David Frum: Hatchet Man for Ben Bernanke
March 3, 2010
David Frum has written an article for CNN, "Ron Paul's
money plan is far from golden." It is an attack on
anything resembling a gold coin standard. It is therefore
a defense of central banking in general and the Federal
Reserve System in particular.
Who is David Frum? He is a Canadian immigrant who
studied history at Yale and earned a law degree at the
Harvard Law School. He has always earned a living as a
journalist. He has long been employed by the
neoconservative movement. He became a U.S. citizen in
In 2001, he got a job at the White House as a speech
writer. It was Frum who coined at least part of the
phrase, "axis of evil," which identified North Korea, Iraq,
and Iran as the three most dangerous tyrannies of the
decade. George W. Bush used the phrase in his State of the
Union Address on January 29, 2002, his State of the Union
Address after 9-11. That speech was part of his run-up for
the Iraq War.
In his book, The Right Man: The Surprising
Presidency of George W. Bush, Frum wrote that the head
speech writer had given him the task of inserting a few
words justifying a war on Iraq. He wrote "axis of hatred,"
but the head speech writer changed this to "axis of evil."
Frum's wife immediately sent out an email bragging
about her husband's accomplishment, or at least two-thirds
of the accomplishment: "axis of." This story got picked up
by the Toronto Sun on February 1 -- not surprising,
since her father
was the editor.
The story spread. On February 27, Frum handed in his
resignation. The rumor mill blamed Bush's anger at having
had the most widely quoted phrase in his speech being
attributed to a speech writer, as if anyone would have
imagined otherwise, given Mr. Bush's skills of verbal
Frum later said that he had already given the White
House a month's notice, meaning while he was still working on the speech.
Whether he expected anyone to believe this story was a
matter between him and his psychiatrist, which I assume he
must have had, if he actually expected anyone to believe
My point here is simple: Frum is a journalist who was
briefly a speech writer for President Bush. For over two
decades, he has bounced around inside the neoconservative
movement. At present, he works for the American Enterprise
Institute, which has a lot of money and has lots of Ph.D.-
holding economists on the payroll. He has not written a
book on economics, let alone monetary theory or policy.
His books are on politics.
Then why did CNN, which is hardly a neoconservative
media outlet, publish his hatchet piece on Ron Paul?
Because he is one of its regular columnists.
Let's see: a conservative (it says here) who is a
regular columnist for Ted Turner's creation. Isn't
HATCHET JOB #1
Frum has been swinging his hatchet against Ron Paul
ever since he worked for Rudy Giuliani's campaign for the
presidency. According to Wikipedia, he became a U.S.
citizen on September 11, 2007. He joined Giuliani's
presidential campaign staff on October 11, as a senior
foreign policy advisor.
On November 7, he wrote his first hatchet job on Ron
His real motive was politics. He had a truly unique
grasp of politics back in 2007 -- the product of Yale,
Harvard Law School, and two decades of close observation of
American politics. He began:
Yesterday, I posted an item casting doubts on
the significance of Ron Paul's one-day $4 million
fundraising haul. I suggested that his achievement is
comparable to Ralph Nader's in 2000, and much less
impressive than Howard Dean's in 2004. I went on to suggest
that the main effect of Ron Paul's campaign, if continued
to the end, would be to take votes from Hillary Clinton and
thus help a Republican ticket headed by Rudy Giuliani.
Eleven weeks later, Giuliani dropped out of the race. He
had entered seven primaries. The best he did was third
place. He received no delegates. Ron Paul eventually
received 35. He and his main supporter also gained a huge
Frum did not have a clue regarding American politics, the
Republican Party, or the utter hopelessness of Rudy
Giuliani's dead-on-arrival campaign.
Frum's latest book is Comeback: Conservatism That Can
Win Again. I find this amusing.
His understanding of economics was not as good in 2007 as
his understanding of American politics.
