RUTHFULLY YOURS

By SETH LIPSKY

It’s been 25 years since I found myself sitting in the office of Karl Otto Poehl, the president of the West German Bundesbank. I was then a young editorial writer at The Wall Street Journal intent on asking Europe’s most powerful central banker how he felt about the monetary crisis of the hour.

If people are getting nervous about the dollar, he said, “they shift into . . .” His voice trailed off. I noted that at the moment they were shifting into gold. “Into gold, to a certain extent,” he said. “But, but, but it’s not so relevant, actually.”

I observed that central banks were certainly “holding an awful lot of it.”

“We are the second biggest gold holder in the world, you know,” Mr. Poehl exclaimed.

“You must think it has some relevance,” I replied.

The exchange was quoted in an editorial called “Poehl’s Gold,” and I have been thinking about it this week as American policy makers debate whether, in the midst of our own budget crisis, America should start selling off its gold. Its holdings, according to the Treasury Department listing of its reserve position, comprise 261.5 million ounces of gold, which at a recent price of $1,492 an ounce would fetch $390.2 billion.

On Monday this newspaper reported that some House Republicans are suggesting that the Treasury sell assets, including gold, to keep paying creditors. “Treasury officials have rejected the idea,” the Journal reported, “but could be forced to rethink if [the budget] talks stall.”

My own view is that America should hang onto its gold while it pursues a return to sound money of a kind envisioned by the Founders. That would mean a dollar defined in terms of specie, meaning as a set number of grains of silver or gold. Once that is accomplished, it would be possible to tell whether the government should sell its gold and at what price.

This view isn’t necessarily endorsed by everyone thinking most seriously about sound money. Rep. Ron Paul (R., Texas), who has been seeking an audit of America’s gold holdings, would be happy to see the government dip into its bullion. Selling the gold would be “a good and moral decision,” he emailed David Pietrusza of the New York Sun on Tuesday. “An individual would have to do the same.”

Edwin Vieira, the author of a magisterial two-volume history of the dollar called “Pieces of Eight,” maintains little hope of the government moving to sound money. In the fiat system he fears the government is wedded to, policy makers “don’t need the gold. They’ve just been sitting on it since Roosevelt stole it”—a reference to the government’s seizure of gold during the Great Depression. A proponent of the “absolute separation between currency and debt,” he would prefer that America simply coin its gold holdings in pieces marked with their weight and use them to pay off its various debts, so as to get the gold dispersed as widely as possible among the people. He speaks not of the government selling its gold but “spending” it.

Lewis Lehrman, no less an advocate of first principles with respect to money, seeks a return to the gold standard now. He was a member of the United States Gold Commission that Congress chartered in the early 1980s, and he authored, with Mr. Paul, a famous dissent from the commission’s majority report supporting the system of fiat currency that has prevailed since 1971.

“Under no circumstances should the United States consider selling a single ounce of gold,” Mr. Lehrman said this week. “On the contrary, depending upon the facts and circumstances and the level of prices, the United States might be a gradual buyer.”

James Grant, editor of Grant’s Interest Rate Observer, believes that “a resumption of gold convertibility is not politically impossible. . . . Is it not a historical fact that gold-convertible currencies did yeoman’s service for 100 years and more?” He is with Mr. Lehrman, who stressed on National Public Radio this week that the gold standard is ripe for American leadership: “We have all the grounding and the basis for the United States taking the lead in establishing the convertibility of the dollar today.”

Surely Mr. Lehrman is right that if we are to return to an era of sound money, America would be the logical leader. That was my takeaway from the interview with Mr. Poehl in 1986. The point on which he was most clear was that if there was to be monetary reform, “the U.S. would certainly have to take the lead. That just goes without saying, because the U.S. is the strongest country.”

Is it still? One measure of that will be the definition and soundness of its dollar. And if we had a sound dollar legally defined, the question of how much gold the government should hold would become clear.

Mr. Lipsky is editor of the New York Sun. An anthology of its editorials on the gold standard, “It Shines for All,” will be out this month from New York Sun Books.

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