The True Gold Standard - A Monetary Reform Plan without Official Reserve Currencies [Paperback]

Lewis E. Lehrman (Author)

Book Description

Publication Date: October 4, 2011

How We Get from Here to There

This Monetary Reform Plan proposes to establish the framework for an enduring, stable value for the United States dollar; that is, to define the dollar by statute as a certain weight unit of gold to be coined into lawful money.

Long associated with free market prices, mobile factors of production, and free people, a dollar convertible to gold * is warranted by the United States Constitution in Article I, Sections 8 and 10 (see Appendix I). A monetary standard of precious metal (gold and silver) was the institutional monetary foundation, the gyroscope, of the great Industrial Revolution of the western world, giving rise at the birth of the American Republic to a reasonably stable American currency. Wars did interrupt stability and growth. But over the long run, economic productivity and population expansion led to unprecedented prosperity. They were hallmarks of the United States from the Coinage Act of 1792 (see Appendix II) until 1971 when the last vestige of dollar linkage to gold was suspended. Floating paper money exchange rates, mixed with pegged and manipulated exchange rates, have persisted during peace and war to this very day. (Since 1971 average hourly real wages have hardly improved.)

A floating, or pegged paper and credit currency, has proven itself throughout history an unreliable, depreciating store of value. Unlike the paper dollar, a dollar defined in law as a weight unit of gold is the monetary standard which simultaneously provides all the primary functions of true standard money: (1) a stable store of value; (2) a stable measure and unit-of-account; and, (3) a universally accepted means of payment. A gold monetary standard combines, in one monetary article of wealth, the three primary functions of money. Moreover, the true gold standard of history provides the global networking effects of universally acceptable, equitable, ubiquitous, standard money. Through long historical evolution gold became free trade money.

Throughout ancient and modern history it was the unique properties of the gold monetary standard which made it universally acceptable to trading peoples in the market. The test of what The Purpose of The True Gold Standard will endure as honest money can only be studied in the empirical laboratory of human history; mathematical abstractions, drawn from the blackboards of academic economists, will not do. Because trust and universal acceptability are the trademarks of honest money these virtues must be affirmed, in the long run, by the tests of the open market, and then reinforced by wise, limited, and prudent governments which understand and embrace the inductive, tested verdict of the market.

No perfect monetary system can be fashioned in this imperfect world, peopled by imperfect human beings. But the natural monetary properties of the true gold standard developed by supple and subtle institutional mechanisms through centuries of observation and experience provide the world trading system with the least imperfect domestic and international monetary system. Such a system best enables that fragile reed known as civilization to endure.

* The term convertibility is a conventional but misleading usage handed down from time immemorial. I use the term reluctantly. The historic dollar of the American Constitution should be understood as a certain weight unit of precious metal. Paper and credit monies should be no more than rights to redemption in gold dollars at the statutory parity.

Editorial Reviews

Review

If you have ever wondered how the world can get from here to there from the chaos of depreciating paper to a convertible currency worthy of our children and our grandchildren wonder no more. The answer, brilliantly expounded, is between these covers.

America has long needed a modern Alexander Hamilton. In Lewis E. Lehrman, she has finally found him.

--James Grant
Author and Editor of Grant s Interest Rate Observer

About the Author

Lewis E. Lehrman has written books and essays about economic, monetary, and financial policy as well as American history. Lehrman co-authored the book Money and the Coming World Order (1976) with renowned MIT economist Charles Kindleberger and others. He has written about economics in publications such as Harper s, The Washington Post, The New York Times, The Wall Street Journal, The Weekly Standard, Crisis, Policy Review, The American Spectator, and National Review. His writings about monetary economics earned him an appointment by President Ronald Reagan to the United States Gold Commission in 1981. Lewis Lehrman collaborated on a minority report of the commission, which was published as The Case for Gold (1982).

Lehrman has been named to the advisory board of the American Principles Project s Gold Standard 2012 initiative. He heads The Gold Standard Now a project of The Lehrman Institute. Established in 1972, The Lehrman Institute is a public policy foundation focused on history, economic and foreign policy, education, and local communities. He has been a trustee of the American Enterprise Institute, the Morgan Library, the Manhattan Institute, and the Heritage Foundation. He is a former Chairman of the Committee on Humanities of the Yale University Council.

