President Trump recently appointed former Republican Presidential candidate Herman Cain to the last open slot on the Federal Reserve’s Board of Governors. But while most people remember Cain as the former CEO of Godfather’s pizza and the developer of the 9-9-9 Plan (9% personal income tax, 9% federal sales tax, 9% corporate income tax), far fewer people remember that he was once the chairman of the board of the Federal Reserve Bank of Kansas City.
In fact, Cain was involved with the Federal Reserve Bank of Kansas City from 1989 to 1996, and thus should be familiar with the Fed’s internal workings. Perhaps more importantly, Cain claims to be a supporter of the gold standard. If he were to succeed in the confirmation process, would he have any influence on the Fed’s monetary policy and push the Fed in the direction of gold?
Unfortunately, the answer is most likely no. For one thing, the entire institutional apparatus of the Fed has a bias against gold, so one man isn’t going to change things. Secondly, Cain’s understanding of the gold standard doesn’t appear to be terribly deep. He obviously has an understanding that the gold standard is desirable due to its ability to ensure a sound and stable currency unit, but his conditions for returning to the gold standard include one glaring error: he wants to ensure that the new gold standard “will not restrict the number of dollars available for the economy to grow.”
That one condition betrays a lack of understanding of the nature of economic growth and a lack of understanding of the most important aspect of the gold standard, and would completely undercut any return to the gold standard. What we would see instead of an actual gold standard is a return to some sort of gold exchange standard, maybe with partial backing of dollars with gold, but it would by no means be ideal.
Still, despite the errors in Cain’s thinking, the fact that someone at the Fed might at least be talking about gold would be an important first step. With the economy set to enter recession at any moment, discussion about gold will undoubtedly become much more common, not to mention much more important. And that could be very beneficial for those investors who have had the foresight to invest in gold.
Image: Gage Skidmore