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ON TARGETING THE PRICE OF GOLD
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ON TARGETING THE PRICE OF GOLD
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Journal Article
ON TARGETING THE PRICE OF GOLD
2020
Overview
Thanks to President's Trump's picks for prospective Fed Board nominees, the subject of gold price targeting (or a gold \"price rule\") is getting attention once again. The idea, which got a lot of attention back in the 1980s, after Arthur Laffer and other supply-siders, including Alan Reynolds, first began promoting it, is that the Fed could mimic a gold standard, keeping inflation in check and otherwise making the dollar \"sound,\" by employing open-market operations to stabilize the price of gold.1 The topic has come up again because three of Trump's prospective nominees have at one time or another suggested that the United States should revive the gold standard, and two of them, Herman Cain and Stephen Moore, are full-fledged supplysiders (see Benko 2019). Although Cain and Moore are no longer in the running, Judy Shelton, the third gold standard fan, is still in the race, along with Chris Waller of the St. Louis Fed (see Matthews and Torres 2019). Shelton also has strong supply-side leanings.These facts prompted Representative Jennifer Wexton (D-Va.) to ask Jerome Powell, following his July 10, 2019, testimony, whether the United States should \"go back to the gold standard.\" In response, Powell, whether because he had a Laffer-style gold price rule in mind or for some other reason, interpreted the question as one asking whether the Fed should \"stabilize the dollar price of gold.\" That, he said, wouldn't be a good idea:There have been plenty of times in fairly recent history where the price of gold has sent signals that would be quite negative for either [maximum employment or stable prices]. . . . If you assigned us [to] stabilize the dollar price of gold, monetary policy could do that, but the other things would fluctuate, and we wouldn't care. We wouldn't care if unemployment went up or down. That wouldn't be our job anymore [Powell 2019].Powell's statement raises three questions. One is whether it's proper to equate reviving the gold standard with having the Fed target the price of gold, as Powell did. The second is whether Judy Shelton has herself endorsed a gold price rule. The third is whether such a rule would be as disastrous as Powell claims. This article is devoted to answering, or trying to answer, these questions.
