Four years ago, when the Republicans first proposed the Kemp-Roth supply-side tax bill, few people took the idea seriously. Today, the basic Kemp-Roth idea is law.
Now the people who helped bring about last month's tax-cut bill are pushing for a return to the gold standard and many people are laughing again. But maybe not as hard.
There is, after all, always the chance that opponents of the gold standard might find themselves outmaneuvered by supply-side supporters, just as others found themselves left behind over tax cuts.
"The aim of supply-siders is nothing less than a commitment from the Reagan administration -- and the Federal Reserve -- to a path leading toward dollar convertibility" into gold, said Jude Wanniski, a high priest of supply-side economics.
Wanniski and a small group of conservatives have thrown themselves into the battle with a burst of publicity that has already succeeded in focusing attention on the Gold Commission, set up by Congress last year to study the potential role of gold in the money system.
Although gold bugs are clearly in the minority on the commission and in the administration, they still hope to persuade the president of the wisdom of their views.
Ironically, their fire is concentrated on monetarists, who are heavily represented in the administration and whose goal of slowing money growth is a key part of President Reagan's economic program. The reason can be found in today's record high interest rates.
Supply-side economists first claimed that large, multiyear tax cuts would revive the economy. But they and other Republicans now fear that if interest rates stay high, as they have this summer, they will strangle this revival.
Other economists said all along that a boom was incompatible with falling inflation and interest rates. But supply-siders will not give up easily.
Gold can bring rates down, some now argue.
Arthur Laffer, architect of the notion that tax cuts can pay for themselves, said recently that monetary reform based on a return to the gold standard is 10 times as important for the economy as supply-side tax cuts.
Rep. Jack Kemp (R-N.Y.), co-author of the Kemp-Roth tax cuts and political pointman for the supply-siders, backs the gold movement.
And New York businessman Lewis Lehrman, another supply-side guru, claimed in a recent interview that "the gold standard is the only technique by which you can establish a stable dollar and stable, low, long-term interest rates."
It is not surprising that some Reagan supporters have begun to despair over current policies after a summer in which the prime interest rate has stayed stubbornly above 20 percent and there is no sign of the bond market rally that was to follow passage of the Reagan plan.
But most economists believe the search for a painless route to lower inflation and interest rates --whether through large tax cuts or a return to the gold standard -- is doomed.
A gold standard is just one system for setting money policy. Many advocates believe it would ensure slow, steady growth of money and credit, which governments are otherwise unable or unwilling to promise.
Money could only be created if there were gold to back it, and as gold production rises only slowly, so money growth, too, would be limited. The slow money growth would lead to lower inflation, the argument goes.
But the Federal Reserve is already operating a tight, slow-growth money policy to fight inflation. Indeed, high interest rates are a direct result of this policy: The demand for money and credit from a still-strong economy cannot be satisfied by the restricted supply, so the price, or interest rate, has risen.
Moreover, the proponents of tight money have become the bogymen of some gold-supporting supply-siders. Treasury Undersecretary Beryl Sprinkel is Wanniski's chief target in a recent paper in which Wanniski wrote, "The public flogging of Beryl Sprinkel would do wonders for the bond market" if joined to a promise that the gold window would soon be opened.
"Monetarism shrivels every economy it touches" by forcing up interest rates, he argued.
But if interest rates are forced up because money is tight, it makes no difference whether money growth is limited by being tied to gold or some other money rule.
However, gold advocates argue that rates are high because people cannot trust the administration and the Federal Reserve to keep to anti-inflationary policies if these start to threaten growth and employment, rather than simply because money is tight.
If, on the other hand, the advocates continue, financial markets and wage bargainers were sure of Reagan and the Federal Reserve, they would accept lower interest rates and lower wage increases now in the expectation of lower inflation in the future.
The implication is that people will trust the government if there is a gold standard, but not otherwise.
But an administration that goes to a gold standard can loosen that standard or abandon it, just as it can break a promise to balance the budget or cut money growth.
In the past, successive administrations loosened the post-war link between gold and domestic money policy before it was finally broken by former president Richard M. Nixon in 1971.
The gold exchange standard operating in the 1950s and 1960s exerted only a weak influence on U.S. domestic money policy anyway, a fact today's investment community is not apt to forget.
Financiers are likely to be just as skeptical of Reagan's ability to keep to a gold standard as they are of the government's commitment to keep money tight and fight inflation. And wage negotiators would probably pay as little attention to an announcement of a return to the gold standard as they do to promises of tight money.
The key feature of the various versions of a gold standard calls for the administration to fix a dollar price at which it would buy and sell gold, thus guaranteeing the link between the dollar's value and the value of gold.
Gold bugs argue that since gold has over the years generally held its value in relation to other commodities, the dollar's purchasing power would remain stable if it were fixed to gold.
This illustrates one immediate practical problem of returning to gold: Officials would have to fix a price. Once decided upon, the price should not be changed, or the dollar-gold link would be broken.
But the effect of a gold standard would be sensitive to the price chosen.
If the price were too high, people would queue up to sell their gold for dollars. This would expand the money supply and, presumably, be inflationary.
If, on the other hand, the initial price were too low, Treasury would have a run on its gold stocks. The money supply would shrink as people turned in their dollars for gold, and the economy would contract as there was less and less money to support the level of output and employment.
But suppose the price were right, balancing the supply and demand for gold and dollars at the time the United States went back to gold.
From then on any shocks in the world that affected the demand for gold -- such as a threat to peace in the Middle East or a Soviet invasion of Poland -- would have an immediate impact on U.S. money policy.
And events at home that affected the demand for money would not be accommodated by any change in the gold-fixed supply.
Some gold advocates believe this is just what makes a gold standard so attractive. The government cannot "validate" higher prices by supplying the money needed to pay them if there is no increase in the gold supply to justify it, they say.
But a golden lid on money would work on the economy just as any other tight money policy: through restricting output and employment growth. Wage and price increases would collide with the limited supply of money. As the economy slowed under the impact of the credit crunch, firms would be unable to sell all they wanted, and some workers would lose their jobs.
Eventually this might lead to a slowdown in wage and price inflation. Meanwhile, there is little reason to suppose that people would be happier facing a gold-induced recession than any other kind.
But a recession is not what gold supporters have in mind. They fear Reagan's tax cuts may not realize the supply-side dream of rising output and employment, coupled with falling inflation and interest rates. The political appeal of gold lies in the hope that it will succeed where Reagan's plan has so far failed.
But as economist Robert Lawrence pointed out recently, the long-term price stability between 1870 and 1914- when gold reigned supreme - was bought at the cost of swings in employment and output that might not be tolerated in the United States today.