Lehrman received the National Humanities Medal at the White House in 2005 for his teaching and studies of American history. In 2010, he was awarded the William E. Simon Prize for Lifetime Achievement in Social Entrepreneurship.

Lehrman earned his B.A. from Yale where he became a Carnegie Teaching Fellow on the Yale faculty and an M.A. from Harvard where he was a Woodrow Wilson Fellow. Lehrman has been awarded honorary degrees from Babson College (Babson Park, MA) where he was made a member of its Entrepreneurial Hall of Fame; Gettysburg College (Gettysburg, PA); Marymount University (Arlington, VA); and Thomas Aquinas College (Santa Paula, CA).

Product Details

• Paperback: 148 pages
• Publisher: The Lehrman Institute (October 4, 2011)
• Language: English
• ISBN-10: 0984017801
• ISBN-13: 978-0984017805
• Product Dimensions: 8.3 x 5.5 x 0.4 inches
• Shipping Weight: 5.6 ounces (View shipping rates and policies)
• Average Customer Review: 4.2 out of 5 stars  See all reviews (15 customer reviews)
• Amazon Best Sellers Rank: #555,287 in Books (See Top 100 in Books)

More About the Author

LEWIS E. LEHRMAN has written widely about history, economic and monetary policy in publications such as Harper's, The Washington Post, The Wall Street Journal, The Weekly Standard, Policy Review, Crisis, New York Post, Greenwich Time, The American Spectator, The Washington Times, The Washington Examiner, National Review and The New York Times. His writings about monetary economics earned him an appointment by President Ronald Reagan to the Presidential Gold Commission in 1981. Along with Congressman Ron Paul, Lewis Lehrman collaborated on a minority report of the commission, which was published as The Case for Gold (1982). He is also the author of The True Gold Standard: A Monetary Reform Plan without Official Reserve Currencies (2012) and Lincoln at Peoria: The Turning Point (2008). He edited the 2012 edition of Money and the Coming World Order.

In April of 1987, Lehrman joined Morgan Stanley & Company, investment bankers, as a Senior Advisor and a Director of Morgan Stanley Asset Management. In 1988, he became a Managing Director of the firm. He is presently Senior Partner of L. E. Lehrman & Co., an investment firm he established.

Lehrman has been named to the advisory board of the American Principles Project's Gold Standard initiative. He heads The Gold Standard Now - a project of The Lehrman Institute. Established in 1972, The Lehrman Institute is a public policy foundation focused on history, economic and foreign policy, education, and local communities. He has been a trustee of the American Enterprise Institute, the Morgan Library, the Manhattan Institute, the Heritage Foundation and New-York Historical Society. He is a former Chairman of the Committee on Humanities of the Yale University Council.

Lehrman received the National Humanities Medal at the White House in 2005 for his teaching and studies of American history. In 2010, he was awarded the William E. Simon Prize for Lifetime Achievement in Social Entrepreneurship.

Lehrman earned his B.A. from Yale where he became a Carnegie Teaching Fellow on the Yale faculty and an M.A. from Harvard where he was a Woodrow Wilson Fellow. Lehrman has been awarded honorary degrees from Babson College (Babson Park, MA) where he was made a member of its Entrepreneurial Hall of Fame; Gettysburg College (Gettysburg, PA); Lincoln College (Lincoln, IL), Marymount University (Arlington, VA); and Thomas Aquinas College (Santa Paula, CA).

Most Helpful Customer Reviews

22 of 23 people found the following review helpful

5.0 out of 5 stars Recreating the Real Gold Standard October 27, 2011

By Rich Danker

Format:Paperback

Finished off as it was by the callous executive order of a U.S. president, the gold standard cannot be resurrected the same way. As the political system inches back toward gold-backed money, a road map for getting there is essential.

This is exactly what Lewis E. Lehrman (with whom this writer is professionally associated via American Principles Project and the Lehrman Institute) has provided with The True Gold Standard: A Monetary Reform Plan Without Official Reserve Currencies. Steeped in the experience of Jacques Rueff's handling of postwar France's return to the gold standard and Lehrman's own thinking as a public intellectual, it is a comprehensive yet straightforward plan for cleaning up the global financial system.

