Why?
Why does a government that cares nothing whether I trade you my TV, my couch, my backyard swing-set or my car in exchange for your collection of cabbage patch dolls suddenly feel it has rhyme, right or reason to tell me what specific brand of money I must use should we choose to forego barter? Why do we allow ourselves only one single choice of currency?
It’s not as if the technology to have multiple currencies happily co-exist (and compete) within our economy is not readily available. More to my point, why do our political elite and the laws they enforce harbor such distaste and hatred for the use of a gold-backed currency?
Besides the safety net provided by having multiple currencies in circulation – as should one fail (through dishonesty or mismanagement) others are readily available to plug the gap – the current monopoly enjoyed by the Federal Reserve has reduced us to the level of the sad sack Communist-era East Germans, forced to putter about in smoky little Trabants, their one and only allowable brand of auto. And much as the Trabant was a pale substitute for a real car, the U.S. paper dollar has proven to be a pale substitute for real money. According to Mr. Bernanke’s own definition the U.S. paper dollar isn’t even money at all, as it lacks one of money’s indispensable characteristics: to be a “store of value”.
At the moment Democratic America is not ready for a gold-backed currency, let alone a gold standard, as the average man in the street would consider it a cross he’d be nailed to rather than a shield for his protection. It’s been so long since we’ve lived under such a monetary regime that it’s now but a dim memory, a forgotten relic of a distant past – its heyday pre-dates even the birth of Mick Jagger.
Yet, FDR made a promise to America back in 1933, and some of us remember and are still waiting for its honest fulfillment. But not too many wait or even desire it; at least among the people that count. So as much as I would love to see the pre-WW1 gold standard re-established, and as much as my pile of saved U.S. paper dollars melting under the Federal Reserve’s endless inflations require its protection, I have no hope that in my lifetime I’ll ever look like anything but a lunatic by advocating for its return.
C.J. Maloney lives and works in New York City. He blogs for Liberty & Power on the History News Network and Daily Kos websites. His first book Back to the Land (Arthurdale, FDR’s New Deal, and the Costs of Economic Planning) is to be released by John Wiley and Sons in February 2011.