In a noteworthy essay in the Financial Times entitled “West needs to go back to capitalist basics”, Dr. Mahathir Mohamad forthrightly observes that:
“A new 'Bretton Woods' should be convened with adequate representation from the poor countries. It should consider a trading currency based on gold, against which all other currencies should be valued. The fluctuation of the price of gold would be minimal. Business would be exposed to less uncertainty. Governments should fix the exchange rate based on gold or economic performances.”
Dr. Mohamad's call in this and certain other respects so closely mirrors the prescription contained in the new book by Reagan Gold Commissioner Lewis E. Lehrman (with whose eponymous institute this columnist professionally is associated), The True Gold Standard as to be positively uncanny.
While its longest serving prime minister, Dr. Mohamad instituted policies that transformed Malaysia from an impoverished, third world country, to a first class, modern nation. The policies of the Mohamad administration produced long stretches of 9% annual growth, setting a climate in which Malaysians could prosper and making Malaysia known as one of the “tiger cub economies.” Dr. Mohamed oversaw policies that dramatically reduced poverty and, a sure sign of the free market at work, reduced income disparities.
Of perhaps even greater notability was Dr. Mohamad's facing down the IMF during the catastrophic Asian meltdown in 1998. He defied the global institution and, instead, linked the Malaysian ringgit to the dollar. This, in part, enabled Malaysia to recover more quickly than its neighbors. Whatever political and social disputes one may have with him, Mohamad's credibility as to economic policy simply cannot be disputed. And a call for gold can be surprising only to those unfamiliar with the glory of the civilization that Dr. Mohamad reflects.
“Although it goes back well before the 1980′s, may I offer you the advice of the 14th century Arab historian Ibn Khaldun, who said: 'At the beginning of the empire, the tax rates were low and the revenues were high. At the end of the empire, the tax rates were high and the revenues were low.'
“And, no, I did not personally know Ibn Khaldun, although we may have had some friends in common!”
So wrote former president Ronald Reagan in a Feb. 18, 1993 op/ed in the New York Times entitled There They Go Again — an open letter to new President Clinton in a defense of the Reagan low tax rate policies that had worked so well to bring about economic growth.
The 14th century dignitary Ibn Khaldun is an honored member of the pantheon of Supply Side economics. Toynbee called one of Ibn Khaldun's works “a philosophy of history which is undoubtedly the greatest work of its kind that has ever yet been created by any mind in any time or place.” Dr. Arthur Laffer, of the seminal Mundell-Laffer Hypothesis, has noted that some of his ideas were anticipated by Ibn Khaldun.
The wonderful, work-based, affluence-inducing, effects of low marginal tax rates is not the only fundamental economic principle that Ibn Khaldun got right. He also observed that:
“God created two precious metals, gold and silver, to serve as the measure of value of all commodities. They are also generally used by men as a store of treasure. (Cited in An Arab Philosophy of History) by C. Issawi.
The Ottoman Empire, which lasted from 1299 to 1923, was, for over a century, the most powerful state in the world, extending over three continents. Even by modern standards at its zenith it had a mostly liberal record as to human rights. Sultan Yildirim Bayezid, for instance, recognizing us as a potential national asset, invited Jews persecuted by King Charles VI into the empire to be resettled in Edirne and the Balkans. According to Halil İnalcık it was state policy to make the productive classes prosperous, increasing state revenues while honoring the prosperity of the productive members of society.
Holy Laffer Curve, Batman!
While it abided by the purity of Ibn Khaldun's insights as to low tax rates and the use of gold and silver as money, the Ottoman Empire was one of the most resplendent — and civilized — epochs in human history. The modern, profoundly cultured, billion-strong, Islamic world has this legacy to draw upon. Islam's reputation has been damaged by an infinitesimal group of cunning, marginal, fanatics. But the legacy of the Prophet, may peace be upon him, truly is magnificent. And it includes a becoming recognition to the virtue of gold as money.
In Malaysia'a Kelantan province gold has circulated as legal tender since 2010. And, according to the Malaysian Insider, PNBK chairman Nik Abdul Aziz observed that “There is no reason why transactions in syariah [gold and silver] currency cannot be practiced in the state as it was widely used thousands of years before the fall of the Ottoman Empire.”
For an extended period Dr. Mohamad was shunned by the West after a diatribe against the Jews condemned by then-Secretary of State Rice as “reprehensible.” In light of the Caliphate's long humanitarian stance toward the Jews, however, the rant, which has not been repeated, presents as an anomaly. As for reprehensible? Our elected officials — now — are refusing to surrender the half trillion dollars a year of low cost borrowing power that the reserve currency curse provides. Now that's reprehensible.
Conversely, the gold standard is based in a non-national asset which is the liability of nobody and bears no counterparty risk. The U.S. dollar enjoys what the then-finance minister of France, Valéry Giscard d'Estaing, termed the “exorbitant privilege” of serving as the reserve currency for foreign central banks. The reserve currency is the source of what Rueff called “deficits without tears.” It is not surprising that the Congress is recalcitrant about forgoing this power. But it exploits the world and saddles America with debt. That truly is reprehensible.
To consume without producing does America as much harm as the producing without consuming does to the rest of the world. The decoupling of work and reward, which inconvertible paper money does, causes a social, and spiritual, malady. This undermines world prosperity. It undermines world peace.
From the Islamic world, Dr. Mohamad's position is consonant with that of great monetary reformers of Asia such as India's Reserve Bank Governor Savak Tarpore, and with the public views of China's Central Bank advisor Dean Zhou Qiren who has called the gold standard “an excellent monetary system,” and with that of Latin America where twice-former Finance Minister of El Salvador Manuel Hinds who publicly supports gold, while in Europe the Bank of England economists now are giving a critical public assessment to the paper dollar standard, and in The United States of America, presidential candidate Ron Paul calls for the gold standard and presidential candidate Newton Gingrich calls for a new Gold Commission. Comes now figures of dignity and humanity stepping forward to pressure the exorbitantly privileged of Washington and Wall Street to restore real integrity to the world's money by restoring the multilateral convertibility of all national currencies to gold.
Thank you, Dr. Mohamed, for your wise guidance. Back to capitalist basics.