On the Shelf: Judy Shelton’s Fixing the Dollar Now: Why U.S. Money Lost Its Integrity and How We Can Restore It
December 19, 2013
(This item originally appeared in Forbes.com on December 19, 2013.)
I’ve said that we need a “shelf of books” that are contemporary and relatively free of error, to help guide the world back to a gold standard system. The world may not want to go that way; but, we can be reasonably sure that you can’t make a functional and reliable gold standard system if you can’t even write a decent book about it.
Unfortunately, most books of the past century or so are, frankly, rather poor. They have many worthy elements, but are often so riddled with problems that, in my opinion, they cause more harm than good. I couldn’t honestly say: “Here, read this.”
We actually have some quite talented minds focused on the topic today — better, in my opinion, than was common in past decades. One is that of Judy Shelton, author of The Coming Soviet Crash (1989) and Money Meltdown (1994), and a longtime veteran of bigdome jobs in Washington DC.
Shelton’s recent book is Fixing the Dollar Now: Why U.S. Money Lost Its Integrity and How We Can Restore It. It is not a long book, perhaps more of a pamphlet in the tradition of Thomas Paine’s “Common Sense”, and is available in Amazon Kindle form for $0.99. So, no excuses.
The book is in what you might call the “Constitutional” tradition, with considerable focus on the ideas of the U.S. Founding Fathers and U.S. history. I am more of an internationalist myself; Constitutionalist arguments don’t work very well on Hungarians or Chinese, who I feel are most interested in fiat-currency alternatives at this time. However, I particularly liked Shelton’s exposition of why the United States was founded with gold-standard principles, and why the U.S. followed those principles for 182 years until 1971, in the process becoming the world’s monetary leader, financial center, and economic superpower.
“But if what is used as a medium of exchange is fluctuating in its value, it is no better than unjust weights and measures, both which are condemned by the laws of God and man, and therefore the longest and most universal custom could never make the use of such a medium either lawful or reasonable.”
This is from a paper called “A Caveat Against Injustice, or an Inquiry into the Evil Consequences of a Fluctuating Medium of Exchange.” It was written by Roger Sherman, one of the signatories of the U.S. Constitution, in 1752. He was not just theorizing; the paper was written soon after a collapse of government-issued fiat paper currencies in his home of Connecticut.
Economists today think they invented floating currencies. This is only because they were de-invented in the late 1780s, due to repeated bad experiences in the American colonies.
Here’s Shelton’s quote from Alexander Hamilton, the United States’ first Treasury Secretary:
“To emit an unfunded paper as the sign of value ought not to continue a formal part of the Constitution, nor ever hereafter to be employed; being, in its nature, pregnant with abuses, and liable to be made the engine of imposition and fraud; holding out temptations equally pernicious to the integrity of government and to the morals of the people.”
And people today think that these great minds adopted a gold standard system because of superstition!
In addition to these historical gems, the book also contains some excellent references to hard money thinking during the 1980s and 1990s, in publications such as The Cato Journal.
The second half of the book focuses on Shelton’s suggestions for getting from where we are now to some better solution. I am happy to note that she provides a menu of five options — a welcome respite from the “my way is the only way” rhetoric that characterizes many lesser works in the genre. You can pick the one that seems most appropriate for the time.
Shelton seems most attracted to a nonthreatening incremental approach, including, for example, the introduction of certain issues of Treasury bonds with a gold link, perhaps in the form of principal payment in a certain amount of physical gold bullion on the option of the bondholder. This would be somewhat analogous to today’s Treasury Inflation Protected Securities, or bonds issued by other countries (Mexico and Brazil for example) which are denominated in local currencies but contain a U.S. dollar link.
While there is nothing in particular wrong with this method, it is, in my opinion, a proposal that was better suited for the 1990s than the situation of today. In the 1990s, the U.S. had pursued a “strong dollar” policy since Paul Volcker’s big come-to-Jesus moment in 1980, which effectively ended the currency depreciation policy of the 1970s. The result was that the U.S. dollar’s value fluctuated broadly around a center point of about $350 per ounce of gold. The issuance of gold-linked Treasury bonds would have been further progress along a road that the U.S. had traveled for over ten years already, and would have made a strong dollar stronger.
Today, the Federal Reserve, with the blessing of Congress, large banks, and many others, has embarked on an open-ended policy of printing money on a daily basis, basically to fund the Federal government’s budget deficit although no one may speak such things in name. These situations tend to end badly, and are soon followed — as was the case with the United States in 1789, immediately after the Continental Dollar hyperinflation of the 1780s — by a rigorous gold standard system, more along the lines of the other four proposals that Shelton identifies.
The biggest gold standard advocates are those who lived through a hyperinflation. It is easy to forget that the hard money advocates of 1789 — Hamilton, Jefferson, et. al — were actually the same people that were printing money to finance Federal budget deficits in the 1780s, in the guise of the Continental Congress. Oops. More recently, people like Ludwig von Mises, who lived through the Austrian hyperinflation of the 1920s, became the biggest gold standard advocates of the 20th century.
Although I haven’t read it, I have heard that one of Shelton’s premises in her 1989 book The Coming Soviet Crash was that the Soviet government had begun to fund itself with the printing press. The Soviet Union did indeed crash, to the surprise of most all professional Soviet Union-watchers not named Shelton, and a decade of hyperinflation followed for all of post-Soviet Eastern Europe and Central Asia.
But that couldn’t happen here because — I know — this time is different.
Sure it is.
If you follow my stuff, you know that I don’t have particularly high regard for the majority of what we’ve seen from gold standard advocates over the past few decades. Too much bathwater with the baby. I am happy to say that Fixing the Dollar Now is an exception to that pattern: contemporary, sophisticated, insightful, and free of the typical errors that have become all too familiar. Plus, it’s short, accessible and easy to absorb, which are welcome attributes for a book on monetary policy. It definitely gets a spot on my personal Shelf of Books, representing our best thinking about Classical gold-based monetary systems for the present and future age.
Here: read this!