Bretton Woods – #10 of Series:

Beyond Bretton Woods: Remember Rueff

Part Ten of Our Series on the Fiftieth Anniversary of the Collapse of the Gold Exchange Standard

By RALPH BENKO, Special to the Sun | August 21, 2021

There is “no surer means of overturning the existing basis of society than to debauch the currency in a manner which not one man in a million is able to diagnose.”

– John Maynard Keynes, The Economic Consequences of the Peace

Bretton Woods – #8 of Series:

Honest Money Will Require Rediscovering America’s Founders

Richard Salsman, in Part Eight of Our Series on the 50th Anniversary of the Collapse of Bretton Woods, Marks the Importance of Limited Government

By RICHARD SALSMAN, Special to the Sun | August 15, 2021

The problem is that central banks exist precisely to accommodate public profligacy; they won’t vanish anytime soon, to the extent fiscal profligacy persists–and it not only persists but intensifies the longer we lack a gold money.

Not necessarily “gold money,” but monetary discipline through credit discipline. This can be established through hard and fast rules. As individuals we face these constraints every day with hard budgets. Politicians need to be subject to the same.

Bretton Woods – #7 of Series:

As Close to Economic Nirvana as Could Be Imagined

Beyond Bretton Woods — Part Seven in Our SeriesBy ART LAFFER, Special to the Sun | August 14, 2021

I think Laffer is a bit too sanguine here. The 20 year rebound from 1980 to 2000 was really only a 7 year rebound that got propped up by Greenspan’s money printing absorbed by a technology wave in the 1990s. It was unsustainable, as Greenspan proved in 2000 and again in 2008.

Bretton Woods – #6 of Series:

Now Is a Moment for New Leaders To Point the Way to Ending America’s Monetary Mistakes

Beyond Bretton Woods — Part Six of Our Series

By STEVE FORBES, Special to the Sun | August 11, 2021

We are still suffering today from the baleful consequences of August 15, 1971, when President Nixon ended the convertibility of United States dollars into gold.

If after that fateful day the United States had maintained the average rate of economic growth that it had achieved over the previous 180 years, when it operated under a gold standard, the economy would be at least 50% larger than it is today.

Economies can’t grow without investment. You get more long-term, productive investment when the value of money is not constantly fluctuating. Investing is risky enough, but if you don’t know what the value of the dollar will be in the future, time horizons shorten. Hedging and currency speculation become endemic. The average daily turnover of currency trading is now more than $5 trillion, far in excess of what is needed to efficiently finance global trade.

Ever wonder where the hedge fund industry came from?

Bretton Woods – #5 of Series:

‘Nixon Shock’ Was Really a Coup de Grace on Destruction Others Started

Beyond Bretton Woods — Part Five of Our Series

By JAMES GRANT, Special to the Sun | August 10, 2021

[Under] the classical gold standard, gold did not “back” the currency; it defined it. Anyone could exchange gold for paper currency, and vice versa, at the statutory rate, on demand. It was the right of conversion that checked the tendency of banks, their customers, and governments alike to run riot.

And now we have run riot:

[Nixon’s]successors, Democrat and Republican alike, would demonstrate the possibilities for money-printing, interest-rate suppression, public spending, and international payments imbalances in the absence of fixed exchange rates and a convertible dollar.

Nixon merely finished the monetary destruction work that others had started. In that sense, August 15, 1971, was the coup de grace.

Bretton Woods – #4 of Series:

‘An Epic Failure’ — We Need To Remember 1971

Beyond Bretton Woods — Fourth in Our Series

By BRIAN DOMITROVIC, Special to the Sun | August 9, 2021

My book on the early career of Arthur Laffer, that advocate of gold within the Nixon administration in 1971, contains the following passage:

“A major sociological hegemon, the profession of economics, had produced, or at the minimum been complicit in, the cashiering of remnant classical economic arrangements in favor of techniques of governmental economic management whose result was stagflation. This was an epic failure.”

The “remnant classical economic arrangements” cited in “The Emergence of Arthur Laffer: The Foundations of Supply-Side Economics in Chicago and Washington,” were two: the dollar was fixed in a rate of exchange to gold, and the major currencies were fixed in rates of exchange to the dollar. The former was gone as of August 15, 1971, the latter by February 1973.

Have we failed to remember that the economic history of the United States, and much of the world, following the dispatching of gold and fixed rates was horrendous? The post hoc, propter hoc qualities are remarkable.