The National Bureau of Economic Research is the arbiter of
when American recessions begin and end. It has determined
that the recession -- the worst since 1937 -- began in
December 2007, three weeks after Frum wrote this:
As the dollar buys less abroad, Americans will
be constrained to consume fewer foreign goods and services
-- and foreigners will be induced to buy more from
With luck, this process will occur without a recession. The
pace of domestic economic activity will continue brisk,
dollar-denominated incomes will remain stable or even rise,
unemployment may even decline as exports accelerate. This
is what happened in 1985-86, the last time we saw a big
drop in the value of the dollar.
Again, he did not have a clue regarding what was about to
happen to the economy.
Of course, that's not the only way to balance
accounts. There is another, the way Americans experienced
in 1837, 1857, 1893, and 1930-33. In those years, the value
of the dollar was fixed to gold. (One dollar = 1/20 of an
ounce.) If something bad happened in the world or US
economy, the dollar could not adjust. A recession was like
a car accident without bumpers or crumple zones -- the full
pain was conveyed uncushioned to the riders in the cabin.
Domestic asset values collapsed. Unemployment jumped
overnight to 15% or 20%. Homes were lost, businesses
But wait! This is what has happened in the years since
Frum wrote his article. It began three weeks after he
In 1896, ironically, the gold standard got
lucky. Bryan lost, McKinley won. Almost immediately after
McKinley's elections, gold miners first in South Africa and
then in Australia found huge new goldfields. America got
the inflation it needed without silver, thanks to a
geological accident. From 1896 to 1913, the world economy
expanded in what is known to history as "La Belle Epoque."
In fact, the gold standard period 1879 to 1896 was one of remarkable
economic growth -- the greatest in American history. This
is made clear in the book by Milton Friedman and Anna J.
Schwartz, A Monetary History of the United States.
Wages fell slightly, prices fell steadily at a more rapid
rate than wages, and output quadrupled. Per capita income
As for Ron Paul, Frum dismissed him as a Michael Moore
Of course I am saddened to discover that many
thousands of Americans have rallied to a candidate
campaigning on a Michael Moore view of the world.
Saddened, but not greatly surprised. There is a
constituency for anything in a country this
In short, David Frum did not have a clue.
Has he learned anything since 2007? This brings me to his
recent hatchet job.
HATCHET JOB #2
Frum began by noting Paul's overwhelming victory at CPAC:
the Conservative Political Action Conference. Paul got 31%
of the straw votes for President. Mitt Romney, who had won
for three years in a row, got 22%. From the point of view
of a neocon, this was bad news indeed.
CPAC's organizers cautioned against
over-interpreting the Paul win. Participation in the poll
had been light, the Paul team had just out-organized, etc.
All true enough.
Ron Paul had once again caught Beltway conservatives by
surprise. All they could do was spin their way around
this. With the Web, this no longer works.
Ron Paul is most famous for his bill to audit the Federal
Reserve. Frum was too savvy to mention this. That would
identify him as an apologist for the FED, which is exactly
what he is. So, he went after Paul's view of gold as
money. This, all good Beltway conservatives know, is safe.
So let's rediscover why it was that Americans
abandoned the gold standard in the first place.
In 1929, the U.S. economy slumped into recession. Under the
weight of a series of terrible decisions, that recession
collapsed into the worldwide Great Depression.
Americans abandoned the gold standard because Franklin
Roosevelt, on his own authority, announced that any
American or resident in America who did not turn in his
gold would be prosecuted. If David Frum is not aware of
this, then he spent way too much money and way too much
time getting a masters degree in history at Yale.
But why did decision-makers make so many bad
decisions? The short answer is that they were trapped.
Almost all of the right decisions would have ballooned the
U.S. federal budget deficit.
Let's see. Which economist became famous for arguing this
way? Was it F. A. Hayek? No. Was it Milton Friedman?
No. Was it. . . ? We all know who it was: John Maynard
Keynes. Except for one thing: in 1929, that was not
Keynes' position. It became his position only in 1935,
when the whole world was off the gold standard, inflating
like mad, and running massive deficits. He published in
Between 1929 and 1932, the U.S. money supply
collapsed, as banks failed and bank deposits and commercial
credit vanished. In their classic Monetary History of
the United States (1966), Milton Friedman and Anna
Schwartz identified this contraction of the money supply as
the proximate cause of the Great Depression. Why didn't the
Federal Reserve act to prevent the contraction? Again: the
David, David, David: at least fake your knowledge of the
relevant literature correctly, will you? The book was published in 1963.
