A GOLD POLARIS

by Jude Wanniski

The inflation the world has experienced in the past quarter century has been the most unusual of the last two thousand years. All other global inflations have been relatively gradual, as in the 200-year decline of the Roman Empire. Or they have been isolated to a part of the world, as in the European inflation that accompanied the Black Death of the 14th century, when half the population died while the hard money stock remained constant. The global inflation of our time has been intense and universal. The U.S. dollar, which lost none of its value between 1791 and 1934, by one measure lost 70% of its value in the next 34 years. From 1968, by the same measure, it has lost more than 90% of its remaining value. During this period no country in the world has escaped the general inflation. This paper will argue that we are getting very close to seeing an end to inflation, initially in the United States and soon thereafter elsewhere in the world. The central thesis is that with the end of the Cold War the political forces which benefited from this general inflation no longer require it and, in fact, are organizing for an environment of stability to suit global commercial interests.1

For inflation, I use Robert Mundell's definition, which is the most meaningful one: A decline in the monetary standard. International inflation, he wrote years ago, is a decline in the international monetary standard. By these definitions, inflation is not measured by rising price indices, nor is deflation measured by falling price indices. Deflation, too, is a decline in the monetary standard. Just what does Mundell mean by this formulation, one that was the essence of classical economics, from Adam Smith to Karl Marx, and also of classical finance, from Alexander Hamilton to Andrew Mellon? To these great men, the central function of money was as a standard of price. To all of them, that standard was golden, the "money, par excellence," as Marx wrote in his monumental Capital. Only when we fully grasp the importance of this definition of inflation or deflation will we be able to understand how to rid the world of the twin evils of inflation and deflation. There is nothing the United States could do at this moment that would have quicker, more beneficial effects on all of mankind than to re-establish the integrity of our national monetary standard, the dollar, which, because of our standing as the sole global superpower, is also the international monetary standard.

Monetary policy has always been most difficult for political leaders to understand, but never before has there been a greater need for it. "Economists can view inflation from several different time and space perspectives," Mundell wrote 20 years ago, when the world was just entering the monetary problems that have haunted it since. "It is seldom, however, that contemporary observers fully understand its causes, or know how to correct it, at least efficiently. Contemporary understanding of the inflation issue is hardly better than it was several centuries ago, despite the sophistication of very large economic models involving great mathematical and statistical sophistication but very primitive economic understanding."2

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A standard is a concept of common agreement that enables people to communicate with each other in order to efficiently organize themselves for the business of living. Language itself is the most basic of standards. We all agree that the sound "dog" has the same meaning everywhere on the planet where English is spoken, while "hund" is the sound made when the concept of dog is expressed in German. Sign language also has its standards, with common signs undoubtedly dating back millions of years and still employed by animals as they organize for work and play in their families and communities. A little puppy who would like to play with her sister signals by raising a paw, a gesture of friendliness similar to a human extending a hand for a shake. Civilization brings with it more complexity and the need for more standards for efficient living. The colors of traffic lights are standard everywhere in the world, for example. We can't imagine how difficult modern living would be if every country chose different colors for stop and go, let alone regions within countries. Standards of weights and measures are so necessary for civilization that they have been around for millennia. It would not be possible to build any modern structure without a common understanding of an inch or a meter or a degree of angle. If the tolerances were greater than the tiniest, buildings and bridges would not stand. As with languages, different cultures prefer different units of measure, but over time the dominant power will have its preferences prevail.

The game of golf provides a good example of an international standard. The United States is the only major country in the world that still employs the English measurement standard to the almost complete exclusion of the metric standard. When it comes to golf, the international standard is the English measurement system. There is no course in the world I know of where the distances are calibrated in meters. Fairways are calibrated in yards, greens in feet and inches. As long as Americans dominate international golf, and long after they cease to dominate the game, this will remain true. The costs of having the golfing population shift to a metric system overwhelm any of the benefits of doing so. It may in fact be that in the centuries ahead, English measurement will overwhelm the metric system and the highways and skyscrapers of Europe will be measured in feet. One standard will eventually overtake the other as the benefits of a common standard are great. In the same way, because Brittania ruled the waves at the time international shipping matured in the 18th century, global navigation today is still ruled by the English system of measurement: Throughout the world, on the sea and now in the air, distances are measures in miles, not kilometers.

Language will persist in its differentials for all time, however, as the benefits of differentiation overwhelm the efficiencies of commonality. English is the common language of banking everywhere in the world, because of the global dominance of the Bank of England and the pound sterling for the two centuries, 1717-1917. The bankers of Japan and China and even Italy, where banking was born, can converse in English. One cannot imagine all opera being sung in English, however. Language is more like music, in which the more is the merrier. Latin, now a dead language, gave birth to several different basic variations, with each of these branching into hundreds of further variations of tonality and pronunciation. On the other hand, Roman numerals remain very much alive, finding a useful niche in literary annotation and in the enumeration of Olympic Games and Super Bowls.

One standard is so clearly superior to differentiation that it has survived untouched for many thousands of years and will survive to the end of time on Earth. These are the latitudes and longitudes that pinpoint place on the entire planet. In every language and in every culture, East, West, North and South are the standards of terrestrial direction. It happened that out of the billions of stars in the sky, the Creator provided us with one, the North Star, that remains fixed in position. Every day on the planet is different than the day before, but the one constant is Polaris. Thank goodness for one fixed reference point in the heavens, which enables us to make sense of all other units of measure. If there were no fixed reference point, there could be no North, South, East or West. The four billion people on earth would be in a constant state of confusion. The directions to grandmother's house would be as complicated as astrological charts. Only a few airplanes could venture into the sky at the same time or they would forever be bouncing off one another. On the oceans, it surely would have taken several thousand more years for Columbus to venture across the Atlantic. But because of the standard reference point provided by a single star, organization can be as efficient as it is. Note that people south of the equator never glimpse the North Star, but still enjoy its benefits as a reference point. Even under the oceans, we can observe thousands of fish, swimming in schools in incredibly close formation, turning as a unit, with slow-motion film revealing that they defy all the laws of probability by not bumping into each other. They move according to their own fixed reference points built by biological imperatives.