Summers’ Wake-Up Call
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.
To the list of distinguished Democrats calling for something akin to monetary reform add the name of the former treasury secretary Lawrence Summers. He has put up a post on his Web site suggesting that this month “may be remembered as the moment the United States lost its role as the underwriter of the global economic system.” He notes that previously there have been “periods of frustration.” But China’s plan to plunge ahead with the Asian Infrastructure Investment Bank is another story.
“I can think of no event since Bretton Woods comparable to the combination of China’s effort to establish a major new institution and the failure of the US to persuade dozens of its traditional allies, starting with Britain, to stay out of it,” Mr. Summers writes. He calls it a “failure of strategy and tactics.” He notes that it has been “a long time coming.” He reckons it “should lead to a comprehensive review of the US approach to global economics.” Adds he: “The global economic architecture needs substantial adjustment.”
Mr. Summers’ alarum isn’t as significant an event as the speech in May by Paul Volcker’s speech to the Bretton Woods Association. That’s when the former Fed chairman reprised the two generations of fiat money. He didn’t make specific proposals for reform. But he said: “By now, I think we can agree that the absence of an official, rules-based, cooperatively managed monetary system has not been a great success.” It was, considering the source, one of the most encouraging statements we’ve heard yet.
The Summers critique is different. He argues that “political pressures from all sides in the U.S. have rendered it increasingly dysfunctional.” He blames — or, in our view, credits — “resistance from the right” for the fact that America “stands alone” in failing to, as he puts it, “approve the International Monetary Fund governance reforms that Washington itself pushed in 2009.” We’ve previously noted that to the Obama administration IMF “reform” means “America giving more money and reducing the weight of its vote.”
These colums are but a tiny part of the “resistance from the right,” but we wouldn’t donate a used car to the IMF. The fact is that the loss of leadership that Mr. Summers bemoans is the inevitable result of the default on the dollar that occurred in 1971, when President Nixon closed the gold window and ended the Bretton Woods System. How can a country expect to lead in any international monetary system if it will redeem its legal tender money only with more pieces of the same fiat scrip? Who would want to follow such a leader?
The right way for American to capture monetary leadership is to restore the soundness of the dollar. Let us study what the monetary system that America operated when America was at the height of its powers — or at its maximum growth and employment — and use that system as a guide in the reformation. This will lead us back to a system in which the dollar is defined in law as a given amount of classical specie. Congress is fermenting on this issue, and it would be a good cause for Mr. Summers.
Particularly because he stresses, in his latest post, the importance bipartisanship at home. He also stresses the importance, in global politics, of the middle class. So why not mark the fact that unemployment averaged 4.7% during the Bretton Woods era (that is, between 1947 and 1971) and soared to above 6% on average in the era of fiat money (1971 to the present), that the bankruptcy rate spiked after the collapse of Bretton Woods, as did Thomas Piketty’s inequality rate. Mr. Summers wants, as he says he does, a “wake-up call,” we say sound money.