For Whom Mundell Tolls

This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.

The New York Sun

The link on the Drudge Report to the Financial Times’ headline on the dollar losing global reserve status is as good a time as any to remark on what may be the most important development of the past several weeks in respect of money — namely the endorsement by the Nobel laureate Robert Mundell of gold convertibility for the Euro. This has been written about by, among others, Ralph Benko of the American Principles Project, and it’s an important story, not only because Professor Mundell himself is such a titanic figure in the debate on political economy in our time but also because he is himself known as the Father of the Euro.

Your editor has often remarked that one of the most illuminating encounters of his career was a few days he spent with Professor Mundell and a number of others interested in monetary matters at the villa Mr. and Mrs. Mundell own at Tuscany. There, among the ancient hills, we remember looking across the table and asking the question, “What is a dollar, anyhow?” It ignited a tumult of conversation, some saying an “obligation,” other’s a “unit of account,” others a “measurement of value,” some a “commodity,” while Mr. Mundell regarded the conversation with a merry twinkle.

In any event, the professor’s statement on gold and the Euro is the most important of the recent warnings. No less an establishment figure than Robert Zoellick issued late last year an op-ed piece in the Financial Times calling for consideration in monetary reform of a role for gold, a call that was endorsed by the Sun but sneered at by the Financial Times, which issued an editorial attacking its own contributor. Mr. Zoellick’s piece referencing gold followed the statement earlier that fall by the former chairman of the Federal Reserve, Alan Greenpan, warning that fiat money always goes to gold, a statement that echoed widely.

Mr. Mundell’s statement is the most important of the three. Mr. Benko calls him “the world’s most distinguished living economist” and “the primary source of the original supply-side manifesto, ‘The Mundell-Laffer Hypothesis,’ which led to the low-tax-rate, strong-dollar policy at the heart of Reaganomics.” He has also, Mr. Benko noted, been advising the Communist Chinese during their 30-year surge. Mr. Benko has also argued that Mr. Mundell had much to do with the rise in global output to something like $60 trillion today from $11 trilllion in 1980.

In any event, Mr. Mundell’s statement was made on a Bloomberg News broadcast, in an exchange with Pimm Fox in which Mr. Mundell was asked whether he thought “we’re going to see any kind of return to the gold standard.” Replied The Great Mundell*: “[T]here could be a kind of Bretton Woods type of gold standard where the price of gold was fixed for central banks and they could use gold as an asset to trade central banks.”

It’s not our purpose here to dispute the details of monetary reform with TGM (we tend to favor the restoration of a definition of the dollar in law as a set number of grains of silver, as the Founders had it, or gold, which has been a superior measure of value; we tend to distrust governments to hew to schemes of convertibility, a point about which the New York Times warned, in the editorials written by Henry Hazlitt, at the time of Bretton Woods). It is our purpose merely to mark the moment that we now have three significant figures — Zoellick, Greenspan, and Mundell — referencing things in terms of gold.

The speed with which the Financial Times denounced Mr. Zoellick for even gingerly advancing the idea of a role for gold in world monetary affairs was astonishing. But what will be establishment thinking, if that’s what it is, in the wake of the FT report about the survey of central bankers? The survey was done by UBS; its results, according to the FT’s own report, “point to a growing role for bullion, with 6 per cent of reserve managers surveyed saying the biggest change in their reserves over the next decade would be the addition of more gold.” Wouldn’t it be something were a return to gold start the salvation of a continent that once sneered at its significance in the monetary affairs of a modern world?


*Mr. Mundell is one of two living persons permitted under the terms of The New York Sun Reporter’s Handbook and Manual of Style to be referred to with the honorific “The Great.” The other is The Great Scalia. The stylebook permits the abbreviation TGM and TGS respectively.

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