Beyond Bretton Woods: Remember Rueff

President Nixon’s announcement in August 1971 that he would suspend the Bretton Woods system, “temporarily” closing the gold window, marked the beginning of the end of postwar American equitable prosperity. A decade later I was called by the Treasury to serve as one of the 23 official witnesses before the United States Gold Commission. It had two pro-gold commissioners, Lewis Lehrman and Congressman Ron Paul.Mr. Lehrman introduced me to the work of his mentor, Jacques Rueff, the architect of France’s 30 prosperous post-war years — the “Trente Glorieuses.” Those were years in which France balanced its budget and the franc became convertible. Rueff was a proponent of a return to the gold standard, opposing the dollar as a reserve currency. In 1965, DeGaulle himself gathered the press and called for making gold the international currency.Rueff’s appreciation of the power of monetary policy in creating a climate of equitable prosperity is reflected in an observation by Rueff and Andre Piettre that has been quoted by Ludwig Erhard. They wrote that “only an eye-witness” could “give an account of the sudden effect” that currency reform had on the size of stocks and the wealth of goods on display in store windows in Germany.With the introduction of the mark, they wrote, “shops filled up with goods from one day to the next; the factories began to work. On the eve of currency reform, the Germans were aimlessly wandering about their towns in search of a few additional items of food. A day later they thought of nothing but producing them. One day apathy was mirrored on their faces while on the next a whole nation looked hopefully into the future.’”Rueff can be seen as that “one man in a million” prophesied by John Maynard Keynes when he wrote, in “The Economic Consequences of the Peace,” that there is “no surer means of overturning the existing basis of society than to debauch the currency” and warned that it does so “in a manner which not one man in a million is able to diagnose.” Rueff was one of the last great crusaders for the gold standard. Mr. Lehrman is Rueff’s heir.The presidents who ended the gold exchange standard suffered from a want of vision. President Lyndon Johnson, insisting we could afford both guns and butter, de facto ended the Bretton Woods system. President Richard Nixon ended it de jure by closing the gold window, and with a broken promise to boot, saying in a speech to the nation:Let me lay to rest the bugaboo of what is called devaluation. … [I]f you are among the overwhelming majority of Americans who buy American-made products in America, your dollar will be worth just as much tomorrow as it is today.The effect of this action, in other words, will be to stabilize the dollar.Instead, the effect was to destabilize the dollar, unleashing a nosedive in its value. The dollar thereupon lost something like 85% of its purchasing power, later stabilized by Reagan. Eerily Tom Paine had prophetically foreseen impeachment as the consequence:As to the assumed authority of any assembly in making paper money, or paper of any kind, a legal tender, or in other language, a compulsive payment, it is a most presumptuous attempt at arbitrary power. There can be no such power in a republican government: the people have no freedom, and property no security where this practice can be acted: and the committee who shall bring in a report for this purpose, or the member who moves for it, and he who seconds it merits impeachment, and sooner or later may expect it.In the event, Congress prepared to move against Nixon on other grounds, and Nixon quit rather than stand trial. This is a moment to remember Rueff — and Mr. Lehrman. The classical gold standard is the only proven means to generate the rising tide that the supply-side president John F. Kennedy understood lifts all boats.________Mr. Benko, founder of the Prosperity Caucus, is the co-author of “The Capitalist Manifesto.” Image: The Rueff stamp, courtesy of a private collector.

Beyond Bretton Woods: Remember Rueff

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