Neocon David Frum's latest hit piece on Ron Paul is titled, "Ron Paul's money plan is far from golden."
Who is David Frum?
David Frum: Hatchet Man for Ben Bernanke
He is a Canadian immigrant who studied history at Yale and earned a law degree at the Harvard Law School. He has always earned a living as a journalist. He has long been employed by the neoconservative movement. He became a U.S. citizen in 2007.
Frum is a journalist who was briefly a speech writer for President Bush. For over two decades, he has bounced around inside the neoconservative movement. At present, he works for the American Enterprise Institute, which has a lot of money and has lots of Ph.D.-holding economists on the payroll. He has not written a book on economics, let alone monetary theory or policy. His books are on politics.Then why did CNN, which is hardly a neoconservative media outlet, publish his hatchet piece on Ron Paul? Because he is one of its regular columnists.
Let's see: a conservative (it says here) who is a regular columnist for Ted Turner's creation. Isn't bipartisanship grand?
David Frum is Hopeless
Frum [does] not have a clue regarding American politics, the Republican Party, or the utter hopelessness of Rudy Giuliani's dead-on-arrival campaign.
Frum's latest book is Comeback: Conservatism That Can Win Again. I find this amusing.
His understanding of economics was not as good in 2007 as his understanding of American politics.
The National Bureau of Economic Research is the arbiter of when American recessions begin and end. It has determined that the recession – the worst since 1937 – began in December 2007, three weeks after Frum wrote this:
As the dollar buys less abroad, Americans will be constrained to consume fewer foreign goods and services – and foreigners will be induced to buy more from Americans.
With luck, this process will occur without a recession. The pace of domestic economic activity will continue brisk, dollar-denominated incomes will remain stable or even rise, unemployment may even decline as exports accelerate. This is what happened in 1985-86, the last time we saw a big drop in the value of the dollar.
In short, David Frum did not have a clue.
Another David Frum Disaster
In 1929, the U.S. economy slumped into recession. Under the weight of a series of terrible decisions, that recession collapsed into the worldwide Great Depression.
Americans abandoned the gold standard because Franklin Roosevelt, on his own authority, announced that any American or resident in America who did not turn in his gold would be prosecuted. If David Frum is not aware of this, then he spent way too much money and way too much time getting a masters degree in history at Yale.
But why did decision-makers make so many bad decisions? The short answer is that they were trapped. Almost all of the right decisions would have ballooned the U.S. federal budget deficit.
Let's see. Which economist became famous for arguing this way? Was it F. A. Hayek? No. Was it Milton Friedman? No. Was it. . . ? We all know who it was: John Maynard Keynes. Except for one thing: in 1929, that was not Keynes' position. It became his position only in 1935, when the whole world was off the gold standard, inflating like mad, and running massive deficits. He published in 1936.
Between 1929 and 1932, the U.S. money supply collapsed, as banks failed and bank deposits and commercial credit vanished. In their classic Monetary History of the United States (1966), Milton Friedman and Anna Schwartz identified this contraction of the money supply as the proximate cause of the Great Depression. Why didn't the Federal Reserve act to prevent the contraction? Again: the gold standard.
David, David, David: at least fake your knowledge of the relevant literature correctly, will you? The book was published in 1963.
Second, why didn't the FED act to prevent the contraction? It did not deflate. It just sat. No, it did not buy toxic assets owned by the banks -- assets that were about to fall in value. No economist believed a central bank should do this. That was Ben Bernanke's historic innovation in 2008 -- unique in Federal Reserve history.
The FED did not stay paralyzed. This is known to anyone who has studied FED policy. It expanded the monetary base from late 1931 through 1933. This is clear from a chart published by the Vice President of the Federal Reserve Bank of St. Louis.
From 1930-1933, 9,000 banks failed, taking deposits with them. There was a run on the banks. The money supply contracted. This was not the FED's fault.
What caused 1929? That, Frum does not bother to ask. Anti-gold economists and their faithful journalists never do. The world went off the gold standard in 1914 when World War I broke out. The commercial banks stole their depositors' gold. Then the central banks stole the commercial banks' gold. They never gave it back. Then they inflated.
The inflation of the late 1920's created the boom. The boom ended in 1929. But the anti-gild crew always begin their discussion with 1929. They do not refer to Murray Rothbard's book, America's Great Depression, also published in 1963. He showed how the depression was caused by the central bank's inflation before 1929. Paul Johnson alone used Rothbard's book to write the section on America's depression in his conservative masterpiece, Modern Times (1983). Frum does not mention this, either.
Imagine now if the gold standard were in operation today. The federal government would be scrambling to balance its budget in the midst of recession, cutting spending and raising taxes. Instead of pumping money into the economy, the Federal Reserve would be sucking money out. Priority 1 would not be creating and saving jobs, but preserving the nation's gold hoard.
Imagine, rather, that the Federal Reserve did not exist to bail out large banks, along with Henry Paulson's unilaterally nationalized mortgage market, with $1.5 trillion in fiat money, plus T-bill swaps at face value in exchange for toxic assets held by big banks.
Better yet, imagine that the government owned no gold. Imagine that the average Joe and Jane possessed gold coins, or IOU's to gold issued by banks and warehouses. There would be no inflation. There would be no FED to plan the economy by committee. There would be no -- dare I say it? -- central economic planning in monetary affairs.
David Frum: Keynesian in Drag
What does Frum know? This: Franklin Roosevelt saved the economy when he took America off the gold standard. That was the turning point.
Back in the 1930s, governments accepted horrific suffering because they were terrified of the consequences of going off gold. When President Franklin Roosevelt told his budget director, Lewis Douglas, of his decision to quit gold, Douglas replied: "This is the end of Western civilization." He wasn't kidding either.
In fact, the decision was the turning point of the Depression, the beginning of recovery. And every monetary economist knows it. Which means that the first thing any future gold-standard government would do in the event of recession would be to jettison gold. And every market trader knows that too.
This is Frum's message: government coercion and theft work. Make it illegal for citizens to own gold. Confiscate their gold coins at $20 an ounce, and, once the government has the stolen goods, raise the price to $35, which is what Roosevelt did in 1934. Let the government pocket 75% on the transaction (15/20 = .75). In short, take away from the public the right to control the money supply and stop inflation. Hand this authority over to the central bank.
Don't blame government-licensed fractional reserve banking for economic depressions. Blame the public, who use gold and silver coins to hold bankers in check. Adopt as your reigning monetary principle these slogans: "Power from the people! Power to the central bank!"
This is neoconservatism. This is economic liberty, neocon style. This is the government's gun in your belly: "Hand over your gold. It's for your own good."
Frum is upset that Ron Paul has persuaded so many conservatives that neoconservative economics is Keynesianism in drag.
This is an argument against a government-imposed, government-guaranteed gold standard. It is an argument for the system that Ludwig von Mises called for in 1912: free banking. Get government out of the money business.
That would shrink the state. That is the nightmare scenario for big-government conservatives like Frum.
Beware of wolves in conservative clothing. David Frum and his ilk, are nothing but apologists for progressivism.
Go read the whole the entire David Frum hatchet piece by Gary North: David Frum: Hatchet Man for Ben Bernanke
