The debate over an alternative monetary system grows more serious
Europeans are appalled. "It's the silliest financial discipline the U.S. could adopt," says former Dutch Treasury Official Coenrad J. Oort. Many private-sector American economists are aghast. Says Michael Evans, who heads his own economic consulting firm in Washington, B.C.: "There were periodic crashes in which banks collapsed during more than 50 years of the gold standard. I don't think that is what anyone wants." Yet to the astonishment of nearly everyone, important members of Congress continue to give serious thought to the idea of putting the U.S. back on some form of the gold standard. Mindful of how they laughed when some of these same folks first started talking about supply-side economics a few years back, the opponents are paying careful attention.
Richard Nixon ended the last links between the dollar and gold on Aug. 15, 1971, when he said that the U.S. would no longer exchange American gold for dollars held by foreign central banks. But since that time, inflation and interest rates have reached unimaginable levels, stirring longings for a return to the golden days of yesteryear, when the dollar's value was determined not by man-made policies in Washington but by how much gold it could buy.
More than anything else, it is the staggering level of interest rates that has intensified the gold debate. Last week many major banks lowered their prime lending rate to 19%%, sending stock prices temporarily higher. Soon thereafter, though, moneymen predicted that interest rates were likely to remain high, or even increase, later in the year and early next year. Joseph Granville, the widely followed stock market guru, predicted that the Dow Jones industrial average would drop another 200 points to 650 or 550 during the next twelve months. Stocks then plunged anew. At the end of the week, the Dow Jones index stood at 824, a decline of 200 since its high this year of 1024 on April 27. Granville did equal damage while visiting Britain. His prediction of a London stock exchange slump sent the market into a 20.5-point free fall in one day.
The supply-side economists and their supporters, who first sponsored the large tax cuts and budget reductions that President Reagan pushed through Congress earlier this year, are now saying that a return to gold would quickly bring down interest rates. North Carolina Republican Jesse Helms, the Senate's leading backer of the yellow metal and author of a bill to restore the gold standard, claims that such action would reduce interest rates "to probably three or four percent."
The new Gold Commission, an amalgam of 17 Government officials, businessmen, politicians and academics that Congress created to look into the feasibility of restoring the gold standard, held its first public meeting two weeks ago in the Cash Room of the Treasury Building in Washington. The commission had met once before, in July, behind closed doors.
No decisions were reached at the more recent meeting, except one to extend the deadline for the commission's recommendations from Oct. 7 of this year to next March 31. Most of the four-hour session was devoted to discussion of a leaden report by Anna Schwartz, coauthor with Economist Milton Friedman of a classical study of U.S. monetary history, on the American experience with the gold standard going back to 1834.