Why Politicians Really Hate the Gold Standard

Politicians — elected officials — are street smart rather than book smart.

If you care about influencing government policy it helps to know how they think.

Forbes contributor Nathan Lewis argues that:

“Too much is done today on the oral tradition. That is, literally, what it is. In this post-Gutenberg age, we have some better alternatives.

“Thus, we need what I call the ‘shelf of books,’ from different authors. It doesn’t have to be a big shelf. About twelve good books, recently written, would be enough.

“They can’t be old books and they can’t be books filled with economic fallacy. …

“The American Principles Project, which I call the ‘Tea Party’s think tank,’ has just released two white papers about monetary reform…

“Lewis Lehrman has just finished his most recent book on the topic, which was available in short-format form last year. That makes two books on our shelf. Great.

“I hear that George Gilder, who released the influential Wealth and Poverty in 1981, has gained a growing appreciation for the importance of monetary reform. Maybe Gilder will put his excellent research and communication skills to work and produce a new work on the topic.”

Nathan Lewis and I agree that more books will be useful to the restoration of the gold standard.

We get there, however, through different paths of thought.

This columnist, unlike Nathan Lewis, spends a great deal of time on Capitol Hill talking with legislators and their key aides. Few legislators, or legislative aides, have the luxury of reading many books. This is not due to a lack of intellect. Most elected officials and their advisors are very smart.

Nor is this due to a lack of intellectual curiosity. Those who serve in the legislative branch tend to be imbued with practical curiosity.

When time permits they love to read, and read sophisticated works. The editor of one of most influential magazines in Washington privately reported, about a year ago, encountering Rep. Kevin Brady (R-TX), chairman of the Congressional Joint Economic Committee, reading Lewis E. Lehrman’s The True Gold Standard on the Acela train from DC to New York City.

Yet because legislators are inundated with inputs — from constituents, the media, trade associations, leadership, colleagues, donors and others — their decision-making primarily is based on a sophisticated process known as “heuristics.” Wikipedia defines heuristics as:

“Where the exhaustive search is impractical, heuristic methods are used to speed up the process of finding a satisfactory solution via mental shortcuts to ease the cognitive load of making a decision. Examples of this method include using a rule of thumb, an educated guess, an intuitive judgment, stereotyping, or common sense.”

Heuristics is a process we all use. We may not always quite know the name of a candidate. Yet we recognize her party affiliation… and vote accordingly. That’s heuristics.

Legislators, by necessity, rely on this even more heavily than most of us. It serves them well. They can with good confidence rely, for the most part, on the refined judgment of trusted authorities. What Lewis dismisses as “the oral tradition” is a manifestation of a sophisticated reliance on heuristics.

Nevertheless, Lewis’s call for a “small shelf of books” is well founded. Books give their writers, and readers, a chance to think through issues in depth. They add a measure of prestige and authority to their authors. When a Congressperson knows that the source of a legislative proposal derives from a book both the author and the idea gain — heuristically — some added credibility.

Credibility matters. This is a sad era where America understandably feels (because it was) lied to by its president. Yet the gold standard of both politics and governance is credibility. Voters, on balance, are not persistently credulous.

Nathan Lewis, PI (Public Intellectual) publicly yearns — as do all public intellectuals — for our legislators to decide by Deep Thought. The evidence argues that policy decisions almost exclusively are made based on how sensible — as in common sense — policy recommendations appear and how credible the officials deem the source. This is an exercise in heuristics, not “oral tradition.”

That does not vitiate Lewis’s fundamental desire for a “shelf of books.” It simply shifts the nature of the influence of books among official policy makers. For example, books help persuade other intellectuals, which helps to persuade policy institutes, which help to persuade officials.

2013 was the richest year in recent memory for the publication of books about the gold standard. Lest the gold standard seem like an unreachable goal, let it be noted that Paul Krugman, in his Dec. 22, 2013 New York Times column observes that “What’s really happening [in the policy discourse] is a determined march to the days when money meant stuff you could jingle in your purse.”

“Stuff you could jingle” of course is Krugman’s merry anathema — counterfactual, as is standard on this subject with Krugman — for the gold standard.

But Prof. Krugman is not wrong about the “determined march” — a march that clearly is gaining real traction. This is very much to Krugman’s dismay. Alluding to the fountainhead of faith-based economics, John Maynard Keynes, Krugman calls the gold standard, which he clearly does not comprehend, “barbarism.”

The march continues, determined. There is nothing remotely barbaric about the classical gold standard as this year’s crop of books elegantly demonstrates. Thus a valuable additional pillar of support for the gold standard is being secured.

Nathan Lewis himself has contributed one of these books, Gold: The Monetary Polaris, called by John Tamny “a monetary policy masterpiece of a book that everyone should read.” Tamny concludes: “This is easily the most important book of 2013, arguably the most important economics book in a long time, and the best book on money that’s yet been written.” This columnist considers Gold: The Monetary Polaris an invaluable resource.

