Krugman’s ‘Lust’

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“The position of the Sun is that there are three circumstances when it makes sense to move to a system of sound money. One is when a currency is collapsing. Two is when it is steady. And three is when it is appreciating. What one really wants, at any point, is the confidence that the dollar will remain exchangeable for gold over a long period and that people will have confidence in that.”

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Those words were part of an editorial issued in the Sun in January, 2011, one of the all-too-rare moments when value was flowing back into the dollar, as it has been in recent weeks. We thought of them when we read Professor Krugman’s column in this morning’s number of the New York Times. It ran under the headline “Lust for Gold.”

What the Nobel laureate does in the column is mock what he calls “goldbuggism.” With what bug he himself has come down is unclear. On the one hand, he asserts that “gold is like a very long-term bond that’s protected from inflation.” On the other hand, he asserts that the “the modern world’s closest equivalent to the classical gold standard is the euro.”

The jibe about the euro has got to be one of the most fantastic claims ever issued by the New York Times, a feat, to be sure. The columnist’s idea seems to be that the euro puts the European countries “back under more or less the same constraints they faced when gold ruled.” He neglects to mention that if you, say, tried to ski down a chart of the Euro’s value against gold, it would be like plunging over the Headwall at Tuckerman’s Ravine.

It is hard to imagine that Mr. Krugman is going to be the last of the advocates of fiat money who are going to try to make a megillah out of the fact that the value of the dollar has been appreciating — to, in a sharp move in recent hours, above a 1,500th of an ounce of gold. This is a moment to mark one of the key point in this whole great debate. It is not the desire, or even the prediction, of advocates of sound money that the price of gold will rise, meaning that the value of the dollar will fall.

If that is what Mr. Krugman means by “goldbuggism,” count this newspaper out (and we have written a whole book’s worth of editorials calling for the gold standard). What we mean when we write of sound money and the gold standard is a return to a system of money like that envisioned by the Founders of America. They twice used the word dollars in the Constitution of the United States, and the record is crystal clear in respect of what they meant by a dollar. They meant 371 ¼ grains of pure silver or a 15th as many grains of gold.

The Constitution they crafted delegates to Congress the power to coin money and regulate its value, but we find it hard to imagine the Founders intended anything like what Congress has permitted to happen to the dollar they entrusted to it. They comprehended, from their own experience in the Revolution, what damage could be done by inattention to the soundness of the national unit of account. They gave the Congress enormous powers to prevent the kind of catastrophe our country has experienced this past decade.

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This is the context in which the Joint Economic Committee of the Congress will convene this week to begin what will no doubt be a series of hearings in connection with the 100th anniversary of the Federal Reserve. The chairman of the JEC, Kevin Brady of Texas, has two measures before Congress. One is the Sound Dollar Act, which would remove the dual mandate on the Fed so that it can concentrate on stable prices without having to worry about the unemployment rate. The other is a bill to establish a serious, bipartisan monetary commission to look at the Federal Reserve as it begins its second century. What role has monetary policy played in the Great Recession? These are among the most important bills before the Congress, and it’s nice to see that someone will start addressing the monetary question in a more open-minded way than has been done by Mr. Krugman and the other partisans of fiat money.


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