Architect of a school of economic thought regarded by many as just a notch above quackery, John Maynard Keynes of Britain once called the gold standard a “barbarous relic.” An honest and time-honored medium of exchange such as gold (or paper money redeemable in gold) stood in the way of Keynes’ snooty preference for lots of government spending and easy money.
Henry Hazlitt was an infinitely better economist and closely associated with FEE for decades. He picked Keynes apart virtually line by line in his definitive 1959 tour de force, The Failure of the New Economics. If you’re an economics major and your professors never told you about it, consider demanding a tuition refund.
Keynes and Hazlitt knew each other but agreed on little. In 1931, in fact, Hazlitt invited Keynes to participate in a series of articles around the theme, “If I Were a Dictator.” You can see the reply from Keynes here.
I knew Hazlitt personally and called him by his nickname, “Harry,” as did others among his many friends. I cherish the letters from him in my personal files. He was so much more than a fine economist—an exceptional journalist, a scholarly but accessible gentleman, and a brilliant moral philosopher as well.
Hazlitt authored more than two dozen books, most notably the classic Economics in One Lesson, available free from FEE. In his 1978 volume, The Inflation Crisis and How To Resolve It, he noted that far from barbarous, gold served many nations extraordinarily well. It was the world’s chosen money for centuries. The unprecedented explosion of economic growth in the 19th Century was accompanied by sound money tied to gold, punctuated by brief calamities when politicians abandoned it. Governments don’t like it because they can’t print it, pure and simple. As Hazlitt wrote in The Inflation Crisis,
It is the outstanding merit of gold as the monetary standard that it makes the supply and the purchasing power of the monetary unit independent of government, of office holders, of political parties, and of pressure groups. The great merit of gold is precisely that it is scarce; that its quantity is limited by nature; that it is costly to discover, to mine, and to process; and that it cannot be created by political fiat or caprice. It is precisely the merit of the gold standard, finally, that it puts a limit on credit expansion.
In the long run, just as Keynes predicted, Keynes himself was indeed dead. But gold as a reliable medium of change lasted far longer than he ever did. It may re-emerge one day to replace the barbarous paper inflation his legacy helped to create. Wouldn’t that be ironic, if not entirely predictable?
Americans are once again feeling the pain of runaway expansion of money and credit that a gold standard would never have allowed. We hear almost daily, nonsensical pronouncements about price inflation from the very “barbarous relic” people who are responsible for it. Jerome Powell, chairman of the inflation factory known as the Federal Reserve, took a short break from the printing press to assure us that the Fed “understands the hardship it is causing” and that his paper money machine is “moving expeditiously” against it. He’s counting on us being sufficiently gullible and miseducated to thank him for his “inflation-fighting” efforts. Count me out, please.
So gold is barbarous but unbacked, inconvertible, irredeemable paper money cranked out by elitist officialdom is not? So sound and stable money is bad but fiat money belched out by political appointees is good? Where did such nonsense come from?
I have a few more questions for Mr. Powell and his barbarous relic associates.
What is government-issued fiat money made from? Angel breath? Divine manna from monetary Heaven? Of course not. Its digital form is composed of ethereal ones and zeroes while its physical and familiar form is made from trees. Trees!
When and where in history did a tree—or any tree derivative—emerge naturally and voluntarily as a reliable medium of exchange? Never and nowhere, except when it was issued as a kind of “receipt” for the real thing.
Opponents of the gold standard want us to believe that gold is old-fashioned, that a more “enlightened” perspective is that money shouldn’t come from a hole in the ground. Think about that. They are telling us that money should instead come from—drum roll—trees!
Hmmm. Which sounds more dependable—a gold standard or a tree standard? On this important matter, go with your gut feelings.
As price inflation eats away at our savings and livelihoods, it’s time we re-think money and monetary policy. We should compare the record of the gold standard with that of our present tree standard. We ought to take a closer look at all the false promises of the tree standard advocates, from Keynes to Powell. Toward that end, I offer readers a list of excellent FEE articles, below.
Why Experts Get the Gold Standard Wrong by Lawrence H. White
The Gold Standard Didn’t Create the Great Depression by Germinal D. Van
How To Return to the Gold Standard by Bettina Bien Greaves
How the United States Conquered Inflation After the Civil War by Lawrence W. Reed
Toward Radical Monetary Reform by Lawrence W. Reed
When Money Goes Bad edited by Lawrence W. Reed
America’s Money: A History edited by Lawrence W. Reed
A Tale of Two Gold Standards by Lawrence H. White
No Shortage of Gold by Hans F. Sennholz
Gold and Money by Warren C. Gibson