Second, why didn't the FED act to prevent the contraction?
It did not deflate. It just sat. No, it did not buy toxic
assets owned by the banks -- assets that were about to fall
in value. No economist believed a central bank should do
this. That was Ben Bernanke's historic innovation in 2008
-- unique in Federal Reserve history.
The FED did not stay paralyzed. This is known to anyone
who has studied FED policy. It expanded the monetary base
from late 1931 through 1933. This is clear from a chart
published by the Vice President of the Federal Reserve Bank
of St. Louis.
From 1930-1933, 9,000 banks failed, taking deposits with
them. There was a run on the banks. The money supply
contracted. This was not the FED's fault.
The government set up the FDIC in 1934. That ended the
bank runs. It also ended the deflation. But the FED had
not possessed such authority in 1929-33.
What caused 1929? That, Frum does not bother to ask.
Anti-gold economists and their faithful journalists never
do. The world went off the gold standard in 1914 when
World War I broke out. The commercial banks stole their
depositors' gold. Then the central banks stole the
commercial banks' gold. They never gave it back. Then
The inflation of the late 1920's created the boom. The
boom ended in 1929. But the anti-gild crew always begin
their discussion with 1929. They do not refer to Murray
Rothbard's book, America's Great Depression, also
published in 1963. He showed how the depression was caused
by the central bank's inflation before 1929. Paul Johnson
alone used Rothbard's book to write the section on
America's depression in his conservative masterpiece,
Modern Times (1983). Frum does not mention this,
Imagine now if the gold standard were in
operation today. The federal government would be scrambling
to balance its budget in the midst of recession, cutting
spending and raising taxes. Instead of pumping money into
the economy, the Federal Reserve would be sucking money
out. Priority 1 would not be creating and saving jobs, but
preserving the nation's gold hoard.
Imagine, rather, that the Federal Reserve did not exist to
bail out large banks, along with Henry Paulson's unilaterally nationalized mortgage market, with $1.5 trillion in fiat money, plus
T-bill swaps at face value in exchange for toxic assets held by big
Better yet, imagine that the government owned no gold.
Imagine that the average Joe and Jane possessed gold coins,
or IOU's to gold issued by banks and warehouses. There
would be no inflation. There would be no FED to plan the
economy by committee. There would be no -- dare I say it?
-- central economic planning in monetary affairs.
This is not the CNN line. This is not the neoconservative
line. This is the F. A. Hayek line. And, truth be told,
it is the Milton Friedman line. As Austrian School
economist Richard Ebeling points out,
Why wouldn't a market-based gold standard be
feasible or desirable under present circumstances? Friedman
explained his reasoning in an April 1976 lecture entitled
"Has Gold Lost Its Monetary Role?" that was delivered in
Johannesburg, South Africa. Simply put, governments are no
longer willing to be restrained by a gold standard. They
want control over money for various macroeconomic
manipulative purposes. However, Friedman said that
"if you could re-establish a world in which government's
budget accounted for 10 percent of the national income, in
which laissez-faire reigned, in which governments did not
interfere with economic activities and in which full
employment policies had been relegated to the dustbin, in
such a world you might be able to restore a real gold
standard. A real honest-to-God gold standard is not
feasible because there is essentially no government in the
world that is willing to surrender control over its
domestic monetary policy."
Sadly, the Ph.D. economists at the American Enterprise
Institute are seemingly unaware of Friedman's rejection of
his 1963 position. If they don't know, why should David
Frum know? Or care?
What does Frum know? This: Franklin Roosevelt saved
the economy when he took America off the gold
standard. That was the turning point.
Back in the 1930s, governments accepted
horrific suffering because they were terrified of the
consequences of going off gold. When President Franklin
Roosevelt told his budget director, Lewis Douglas, of his
decision to quit gold, Douglas replied: "This is the end of
Western civilization." He wasn't kidding either.
