Greenspan’s Big Reveal: The Secret Recipe for Economic Growth

March 20, 2017

by Ralph Benko


Former Fed Chair Alan Greenspan praises the gold standard in the February 2017 issue of The World Gold Council’s Gold Investor. Therein he makes what may be his strongest statements to date in praise of the gold standard.

Here are some of the highlights. Toward the end of this interview he offers a Big Reveal:

I view gold as the primary global currency.

Gold, along with silver, is one of the only currencies that has an intrinsic value. It has always been that way. No one questions its value, and it has always been a valuable commodity, first coined in Asia Minor in 600 BC.

But today, there is a widespread view that the 19th century gold standard didn’t work. I think that’s like wearing the wrong size shoes and saying the shoes are uncomfortable! It wasn’t the gold standard that failed; it was politics. World War I disabled the fixed exchange rate parities and no country wanted to be exposed to the humiliation of having a lesser exchange rate against the US dollar than it enjoyed in 1913.

Britain, for example, chose to return to the gold standard in 1925 at the same exchange rate it had in 1913 relative to the US dollar (US$4.86 per pound sterling). That was a monumental error by Winston Churchill, then Chancellor of the Exchequer. It induced a severe deflation for Britain in the late 1920s, and the Bank of England had to default in 1931. It wasn’t the gold standard that wasn’t functioning; it was these pre-war parities that didn’t work.

Today, going back on to the gold standard would be perceived as an act of desperation. But if the gold standard were in place today we would not have reached the situation in which we now find ourselves. We cannot afford to spend on infrastructure in the way that we should. The US sorely needs it, and it would pay for itself eventually in the form of a better economic environment (infrastructure). But few of such benefits would be reflected in private cash flow to repay debt. Much such infrastructure would have to be funded with government debt. We are already in danger of seeing the ratio of federal debt to GDP edging toward triple digits. We would never have reached this position of extreme indebtedness were we on the gold standard, because the gold standard is a way of ensuring that fiscal policy never gets out of line.

When I was Chair of the Federal Reserve I used to testify before US Congressman Ron Paul, who was a very strong advocate of gold. We had some interesting discussions. I told him that US monetary policy tried to follow signals that a gold standard would have created. That is sound monetary policy even with a fiat currency.

Most striking of all of his comments is Dr. Greenspan’s open declaration that under his chairmanship, during the high-growth, low-inflation period known as “the Great Moderation,” “US monetary policy tried to follow signals that a gold standard would have created. That is sound monetary policy even with a fiat currency.”

That the Greenspan Fed then was targeting the price of gold has long been a matter of inference and speculation. Tracking the vibrant economic growth period of monetary policy known as “the Great Moderation” demonstrates a great consistency with stability for the market price of gold.

That consistency drew an inference in some circles that the Greenspan Fed, during the Great Moderation, used the price of gold as a primary target in deciding whether to ease or tighten.

Greenspan’s recent interview provides, however, the first explicit declaration I have seen by the former Fed Chairman that this was intentional rather than coincidental. Had Greenspan stuck to that “sound monetary policy even with a fiat currency,” we would never have experienced the Panic of 2008 and the ensuing Great Recession.

May President Trump, who shows a strong affinity for gold and a native appreciation of the gold standard, follow through on his intuition that restoring the classical gold standard at the right parity points — and removing tax and regulatory barriers to the free circulation of gold and silver as money, echoing the intent of the U.S. Constitution — would make America great again. As I recently wrote here:

In the interest of robust job creation, 4 percent GDP growth rates, and equitable prosperity, let us hope that, indeed, Trump calls for the gold standard to be reinstated because he likes the sound of it and convenes a team of gold standard experts such as APP’s chairman Sean Fieler, businessman/philanthropist Lewis E. Lehrman, public intellectual George Gilder, former presidential candidate Steve Forbes, presidential transition team advisor Dr. Judy Shelton and a few others to map out exactly how to use gold to make America great again.

Heed Greenspan, President Trump!

Imagine a world where the national debt is subsiding, there is plenty of money for infrastructure, and job creation is epic. Go for the gold by removing the government’s barriers against the use of gold as a competing currency and by enacting the Jack Kemp Gold Standard Act!

Alan Greenspan has provided a valuable service in his Big Reveal: his “secret recipe” for job creation and reducing the deficit was “to follow signals that a gold standard would have created.” Best of all? Do the gold standard proper, rather than the expedient of following signals.

President Trump? Go for the gold!

Photo credit: Brookings Institution via Flickr, CC BY-NC-ND 2.0


Ralph Benko is a monetary policy advocate and an internationally syndicated columnist.

Archive: Ralph Benko

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  • N. Joseph Potts says:

    Alan Greenspan is on record as having favored the gold standard as long ago as the 1966 book “Capitalism: The Unknown Ideal,” edited by Ayn Rand. One of the essays is his.

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