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Return to Gold Standard Gets Political Play

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The price of gold has risen about 10% so far this year, and its political profile is similarly on the rise. Newt Gingrich made news last month when he pledged to appoint gold bugs Lewis Lehrman and James Grant to a new commission that would explore the feasibility of returning the U.S. to the gold standard. Gingrich subsequently went on to victory in the South Carolina–could the Southern gold bug vote have done it?–a record he has so far been unable to sustain. But his gold commission idea remains under discussion.

Last week, Lewis Lehrman, an investment banker, author and former politician, called on Republican race frontrunner Mitt Romney and conservative candidate Rick Santorum to join Gingrich and pro-gold standard candidate Ron Paul in establishing a pro-gold “alliance for sound money” in this year’s campaign. He also expressed the hope someone would pick up the mantle of the last known pro-gold Democrat, Grover Cleveland.

In an interview with the Wall Street Journal’s Brett Arends last week, Grant, publisher of Grant’s Interest Rate Observer, echoed Lehrman’s call for a broader coalition of pro-gold candidates: “Unfortunately, I haven’t heard from Mr. Romney yet. I’m sitting by the phone, I’m ready,” he joked. Ron Paul said he’d name Grant his Fed Chairman as early as last October in an interview with Fox News. Grant’s high-priced newsletter is noted for its skepticism of America’s dollar-based monetary policy and given Paul’s and Grant’s views, his job as Fed Chairman would presumably be to organize an orderly shutting down of the U.S. central bank.

Lehrman, in his push for a GOP gold platform, says the U.S. experiment with a floating exchange rate since President Richard Nixon’s 1971 executive order ending dollar convertibility to gold has weakened U.S. consumers. “During the past 40 years of the Fed-managed paper dollar standard, the purchasing power of the dollar adjusted by the CPI has declined a shocking 85%,” he wrote in the New York Sun.

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A recent survey of some of the nation’s leading economists, however, strongly rejected the idea that return to a gold standard would improve price stability–or employment outcomes, for that matter. Stanford University economist Darrell Duffie, who participated in the survey, commented: “A time series plot of the price of consumption in ounces of gold, and then in US dollars, clarifies that gold is not a stable standard.”

If the next president did establish a commission to explore returning to the gold standard, Lerhman says its task would be to devise “a practical plan to restore convertibility of the dollar to gold; a timetable by which Congress defines the dollar in law as a certain weight unit of gold, to which bank notes and bank demand deposits would be convertible” and a plan to bring other nations into such an international gold-based system.

The last time a president appointed such a commission, in 1981, after the newly elected President Reagan fulfilled a campaign pledge to look into the matter, the commission’s final report called for a continuation of the monetary status quo. The commission’s two lone dissenters: Lewis Lehrman and Texas Congressman Ron Paul.