Immediately preceding the nine years in which, between 1973 and 1982, America’s economic growth rate was more than halved, to less than 2% from more than 4%; in which consumer price inflation averaged 9%; in which, in 1975, unemployment lurched up to 9% before nearing, by 1982, 11%; in short, immediately preceding the onset of an unprecedented stagflation, the United States took the dollar off gold and bid the world to abandon fixed rates.

The economics textbooks insist that it all happened because of the 1973 oil crisis. Notwithstanding that the price increase in gasoline in the United States lagged the increase of the consumer price index from 1973 until 1979, they argue it was “cost push” inflation that inflicted stagflation upon the country. In a paper in 1983, Mr. Laffer and Charles Kadlec exposed the flaws in this argument.

How can one abandon the monetary system of the ages — gold and the fixed rates — and not suffer the consequences? One cannot.

Amid all the apparent unanimity among economists regarding the supposedly benighted and unworkable gold standard, what might be their answer to this question: “How did it go after gold was dropped on your advice?”

For as economist Marina von Neumann Whitman reminded everyone as stagflation raged in 1975, the proponents of going off gold had predicted that the economic result would be “nirvana.”

Nirvana or stagflation: which one came, immediately and persistently, after the dropping of gold and fixed rates? What was promised was the former; what arrived was the latter. It is not merely that official and academic attitudes toward gold in the matter of the monetary system are condescending. It is that, as my own book puts it:

“The major macro schools (Keynesianism and monetarism) collectively dropped their differences so as to make a unified push to bring down all remaining elements of a classical monetary system, from gold to fixed rates to multiple competitive currency issuers at par. The results, of the 1970s, proved the effort a manifest failure, surely one of the worst in the history of the academic-policy nexus.”

We need to remember 1971 because it represented one of the worst pieces of advice ever taken by policymakers — as ensuing developments unmistakably made clear.

The sad thing is that we have compounded these errors over the past 40 years. Now prices make no sense in fundamental value terms.

Bretton Woods – #3 of Series:

Could a Collapse of Cryptocurrencies Force a Reform of the Global Monetary System?

Beyond Bretton Woods — Part Three of Our Series

By STEVE HANKE, Special to the Sun | August 7, 2021

…the Bretton Woods system broke down and was abandoned in 1973. Since then, the world has been flying blind. Indeed, we have — in the words of Jacques de Larosière, the former managing director of the International Monetary Fund — a global monetary non-system.

This is a short article without much heft, but yes, we have a global monetary system that is devoid of rules and thus devoid of discipline. The upshot is that we have a dominant currency – the US$ – where the supply is determined at the discretion of the Federal Reserve Board representing the interests of private bankers, the US Treasury, and the political class. What happens essentially is that politics decides how much money must be spent to alleviate any economic or political pressures. The US Treasury issues bonds and the Fed buys the bonds with blank checks. This is how we spend $8 trillion without ever raising any tax revenues. Money for nothing, but the chips are not free.

This money courses through the financial system, i.e., banks and shadow banks, and finds its way into the pockets of financiers. It gets invested in asset plays and perhaps some new production, but mostly in asset plays like your residential real estate market. Much investment finds its way into securities markets, driving up the price of the tech and healthcare sectors to nosebleed levels, with all the incumbent risks and low yields. What this means is that our national savings invested in securities and housing (i.e., invested in the USA) is assuming much greater risks for less reward. This at a time when a large part of the population is slipping into retirement and dancing around their home appreciation. What they should see is downside risk and fragility.

As Nouriel Roubini writes today: the specter of stagflation is looming everywhere. This never ends well.

Afghanistan and the Politics of National Security

To Stop War, American Needs a Third Party

by Matt Taibbi, Substack

For the past few years I haven’t read much from Matt Taibbi to disagree with, as he has done a masterful job exposing the degeneracy of our political and cultural elites. I would agree here with the gist of his criticisms of bipartisan foreign policy and national security policy that has resulted in a long series of futile small war engagements.

However, I do fail to see the connection between war and political party systems he draws out in his title. Perhaps he is a bit unclear himself of the connection as he doesn’t really present the case as a solution, only that our two-party system is part of the problem. Basically he argues our two parties have failed and are corrupt (agreed), but then unconvincingly suggests maybe a third party is the solution. But I can’t find either internal logic or empirical history supporting the case for multiparty systems solving the national security dilemma, even while conceding Eisenhower’s warning concerning the Military Industrial Complex as a real danger. The solution to corrupt politics is to clean out the corruption through the voting process and, if necessary, through the checks of the judicial branch.