As the subtitle suggests, the plan is based on replacing national currencies (the dollar, euro, yen) with the non-national, neutral asset of gold as the world's reserve money supply. Nations would settle international payment deficits and surpluses in gold rather than paper-based currencies. This would have the effect, principally on the U.S. as the issuer of two-thirds of world reserves, of removing the debt overhang which has made trade deficits, government overborrowing, and hot money bubbles the way of life. Depending on whom you asked, the dollar standard was an "exorbitant privilege" (French president Valery Giscard d'Estaing) or an upgrade (Citibank financier Walter Wriston). Decades of financial disorder have now made it clear that it is actually an "insupportable burden" as Lehrman puts it.

Lehrman's historical model is the international gold standard of 1873-1914, an era of industrial breakthrough, global economic growth, and astounding price stability. As charted by his colleague John Muller, it was the most stable period of U.S.... monetary regimes based on the Consumer Price Index. Even with price shocks due to technological changes and rapid globalization, prices in the short-term and long-run were more stable than at any other time in American history. This was because of the credibility of the link between the dollar and gold, both for citizens at home and governments abroad.

How do we redevelop this best practice for the 21st century? In some ways, it will be less difficult with the integration of gold into the financial system already through electronic payment systems. On a practical level, using gold as money has never been easier (though financial repression of gold through taxes and regulation still presents a formidable barrier).

On the other hand, the proliferation of credit through new instruments and disintermediation has made the financial system more disorderly than ever. A major portion of credit creation today has been taken over by the shadow banking system, the recipient of the Federal Reserve's bailouts. In addition to a system of unrestricted convertibility between the dollar and gold, Lehrman also outlines banking reform which would insist that financial institutions reestablish their role as fiduciaries through improved liquidity standards using fair market valuation and quarterly stress tests.

And what about the Fed? It does not, as Ron Paul demands, need to be ended as a prerequisite of sound money. But it must be reined in, to which Lehrman has also put much thinking. He mandates particular changes for the central bank, starting with a cease in open market operations.

The Fed would use the discount rate rather than the federal funds market to supply or withdraw credit in response to any imbalance between supply and demand for it. Commercial bills, not government securities, would be discounted and the Fed, like other central banks, would be prohibited from owning sovereign debt (other than short-term revenue anticipation bonds). The asset side of the ledger would consist of gold and liquid, secure non-governmental financial claims. Lehrman calls this Fed policy "scaled to the modest wit of man . . ." and it is a thorough relief from the excess allowed to the central bank today.

The heart of the gold standard has always been the idea of an external, impersonal and automatic discipline on the temptation to manipulate money. The gold standard links the supply of money with its natural demand. It inflation-proofs the central bank and takes away the government's usage of continual deficit financing. It prevents nations from using their own debt to pay for imports and pushes trade relationships into balance. None of this is panacea for the disruptions of capitalism, but they do encourage the kind of free and fair capitalism we say we want. No one has given more of himself to rebuilding a monetary system worthy of that than Lewis Lehrman, and now he's showing us how to get from here to there. Read more ›

15 of 16 people found the following review helpful

5.0 out of 5 stars Lehrman is world class November 7, 2011

By Barton M. Biggs

Format:Paperback

Lehrman is the most profound monetary thinker of our time. The world monetary system is in a terrible crisis and we live in a world of booms, busts, and debilitating panics. The dollar has lost 82% of its 1971 value and 96% versus gold. Social disorder, wars, and revolution almost always follow such chaos. Lehrman in this book analyzes the disorder and lays out an orderly, practical plan to restore economic growth and create a stable monetary system, exchange rates, and end inflation.

11 of 11 people found the following review helpful

5.0 out of 5 stars True Gold Standard -- A Must Read for Policy Makers November 4, 2011

By David McIntosh

Format:Paperback

Lew Lehrman's most recent book on why we need to adopt a new gold standard comes at just the right time. As the country debates debt reduction and budget policy, he puts on the table one of the most important tools we have to restore economic growth -- at the 4-5% annual level we need. The book makes the constitutional and policy arguments for the gold standard as a means of allowing economic growth that will generate the revenue we need to eliminate deficits and avoid a future debt crisis of our own. Lehrman is a true disciple of the brilliant French professor, Jacques Rueff, who successfully used the gold standard to guide France back from the economic brink after World War I while at the same time avoiding both the inflation and deflation that variously plagued other European countries. Anyone familiar with modern monetary policy and bank regulation in the United States knows we face the same dual perils today.
The book proposes concrete steps to transition the world economies to a true gold standard, as well as spelling out the specific means of establishing it. By addressing the various critiques of the gold standard systematically and convincingly, Lehrman has laid the groundwork for political leaders to take up the proposal. Lew Lehrman has written a tour do force for an idea that must be part of the policy debate of our time.

