Protectionism, Inflation, Or Monetary Reform
November 1985 - Morgan Stanley

Lewis E. Lehrman

Introduction

This is the seventh in a series of strategic-issue essays by "good thinkers" that we have published over the past five years on subjects ranging from gold, supply-side economics (before it was fashionable), to three papers on the world debt problem. I like authors like Lew Lehrman and George Sores, who are exceptional investors and businessmen, because their perspective is fresh and unequivocal, but most of all because their judgment has already been tested in commercial battle. Getting rich on one's own seems to clear the mind.

Lew Lehrman needs no introduction. His magnificent burst from obscurity in 1982 to battling within a fraction of beating the formidable Mario Cuomo for the governorship of New York dazzled the political world. His earlier great success building Rite Aid is a typical American story. At present, as the President's handpicked choice for chairman of Citizens for America, he has an important voice in the policy formulations of the Reagan Administration.

In this paper, Lehrman argues that the record of the last decade makes clear that floating exchange rates create monetary anarchy. His view is neopopulist. Working people in particular need a stable monetary standard. Businessmen are diverted from commerce to currency speculation. Foreign-exchange trading creates very few jobs. The predicament we are in today came about not because politicians are more irresponsible than they have ever been but because effective monetary restraints on their behavior have been removed. Lehrman does not claim that fixed exchange rates and some form of gold convertibility will solve all our problems, but he does build the case that multilateral currency convertibility into gold is the least imperfect system to create trustworthy money, low interest rates, a reasonably stable price level, and steady economic growth.

I do not agree with everything Lew writes, but I do believe we will not have a major secular bull market in stocks and bonds until we stabilize money. Lehrman proposes a definite plan, and his analysis is so crisp and incisive that the reader's understanding of the issues and complexities is measurably deepened. This essay is not short, but it is well worth taking the time to read.

Barton M. Biggs


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