Economists debate return to gold standard
Should the United States go back to gold? The recently appointed, little-known government Gold Commission meets Sept. 18 to decide how serious to make its inquiry into relinking the American dollar to gold.
In last year's Republican platform proceedings in Detroit, Rep. Jack Kemp (R) of New York and David A. Stockman, subsequently named budget director by President Reagan, collaborated to adopt a draft urging a "monetary standard," presumably based on gold.
Messrs. Kemp and Stockman are so-called "supply-siders." They believe that cutting taxes will swell federal income under certain conditions. Congress has now cut taxes but Wall Street remains cool. Some of the supply-siders are advocating a return to the gold standard, arguing that this will convince Wall Street that inflation will be halted. If the dollar is made interchangeable with a fixed amount of gold, it is argued, the value of the dollar will be decided and inflation will halt.
Many economists have not taken the study seriously. But the conservative Wall Street Journal urges the Gold Commission to "conduct a serious look at the possibility of anchoring money creation to gold or some other direct proxy for the general price level." A strong advocate of the gold standard is Jude Wanniski, a former editorial writer for the newspaper.
Reagan advisers are split on restoring the gold standard.
Rep. Kemp is a strong supporter. Lewis Lehrman, businessman, economic theorist and prominent supply-sider, another. Mr. Stockman and Lawrence Kudlow, a Wall Street economist recruited by Stockman, appear committed to it. Conservative Senator Jesse Helms (R) of North Carolina seems sympathetic. Arthur Laffer, architect of the theory that tax cuts can pay for themselves, recently declared that monetary reform based on a return to gold is 10 times more important for the economy as supply side tax cuts.
Opporing a return to the gold standards, which President Nixon abolished 10 years ago, is economist Milton Friedman. He represents the orthodox school of Republican economists, a school that has never fully accepted the supply-side theories. There is some evidence of a major ideological split.
The nation got a taste of what is ahead in three nationally televised talk shows on Aug. 30, in which all three economists interviewed were asked questions about the gold standard. Murray L. Weidenbaum, chairman of the President's council of economic advisers, said on NBC's "Meet the Press", "As a member of the [Gold] Commission I assure you we're taking that assignment very, very seriously. I'm maintaining a very open-minded stance."
Charles Schultze, an economic adviser to President Carter, said on CBS' "Face the Nation": "I don't think that the monetary affairs of the major nations can afford to be tied to the production of gold principally in South Africa and the Soviet Union. It didn't work in the past and I don't think it will in the future."
Paul Volcker, chairman of the Federal Reserve Board told ABC News: "One can recognize a sense of looking for some method to enforce discipline. I'm afraid there is also a large element of wishful thinking. That, I think, is an illusion. Discipline policies, yes, but magic solutions, no."