In fact, the decision was the turning point of the
Depression, the beginning of recovery. And every monetary
economist knows it. Which means that the first thing any
future gold-standard government would do in the event of
recession would be to jettison gold. And every market
trader knows that too.
This is Frum's message: government coercion and theft work. Make it illegal for citizens to own gold. Confiscate their gold coins at $20 an ounce, and, once the government has the stolen goods, raise the price to $35, which is what Roosevelt did in 1934. Let the government pocket 75% on the transaction (15/20 = .75). In short, take away from the public the right to control the money supply and stop inflation. Hand this authority over to the central bank.
Don't blame government-licensed fractional reserve banking for economic depressions. Blame the public, who use gold and silver coins to hold bankers in check. Adopt as your reigning monetary principle these slogans: "Power from the people! Power to the central bank!"
This is neoconservatism. This is economic liberty, neocon style. This is the government's gun in your belly: "Hand over your gold. It's for your own good."
Frum is upset that Ron Paul has persuaded so many conservatives that neoconservative economics is Keynesianism in drag.
This is an argument against a government-imposed,
government-guaranteed gold standard. It is an argument for
the system that Ludwig von Mises called for in 1912: free
banking. Get government out of the money business.
That would shrink the state. That is the nightmare
scenario for big-government conservatives like Frum.
The punch line to one of my favorite anecdotes
goes, "Son, your answers are so old, I have forgotten the
questions." Has the Depression receded so far into history
that the answers that once plunged the nation into misery
can possibly look credible again?
Son, your answers are so old -- and so much the product of
Franklin Roosevelt's hagiographers -- that you have
forgotten the question. Here is the question: "Why should
anyone trust the government or a central bank to protect
the value of the currency?
Using the inflation calculator (it's not called the
deflation calculator) of the Bureau of Labor Statistics, we
can see what the Federal Reserve System has done to the
dollar. Beginning in 1914, it has eroded 95% of its value.http://data.bls.gov/cgi-bin/cpivcalc.pl
Let me review. In 2007, Frum wrote this:
My correspondents were most irked by my
sardonic suggestion that Ron Paul could enhance his
electoral appeal by concentrating his blame-America foreign
policy (for which as Michael Moore showed, there exists an
unfortunately substantial constituency) and dropping his
crank monetary views.
Sardonic, indeed. "Sardonic, adjective: characterized by
bitter or scornful derision; mocking; cynical; sneering."
He knew exactly what he was doing.
David Frum is a hatchet man. If he were to spend the rest
of his life in rigorous journalistic training, he might
make it to hack status. Maybe.
Note: you have just read a hatchet job. I am very good at
this art form. Here are the steps for writing an effective
1. Find a target who is superficially informed
about his subject, but who in fact is ignorant.
2. Ideally, your target will have publicly attacked
someone with more knowledge in this area than he himself
3. Even better, show a long-term pattern of ignorance in
multiple fields in which he lays claim as an expert.
4. If he has published in an Establishment liberal forum,
so much the better: guilt by association (his and
5. Leave the reader with the impression that your target
is a self-assured blowhard.
6. Let him reply to you, which forces him to deal with the
terms of debate that you have established.
7. Repeat the exercise if he is silly enough to reply.
It takes one to know one. The difference is, I know what
I'm talking about. David Frum doesn't.
More to the point, Ron Paul knows what he is talking about. David Frum is a Harvard-educated lawyer who lacked the skills of persuasion suitable for a lawyer. He chose instead to become a paid hatchet man. He is not very good at it, but at least it's a living. It pays more than the Toronto Sun.
When you think "David Frum," think "political advisor to Rudy
Giuliani." That is really all you need to know.
If you are still not convinced that Frum is both ill-informed and a hatchet man, see what Austrian School economists Walter Block and William Barnett II did to Frum after Frum's first hatchet job on Ron Paul.http://www.lewrockwell.com/block/block92.html
But Frum just couldn't stay away. He had to do it again. So, I got my turn. It is not all that often that someone as clearly a statist inflationist wolf in conservative clothing as Frum is presents himself for a second go-round. I am thankful for small favors.
So much education. So few rhetorical skills.