Republican strategists close to Ronald Reagan are touting a return to some kind of gold standard as a way of restoring the strength and stability of the dollar.
Lost in the hubbub of the GOP convention and in the fine print of the platform was a plank that, according to its authors, takes the first formal step in this direction.
"The severing of the dollar's link with real commodities in the 1960s and 1970s . . . has unleashed hyperinflationary forces at home and monetary disorder abroad, without bringing any of the desired economic benefits," reads the plank.
It goes on to say that "one of the most urgent tasks in the period ahead will be the restoration of a dependable monetary standard -- that is, an end to inflation."
Although gold is not mentioned directly, Rep. David Stockman (R-Mich.) said that was the "commodity" strategists had in mind at a luncheon meeting in Detroit where he and others drafted the plank.
Stockman and others insist that the significance of the plank is that it establishes a new beachhead in the monetary debate shaping up for the 1980s.
U.S. citizens have not been able to trade their paper dollars with the government for gold since President Franklin D. Roosevelt ordered that stopped in 1933. In 1971, the Nixon administration ended all official links between the dollar and gold when he announced this country no longer would sell gold to foreign government at a fixed price of $35 an ounce.
Even the most enthusiastic advocates of the gold standard acknowledge that they face a long, uphill fight to enshrine the metal once again. But they say that a gold-based currency is no longer a possibility entertained only by fanatic "gold bugs," signifying the end of an era in which lax fiscal discipline, easy money and inflation were taken for granted.
"What you're seeing is the very early stage of thinking that could bring about institutional change," said Alan Greenspan, a former top economic adviser to President Ford. Greenspan said in an interview that he would like to see a gold standard after fiscal and economic policies have been employed to stablize the dollar.
Also attending the Detroit meeting were Rep. Jack Kemp (R-N.Y.), economic consultant Jude Wanniski and Jeffrey Bell, who drafted a plan for a $90 billion federal spending cut while advising Reagan in 1976.
"We all decided stronger language was needed in the monetary section," said Stockman. "We wrote it out on a napkin and took it to [Sen. William V.] Roth [R-Del.,] chairman of the monetary subcommittee, who approved prov ed it."
Republican sources said the plank was in line with the thinking of Reagan, who has said he would seriously consider a return to a gold-based monetary system.
Reagan has conceded that such a step would be "complicated," and even Republicans who like the idea acknowledge that it would run against the tide of much conventional thinking, including that of some Republicans.
After the Nixon administration severed the official link that had existed between U.S. currency and gold for the duration of the postwar period, the dollar was valued in relation to other currencies rather than to gold, and the buying and selling of gold was left to private traders.
Former Treasury secretary George P. Shultz, who helped develop the system of floating exchange rates in the Nixon administration, said in an interview yesterday that "a return to the gold standard is not workable." He described the retention of the convertibility arrangement in the 1960s as a "series of Band-Aids that was bad for the United States and tended to conceal the underlying problems." Like Greenspan, Shultz is one of Reagan's economic advisers.
The U.S. Treasury is the largest known governmental owner of gold in the world. The 264.6 million troy ounces in Fort Knox, Ky., is worth a staggering $158 billion at current values.
This would seem to some to put the United States in a strong position to muscle around the world gold markets.
However, critics of the back-to-gold thesis note that foreigners own about $150 billion worth of short-term assets -- nearly the value of U.S. gold reserves -- and therefore could buy them out quickly if the reserves were up for sale.
Other arguments against returning to any sort of international gold standard are that new gold production is centered in South Africa, which is politically unstable, and the Soviet Union, which is an adversary.
Another argument against a rigid gold standard is that it pegs the money supply, and indirectly economic growth, to a commodity that can fluctuate widely.
Nevertheless, gold advocates argue that the linkage "enforces discipline" on policymakers and prevents politicians from tinkering with the money supply.
One strong advocate of a return to the gold standard is University of Southern California professor Arthur B. Laffer, another Reagan adviser. A return to the gold standard, he has written, would cause "employment and the stock market to rise."
But Prof. Charles Kindleberger of the Massachusetts Institute of Technology says "this gold idea is really nutty. It's a return to an archaic, outworn shibboleth of yesteryear."