How Trump Can Turn Economic Debacle to Miracle: Gold Standard

Part 1 of a Series

Lost in the mists of history lie pointers to a simple, well-proven, powerful way for President Trump to reverse the current economic debacle and produce an American Economic Miracle. President Trump on the campaign trail showed that he has the right instincts to unleash prosperity. Spoiler alert: I prescribe the gold standard, praised by Trump on the stump, to achieve this.

Will Trump follow those instincts?

This is the first of a three part series presenting the case for why the gold standard is the compelling option to quickly restore American prosperity. It explains why and how the president can direct National Economic Council Director Larry Kudlow to definitively set the American economy on a renewed path of sizzling job creation and equitable prosperity.

What is the alternative? Economist John Maynard Keynes once told a Saturday Evening Post reporter, who, in 1932, asked whether anything like the Great Depression had previously occurred: "Yes. It was called the Dark Ages and it lasted 400 years." If the political authorities will make the simple but correct policy response this downturn could prove a blip. The alternative is what I have elsewhere called a "Little Dark Age."

This column does not address the public health issues about which I lack expertise. To paraphrase James Carville: It's about the economy, sweetheart. There is only one person now with sufficient authority equipped to accomplish what needs to be done: Donald Trump. Trump, capably advised by Larry Kudlow, uniquely has both the power and the insight. Follow along.

Trump could outperform Franklin D. Roosevelt, who, facing the even greater catastrophe of the Great Depression, defied the conventional wisdom and, although only temporarily (see below), got the engines of commerce roaring again. Trump, like FDR who enjoyed pitting his advisors against one another, is not intimidated by experts. Trump has the disposition to do what the late, great, JFK's chief economist Walter Heller advised Congress in 1985: "Rise above principle and do what is right." 

The power of good money — restoring integrity to the dollar, not government checks mailed to the teeming millions — typically is deeply underestimated by contemporary economists. A great pity. The evidence shows that the highest integrity money is the gold standard. 

The experts don't get this. Trump does.

The restoration of health (not "strength") to the dollar produced amazing results in the dire context of 1932.  Liaquat Ahamed's Pulitzer Prize-winning Lords of Finance says this about FDR's first hundred days. "While much of the legislation was very laudable, aimed as it was at improving social justice and bringing a modicum of economic security to people who had none, it had little to do with boosting the economy. Tucked away, however, in this whole motley baggage, as a last-minute amendment to the Agricultural Adjustment Act, was one step that succeeded beyond anyone's wildest expectations in getting the economy moving again. This was the temporary abandonment of the gold standard and the devaluation of the dollar."

While widely seen — even by FDR — as going "off" gold he did no such thing. It was a recalibration of the badly defective "interwar gold standard." An obscure but toxic monetary conference held in Genoa in 1922 knocked the pins out from under the pre-war classical gold standard while preserving the facade.

This flimflam (later called "the Triffin Dilemma") caused general commodity prices to float up by 50% while pinning the definition of the dollar in gold to its prewar level. That became a ticking time bomb.  

That bomb went it went off on September 4, 1929, "Black Thursday," the stock market crash that ushered in the Great Depression. Fast forward to 1933. Enter FDR, advised by the greatest authority on commodity prices of his era agricultural economist George Warren and eminent economist Irving Fisher. 

Warren and Fisher understood that the primary cause of the Depression was deflation. Warren told FDR to revalue to the dollar by 50% to bring it in line with prevailing commodity prices. FDR duly, a few cents at a time, revalued the dollar from $20.67 to  $35/ounce of gold. The Depression promptly lifted. 

Ahamed: "During the following three months, wholesale prices jumped by 45% and stock prices doubled. With prices rising, the real cost of borrowing money plummeted. New orders for heavy machinery soared by 100%, auto sales doubled, and overall industrial production shot up 50%."

Alas, FDR didn't have a firm grasp on what he had done, and his administration embraced retrograde policies tipping the economy back into Depression. Bad policy drives out good. If this tragically aborted "good money" miracle had occurred but once it might be considered a fluke. Yet comparable events have occurred, repeatedly. 

To be continued.

Ralph Benko, co-author of "The Capitalist Manifesto" and chairman and co-founder of "The Capitalist League," is the founder of The Prosperity Caucus and is an original Kemp-era member of the Supply Side revolution that propelled the Dow from 814 to its current heights and world GDP from $11T to $83T. He served as a deputy general counsel in the Reagan White House, has worked closely with the Congress and two cabinet agencies, and has published over a million words on politics and policy in the mainstream media, as a distinguished professional blogger, and as the author of the internationally award-winning cult classic book "The Websters' Dictionary: How to Use the Web to Transform the World." He has served as senior adviser, economics, to APIA as an advocate of the gold standard, senior counselor to the Chamber of Digital Commerce and serves as general counsel to Frax.finance, a stablecoin venture. To read more of his reports — Click Here Now.