Of even greater value, in this columnist’s view, for 2013 were Constitutional Money: A Review of the Supreme Court’s Monetary Decisions by Richard Timberlake, Money, Gold, and History by Lewis E. Lehrman, and Knowledge and Power by George Gilder — each of which were the subject of 2013 presentations at the Cato Institute. Cato increasingly and justifiably is an influential voice for economic policy on Capitol Hill.

The authors of these works have attained a certain iconic status: Timberlake, at age 91, the dean of free banking economists, has created an indispensable classic in constitutional monetary studies, one published by Cambridge University Press. Lehrman (with the Institute which he founded and chairs this writer has a professional association), as the Reagan Gold Commissioner and champion of a modern classical gold standard. And Gilder, as the living author most cited in speeches by President Reagan.

This columnist reviewed Gilder’s Knowledge and Power — praising its powerful contribution to the discourse of bringing information theory to bear on the gold standard; and reported on the Cato debut of Money, Gold, and History — broadcast by C-SPAN — as “a Velvet Underground Event.”

Money, Gold, and History is a worthy companion volume to Lehrman’s immediately preceding work, The True Gold Standard welcomed by Nathan Lewis, its author praised in an Amazon review by iconic financier Barton Biggs as “the most profound monetary thinker of our time.”

In addition, Dr. Judy Shelton, of Atlas Economic Research Foundation, has provided a splendid new edition of Jefferson’s Notes on the Establishment of A Monetary Unit, both in facsimile and text, with a brilliant introduction by the author herself. The text of Jefferson’s notes previously was readily available only in virtual format from the invaluable archive maintained by Liberty Fund. Dr. Shelton’s introduction observes:

“In the context of Jefferson’s life and times, it’s important to understand that the value of money was scarcely distinguishable from the money itself. Gold and silver coins provided the common media of exchange: their worth was largely intrinsic, subject primarily to the quantity and purity of the metal they contained. … Jefferson deferentially refers to the assays of foreign coins performed by Sir Isaac Newton in 1717 (when Newton was Master of the Royal Mint)…. As an aside, the fact that Jefferson mentions Newton not just once, but four times, in this fairly short document gives some indication of the esteem he held for the renowned scientist. In a 1789 letter, Jefferson praised Francis Bacon, John Locke, and Isaac Newton as ‘the three greatest men that have ever lived, without exception’ and kept portraits of them at Monticello…”

Last year also saw the first readily available English language edition, published by Laissez Faire Books, of Copernicus’s Essay on Money translated from the Latin by classicist Prof. Gerald Malsbary, co-edited by this columnist and by Charles Kadlec. Its introduction observes:

“The classical gold standard has a more profound pedigree than many know.

“It is fairly widely understood that the classical gold standard origi­nally was designed, in 1717, by Sir Isaac Newton, then master of the mint of Great Britain. It lasted for two centuries, and it is an irony of history that John Law’s notorious experiment with paper money, which ruined his investors, France, and himself and lasted but three years, was initiated in the same year.

“The fact of Newton’s role as architect alone would provide the gold standard with a most dignified intellectual provenance. Now comes a new, meticulously researched, and lucidly devised translation by clas­sicist Gerald Malsbary…

“Through this translation, scholars, intellectuals, and policy makers readily will be able to discern that the fundamental intellectual ground­work for the classical gold standard was laid by another scientific icon, Nicolas Copernicus. Yes, Copernicus, the very same who placed the sun in the center of the solar system.

“Prof. Malsbary’s translation shows Copernicus’s widely overlooked tract On the Minting of Money as no more dated than heliocentricity, contemporary and as lucid as anything ever written on monetary policy.”

Good books. Still, the most perceptive statement on the logic of lawmaking on record may be that by Oliver Wendell Holmes, Jr. His famous lecture at the Lowell Institute, published in his classic work The Common Law, states:

“The life of the law has not been logic: it has been experience. The felt necessities of the time, the prevalent moral and political theories, intuitions of public policy, avowed or unconscious, even the prejudices which judges share with their fellow-men, have had a good deal more to do than the syllogism in determining the rules by which men should be governed. The law embodies the story of a nation’s development through many centuries, and it cannot be dealt with as if it contained only the axioms and corollaries of a book of mathematics.”

“The life of the law has not been logic: it has been experience.” This is, of course, a more eloquent way of saying that politicians — our legislators — our lawmakers — and their aides primarily, and justifiably, rely upon heuristics. Street smarts not book smarts.

Meanwhile, all to the good, Nathan Lewis’s desire for “About twelve good books, recently written” — even if one excludes Jefferson and Copernicus as “not recently written” — is well under way to fulfillment. The gold standard makes street sense and book sense both.

Ralph Benko
for The Daily Reckoning

Ed. Note: The debate over the gold standard won’t end tomorrow. And if Krugman and the rest of his Keynesian ilk have their way, it will never end, so long as their form of money is the one being used. Nevertheless, protecting the purchasing power of your wealth is one of the most important things you need to know. Sign up for the Laissez Faire Today email edition to learn more about this and other ways to take back your liberty.

Original article posted on Laissez Faire Today