To review recent history, no multiparty democracy in the post-war world has satisfactorily solved the security dilemma without becoming dependent on the bipolar great power conflict between the USA and the former USSR. Even after the 1989 demise of the Soviet Bloc, the hegemonic dominance of US continued to provide a convenient security umbrella for European democracies, as well as many developing countries around the world. One must merely offer tacit submission to US global interests to have the US military do all the heavy lifting while the US taxpayer picks up the bill.

This convenient arrangement started to unravel as the global system became unipolar while the rest of the world began to catch up economically during Pax Americana. The cost of hegemony has continued to rise as the US$-centered global monetary system has undermined global trade flows and fundamental prices in asset markets. The liberalization of India and China has also contributed heavily to this transformation of global trade by shifting the global mix of capital and labor. What we have seen in the frequent mismanagement of global conflict by US hegemony has been, as Taibbi notes, an exercise in managing peace rather than decisively ending conflict. As Taibbi notes, one does not wage war for any other reason than to win by vanquishing one’s enemy. There is no polite, dignified way to do this and better not to start a war than to try to manage it over time.

Taibbi’s forlorn hope seems to be like that of Immanuel Kant, who believed democracies do not wage war against each other, so a world characterized by free democracies would ensure everlasting peace. History has proven otherwise as democracies are just less likely to initiate wars, but they are always drawn into them. We have not seen the End of History.

But this brings us to the suggested salve of multiparty systems, which are somewhat analogous to a multipolar international security system. Multipolar systems rely on configurations of alliances and these alliances must be trustworthy. Allies must be willing to commit to the alliance and absorb their share of the costs. This is a radically different dynamic than hegemony, where the big dog takes care of everything in return for obeisance. It is also radically different than bipolarity, which is what a two-party system is.

The USA is no longer the global hegemon because its leaders have not promoted the necessary commitments from the voting populace, and so the American public has moved away from supporting such a role. Remember, President George W. Bush maintained that we could fight the Afghan and Iraq wars without distracting ourselves from shopping at the mall. In other words, zero commitment from anyone, save those who volunteered to be on the front lines. This lack of commitment to assume the costs of global stability permeates US society today, from national politics to the financial sector to our cultural and educational institutions. It was reflected in President Trump’s desire to disengage from the Middle East. What should concern us, and Taibbi, is how global monetary hegemony of the US$ is destabilizing the global economic system, leading to more conflict at the periphery. US monetary policy, in coordination with the 4 other C5 central banks is creating massive inequalities between US$ holders and everyone else. The elite oligarchs of the world benefit from US$ portfolios, but their citizens do not and they will become increasingly restless and combative. There is no global policeman, so the world will become a more dangerous place in the absence of US hegemony.

A third-party in US politics can do nothing to reverse this trend toward irresponsible national policies in a multipolar world. And a multiparty electoral system is just as unstable as a multipolar global security system. It relies on fragile coalitions that give disproportionate power to minority parties that can tip the balance. On the other hand, a two-party system is quite effective in stabilizing a diverse, multi-ethnic, multi-racial pluralistic democratic society, albeit with certain trade-offs. Those trade-offs for stability include resistance to change and political sclerosis. But this is a crucial and deliberate element inherent to the overall design of our constitution to prevent passing populist fads from changing our form of self-government. I would be loathe to throw out national stability for the unwarranted hope of convergence on international comity. Instead, in a multiparty system we would expect the instability of comparable historical cases like post-war Italy, India, Indonesia or Brazil. A global superpower can hardly afford those kinds of risks.

I find Taibbi’s criticisms of our political leaders, our foreign policy bureaucracies, and our military-industrial complex to be on the mark. I sincerely doubt a third party solves any of these problems, but we will never find out because the logic of the two-party electoral system supersedes any argument against it for myriad reasons. Paramount is that national stability is a necessary precondition for good government, continuity, and preservation of the union. We’ve had dozens of third party movements in US history and the only ones that have been successful have been those rare moments when a new party replaces one of the two that has been rejected by the voters. The US electoral system favors reform from within the major parties by holding elected politicians to a higher standard and by removing them from office when necessary. The Republican party accomplished much of this house-cleaning in 2016, but the Democratic party is still conflicted over its future path.