7 of 8 people found the following review helpful

4.0 out of 5 stars How to Use Gold as Money October 31, 2011

By Dave Redick

Format:Paperback

Lewis Lehrman has been an ardent promoter of the benefits of the gold standard for over thirty years. He co-chaired Reagan's `U.S. Gold Commission' with Dr. Ron Paul in 1981, and co-authored their Minority Report, `The Case for Gold' in 1982. His new book `The True Gold Standard' (Aug-2011, published by LehrmanInstitute.org) is his latest effort.

I agree with ninety percent of his ideas and plans, all related to how the gold standard is the best type of monetary system because history shows it has always helped produce more liberty, peace, prosperity, morality, and justice. My differences with Lehrman are only the ten percent about how to implement it, as shown in his Implementation Plan starting on page 51.
We agree that commodities got started as money by people as a convenience compared to barter, and that when a commodity IS money; a) The money is equal in market value to the goods or services being exchanged, not just an agreed `symbol' which is scrip. Forming the commodity into coins is just a convenience for recognition and handling, b) There is a natural limit (supply of the commodity) on how much money can be created (compared to the inflationist `out-of-thin-air' system we have today), though there is always `enough', because the commodity APPRECIATES in purchasing power if the economy it serves grows faster than the money supply, and c) For a list of reasons (rare, portable, malleable, divisible, etc.; see the book pages 15, 16), gold has always been chosen by the market (users of money) as the best `medium of exchange' and `store of value' (stable purchasing power over time)....

The first `difference' between Lehrman and me appears on his `Summary' text on page i, where he assumes the name `dollar' will continue to be used, and the government will determine the weight of its gold `backing'. I prefer that coins (and redeemable paper notes or metal tokens that represent them) be denominated on their face with the weight and fineness of gold they contain or represent, with no `name' such as `dollar'. This, along with allowing private mints (no license or government `authorization' required), gets the meddling, corrupt, government OUT of the monetary system. Sellers would be encouraged to set prices in weight of gold. Governments like names because it makes it easier to change the `backing'. With weight (milligrams, etc.) as the measure of value, gold is not `backing', it IS money, and thus has no `price' in names like `dollar'. This takes some getting used to!

The second difference is also in the `Summary', on page ii, where Lehrman recommends an international conference to plan the various national conversions to gold-as-money. I fear this could drag-on for years, as our economy fails, with continued watering-down of the rules, and continued government control and abuse. I say it would be better to openly plan in the USA (so other nations could prepare compatible plans as they see fit), then announce a start date (tomorrow?; the reverse of Nixon's abrogation of Bretton Woods in 1971) when all existing Fed Notes would be redeemable in gold, with a requirement to convert them to new gold money within three years, and no new fed Notes (or credit, etc.) created after the announcement. The weight of gold per Fed Note could be calculated by dividing our store of gold (8,100 tonnes?; needs audit) by our money supply (M3?). The amount matters little; whatever it is will be the start of sound money. Prices for goods and services will be adjusted by sellers to reconcile with weight of gold. It should certainly not be related to the current dollar-price of gold, as Lehrman suggests on page 5.

Lehrman wants international negotiations to terminate the current dollar-based reserve currency system. I say this is better invoked by the market. Once the US announces use of gold-as-money, all other nations will have to convert or no seller, or foreign exchange trader, will accept their trash fiat paper. Again, keep the governments out of it. The meddling IMF, BIS, and World Bank will wither and die from lack of support. Bankster-friendly central banks (including our Federal Reserve System) will die or be abolished to the extent nations allow private mints; Good! Once the USA changes to gold, the world market will grab control from the governments and use weight of gold for pricing. As Lehrman proposes on page 8, gold will soon be a world-wide standard, with no exchange rate (except as to weight and purity).

With observation of the above differences, I recommend this book as a good step forward in building support for conversion of the US monetary system to use gold-as-money. Read more ›