Why So Many Historians Agree With Ted Cruz On Gold

Why So Many Historians Agree With Ted Cruz On Gold
February 9, 2016

(This item originally appeared at Forbes.com on February 9, 2016.)


Echoing the recent sentiments of Steve Forbes, this week Republican presidential contender Ted Cruz told a group in New Hampshire:

Money is … a unit of measurement. So, the reason why we see these rapid oscillations in commodities markets, it’s because of unstable currencies. And it’s why I think we should look at going toward rules-based money supply, ideally tied to gold, so you have stability.

Perhaps this will trigger another flood of disagreement in the mainstream press, such as the recent New York Times item which reported that 40 out of 40 “leading economists” said that a gold standard system “would not improve the lives of average Americans.”

This must explain how the United States, which embraced the principle of gold-based money for nearly two centuries until 1971, became the wealthiest and most powerful country in the history of the planet.

Here’s a little different view of historical consensus. What follows is an extended excerpt from The Anatomy of an International Monetary Regime: The Classical Gold Standard, 1880-1914, by Giulio Gallarotti (1995):

“There is far less disagreement among scholars, however, on the question of [monetary] regime outcomes. One is struck by the near consensus in the historiography on the gold standard that the period [1880-1914] produced international regime outcomes which were highly desirable. Kenwood and Lougheed (1983) state that “one cannot help being impressed by the relatively smooth functioning of the nineteenth-century gold standard.” They add that its external adjustment mechanism “worked with a higher degree of efficiency than that of any subsequent international system.” Ford (1989) calls it “a system more stable perhaps than anything seen since.” Cohen (1977) sees it as an international monetary regime that marks a “Golden Age” in the history of monetary relations. He emphasizes how “enormously successful” it was “in reconciling tensions between economic and political values.” Beyen (1949) underscores the extent to which it has become perceived as “one of the world’s most prosperous and ‘normal’ periods.” Cleveland (1976) offers extensive praise of the relative performance of this regime, calling it a period of unmatched “harmony” in monetary relations. Keynes (1931) noted that “the remarkable feature of this long period was the relative stability of the price level.” Triffin (1964) points out the gold standard “provided a remarkably efficient mechanism of mutual adjustment of national monetary and credit policies to one another.” Maier (1978) calls it a “smoothly running” system. Strange (1988) refers to it as “an island of relative order and stability.” Yeager (1976) stresses how the desirable regime outcomes of the gold standard imparted a vision on monetary relations of the period as the “good old days”: something long gone but venerated nonetheless.

Among … the gold club, abnormal capital movements (i.e., hot money flows) were uncommon, competitive manipulation of exchange rates was rare, international trade showed record growth rates, balance-of-payments problems were few, capital mobility was high (as was mobility of factors and people), … exchange rates … were extremely stable, there were few policy conflicts among nations, speculation was stabilizing (i.e., investment behavior tended to bring currencies back to equilibrium after being displaced), adjustment was quick, liquidity was abundant, public and private confidence in the international monetary system remained high, nations experienced long-term price stability (predictability) at low levels of inflation, long-term trends in industrial production and income growth were favorable, and unemployment remained fairly low.” (pp. 18-19)

What can I add to that? Only that a statesman who doesn’t understand what Cruz, Forbes or Gallaroti are talking about has a big gap in their understanding.