Dear Monetary Policy Observer,
Can Republicans benefit from 1920s economic policy? This latest Forbes.com article by Ralph Benko makes the case while critiquing a new book on the Presidency of Calvin Coolidge, who he argues was a successful force behind “the right’s first sweeping counterrevolution against liberal Republicans.” He also points out a possible link between the stigma often attached to Coolige’s legacy and the economic time bomb set by a monetary conference in the early 1920s. We hope you find this material of interest.
Calvin Coolidge's Life Offers The Republicans A Path Back To The Majority
Amity Shlaes, one of America’s most interesting and influential public intellectuals, has just published Coolidge, a biography of that laconic president. It is meticulously researched, and compellingly written, and of this writing residing on the New York Times nonfiction bestseller list at Number 6.
This book’s prominence appears due less to its exploration of an enigmatic historical personage than to its high relevance to the political wars that rage today. Reviewing Coolidge for the New York Times Book Review, Jacob Heilbrunn, a senior editor at The National Interest, nails the key significance of this book (while taking issue with some of its conclusions):
“What makes Coolidge a fascinating character, however, aren’t his bromidic phrases and vapid homilies, designed to reassure a public unsettled by rapid social and economic change; or his loyalty to his vivacious wife, Grace; or his taciturnity or any of his other personal qualities. Rather, it is that he represented the right’s first sweeping counterrevolution against liberal Republicans in a battle that continues down to the present. [Emphasis added.]
Disaster was barreling down upon the United States, and world, economy. Offstage (and thus properly excluded as a topic of Shlaes’s book) world monetary policy had gone awry. The pre-war gold standard had been replaced by its evil simulacrum, the “gold-exchange” standard, at a monetary conference as obscure as it proved epochal, held in Genoa, Italy, in 1922. It was a ticking time bomb.
Few grasped (or yet grasp) the enormity of the time bomb that had been embedded into the world economy with this policy. One of the few, Prof. Jacques Rueff, wrote of the gold-exchange standard, in The Monetary Sin of the West (The Macmillan Company, 1972, 1971, pp. 23-24):
“[T]he gold-exchange standard brought about an immense revolution and produced the secret of a deficit without tears. It allowed the countries in possession of a currency benefiting from international prestige to give without taking, to lend without borrowing, and to acquire without paying.
“The discovery of this secret profoundly modified the psychology of nations. It allowed countries lucky enough to have a boomerang currency to disregard the internal consequences that would have resulted from a balance-of-payments deficit under the gold standard.
“It was the outcome of an unbelievable collective mistake which, when people become aware of it, will be viewed by history as an object of astonishment and scandal.”
Coolidge barely escaped Genoa’s detonation and demolition of the world financial order. Yet his escape was not quite complete. His reputation was tarnished by a suspicion, or perhaps just convenient partisan claim, that the Depression somehow derived from Coolidge’s economic policies. The Coolidge administration, sandwiched between Genoa and Black Monday, had nothing to do with causing the Great Depression. Its cause derived, directly, poorly understood (both then and now), from Genoa.