Paper, Gold, and the Middle of the Road
Once in a while, the gold standard makes a comeback in the public eye. Most recently it’s happened in connection to Steve Forbes’ book, Switzerland’s referendum, and the approaching mid-term elections in the US. Each time it’s a pleasant surprise, and a definite change of pace from otherwise grim news of war and higher taxes. And yet, the enthusiasm of those who claim the discourse has changed dramatically is unwarranted. Perhaps ‘goldbugs’ are not as mocked today as they were a few years ago, but the limits of the official debate as such have hardly shifted. Surely, we want a stable anchor for monetary policy, but we also want it to be somewhat flexible. We want to constrain the power of the central bank, but not so much that it can’t fight deflation or the balance of payments deficit. We might want the gold, but we definitely want to keep the paper. To paraphrase a Romanian playwright, a contemporary of Mises: let us revise the monetary system, as long as nothing changes. Or let us not revise it, as long as some essential aspects are changed.
There are, I think, two reasons why most debates (with a few welcome exceptions) are framed in this way. First, while the genuine gold standard ended before the First World War, the term itself—much like ‘liberalism’ —remained, only to acquire an unfortunate legacy over the last century. The merits of the pre-1914 system were forgotten once it was likened to the gold-exchange standard and the Bretton Woods monetary scheme. Careful consideration reveals major differences between these systems, but public opinion is not known for thorough research. With the failure of the Bretton Woods system in mind, one assumes, naturally, that the old fashioned version of the gold standard cannot solve modern monetary problems. Then, debates are mostly about how to revamp the currency system into a 21st century, ‘modern’ gold standard.