It should be added that to reduce the risks of national politics we should devolve as much power away from the central government back to the states, counties, municipalities and individuals where it belongs. The central government was designed to coordinate democratic self-rule, not overrule.

But what we really need is a much broader understanding of our loss of political and financial integrity. What we need is another Greatest Generation on the horizon that recognizes good and evil and is willing to take a stand.

Bretton Woods – #2 of Series

Second of a Series of articles on the international monetary regime reprinted from the NY Sun.

Not sure I would agree with all of this. Net exports is different than manufacturing exports and manufacturing employment, especially in the global information economy. I believe the problem here is that the reserve currency allows the US central bank to issue too much US$ credit liabilities without paying the direct consequence. Our trading partners are not exactly happy about this either since they surrender control of their currencies to the dominance of the US Federal Reserve and US politics. I think we need to rein in political discretion over the value of money.

Time To Reverse the Curse Over the Dollar


Journalism thrives on simple narratives and round numbers. So I must note that what President Nixon ended 50 years ago was not the international gold standard, which persisted despite interruptions for more than two millennia to 1914, but its complicated parody: the gold-exchange standard, established 99, not 50, years ago by a 1922 agreement at Genoa.

Prime Minister David Lloyd George convened the Genoa Conference in an effort to restore the economies of Central and Eastern Europe, modify the schedule of German reparations owed to France, and begin the re-integration of Soviet Russia into the European economy. Lacking any American support, the conference was a failure on all those counts.

The gold-exchange standard, John Maynard Keynes’ idea, was Genoa’s one tangible result. Keynes had proposed in 1913 that the monetary system of British colonial India be adopted world-wide. The British pound would remain convertible into gold, but India’s and other countries’ domestic payments would be backed by ostensibly gold-convertible claims on London. Following Genoa, the pound could be exchanged for gold, and other national currencies could be exchanged for pounds.

But there was a complication: unlike most currencies, the Indian rupee actually was based on silver, not gold, and British officials, including Keynes, overvalued the silver rupee, hoping to reduce heavy demands for British gold. British monetary experts inserted this scheme (without the silver wrinkle) in the 1922 Genoa accord, incidentally forestalling impecunious Britain’s repayment of its World War I debts in gold.

While working 35 years ago for Congressman Jack Kemp, I first coined the term the “reserve currency curse.” I was tutored in the subject by Lewis E, Lehrman, who in turn was influenced by the French economist Jacques Rueff (1896-1978). Keynes had claimed that what matters is only the value, not kind, of monetary reserves. It was Rueff who countered in 1932 that foreign exchange is qualitatively different from an equal value of precious metal.

With the creation of, say, dollar reserves, purchasing power “has simply been duplicated, and thus the American market is in a position to buy in Europe, and in the United States, at the same time.” This credit duplication causes prices to rise faster in the reserve-currency country than its trading partners, precipitating the reserve-currency country’s deindustrialization. That fate soon befell Great Britain, then the United States after the dollar replaced the pound under the 1944 Bretton Woods agreement.

Other countries backing their currencies with dollar-denominated securities led to a dilemma for America. The United States is the only major country with negative net monetary reserves (foreign official assets minus liabilities). All others — even those whose currencies are used by foreign central banks — have positive net reserves (i.e., those countries’ foreign official assets exceed their foreign official liabilities).

There is a correlation of more than 90% between America’s net reserves and its manufacturing employment. American net reserves had been positive before but turned negative by 1960, and manufacturing jobs have since disappeared in direct proportion to the decline in our net reserves. Focusing on one bilateral trade balance or other — say, the US and China — is a mug’s game. What matters is the total balance, not bilateral subsets.

How could an American president reverse the reserve-currency curse? By making honesty the best policy: negotiating and starting repayment of all outstanding dollar reserves over several decades. Since international payments must be settled in real goods — not IOUs — the necessary production of American goods for export is the surest way to revive America’s manufacturing employment.

To increase our manufacturing jobs back to the peak of 17 million from today’s 12 million, it would be necessary to repay most outstanding official dollar reserves. If President Biden is as ineffectual as most of his recent predecessors in responding to the “reserve-currency curse,” he, too, will have to get used to the title “ex-President.”


Mr. Mueller is the Lehrman Institute Fellow in Economics at the Ethics and Public Policy Center in Washington DC and author of “Redeeming Economics.” Image: Conferees at the Genoa Conference, with Prime Minister Lloyd George of Britain front and center. Detail of a British Government photo, via Wikipedia Commons.