Blogs: Ralph J. Benko
Hostility toward gold has a long pedigree.
19th century depiction of Pliny the Elder courtesy of the Library of Congress
Gaius Plinius Secundus, commonly known as Pliny the Elder, in his The Natural History, Book 33, section 3, writes:
Would that gold could have been banished for ever from the earth, accursed by universal report, as some of the most celebrated writers have expressed themselves, reviled by the reproaches of the best of men, and looked upon as discovered only for the ruin of mankind. How much more happy the age when things themselves were bartered for one another; as was the case in the times of the Trojan war, if we are to believe what Homer says. For, in this way, in my opinion, was commerce then carried on for the supply of the necessaries of life. Some, he tells us, would make their purchases by bartering ox-hides, and others by bartering iron or the spoil which they had taken from the enemy: and yet he himself, already an admirer of gold, was so far aware of the relative value of things, that Glaucus, he informs us, exchanged his arms of gold, valued at one hundred oxen, for those of Diomedes, which were worth but nine. Proceeding upon the same system of barter, many of the fines imposed by ancient laws, at Rome even, were levied in cattle, [and not in money].
There remains substantial confusion in the public mind between gold and the gold standard. The purpose of the gold standard is not to exalt gold. Its purpose, rather, is to provide integrity to the currency issued in accord to the definitional properties offered by the classical, true, gold standard.
It is obvious even to Neo-Keynesian economists that the comfort and, indeed, affluence, of working people and the middle class would not be improved by a return to barter whether ox-hides, iron, or spoils of war. And yet an almost superstitious hostility to gold -- of the sort exemplified by Pliny -- persists, blinding too many academics, policy makers, and officials to an exceptionally positive empirical record of the gold standard, relative to other systems, in fomenting a climate conducive to equitable prosperity.
Virgil, in Book 3, line 56 of the Aeneid,
Polymnestor kills Polydorus. Engraving de Bauer for Ovid's Metamorphoses
reflecting upon the the treacherous murder of Polydorus:
Quid non mortalia pectora cogis,
Fell lust of gold! abhorred, accurst!
(translated by John Conington)
The phrase "auri sacra fames" was appropriated by the ever erudite Keynes as the title of a September 1930 polemic against the gold standard. Of more than passing interest, Keynes seems to hint that his is an indictment of the central bankers of his day for hoarding gold -- sacra fames! -- thereby crippling the gold standard, rather than an indictment of the gold standard itself:
Of late years the auri sacra fames has sought to envelop itself in a garment of respectability as densely respectable as was ever met with, even in the realms of sex or religion. Whether this was first put on as a necessary armour to win the hard-won fight against bimetallism and is still worn, as the gold-advocates allege, because gold is the sole prophylactic against the plague of fiat moneys, or whether it is a furtive Freudian cloak, we need not be curious to inquire. But we may remind the reader of what he well knows—namely, that gold has become part of the apparatus of conservatism and is one of the matters which we cannot expect to see handled without prejudice.
One great change, nevertheless—probably, in the end, a fatal change—has been effected by our generation. During the war individuals threw their little stocks into the national melting-pots. Wars have sometimes served to disperse gold, as when Alexander scattered the temple hoards of Persia or Pizarro those of the Incas. But on this occasion war concentrated gold in the vaults of the Central Banks; and these Banks have not released it. Thus, almost throughout the world, gold has been withdrawn from circulation. It no longer passes from hand to hand, and the touch of the metal has been taken away from men's greedy palms. The little household gods, who dwelt in purses and stockings and tin boxes, have been swallowed by a single golden image in each country, which lives underground and is not seen. Gold is out of sight—gone back again into the soil. But when gods are no longer seen in a yellow panoply walking the earth, we begin to rationalise them; and it is not long before there is nothing left.
More recently, Neo-Keynesian Paul Krugman, in a column entitled Lust for Gold, a direct allusion to this essay by Keynes, offered an uninformed screed against "goldbuggism" (where he conflates advocacy of the classical gold standard with speculative investment in gold, its diametric opposite). Prof. Krugman concluded his op-ed (written during the gold price decline of last year):
So will we be seeing prominent goldbugs change their views, or at least lose a lot of their followers?
I wouldn’t bet on it. In modern America, as I suggested at the beginning, everything is political; and goldbuggism, which fits so perfectly with common political prejudices, will probably continue to flourish no matter how wrong it proves.
Prof. Krugman, in 2011, forthrightly admitted that he does not read views contrary to his own:
Some have asked if there aren’t conservative sites I read regularly. Well, no. I will read anything I’ve been informed about that’s either interesting or revealing; but I don’t know of any economics or politics sites on that side that regularly provide analysis or information I need to take seriously. I know we’re supposed to pretend that both sides always have a point; but the truth is that most of the time they don’t. The parties are not equally irresponsible; Rachel Maddow isn’t Glenn Beck; and a conservative blog, almost by definition, is a blog written by someone who chooses not to notice that asymmetry. And life is short …
And thus his writings frequently descend to polemic rather than exercises in intellectual integrity and interest. Proponents of the classical gold standard stand for monetary integrity. We do not lust for gold.
In the Aeneid, Book Six, Line 126, Virgil writes: Facilis decensus Averno.
Translated: "Easy is the descent into Hell."
Aeneas and the Sibyl, ca. 1800, Yale Center for British Art
In full context:
Facilis descensus Averno;
Noctes atque dies patet atri ianua Ditis;
Sed revocare gradum superasque evadere ad auras.
Hoc opus, hic labor est.
As translated by Dryden:
The gates of Hell are open night and day,
Smooth the descent, and easy is the way.
But to return, and view the cheerful skies,
In this the task and mighty labor lies.
This, courtesy of archive.org, is the text of the accords in relevant part:
Article 29. An essential requisite for the economic reconstruction of Europe is the achievement by each country of stability in the value of its currency. No country can gain control of its own currency so long as there is a deficiency in the annual budget which is met by the creation of paper money or bank credits. It is for every country to overcome such a deficiency by its own independent efforts ; only then will its way be open to currency reform. Article 30. Measures of currency reform will be facilitated if the practice of continuous co-operation among central banks can be developed. A permanent association or entente for the co-operation of central banks, not necessarily confined to Europe, would provide oppor- tunities of co-ordinating credit policy, without hampering the freedom of the several banks. It is suggested that an early meet- ing of representatives of central banks should be held with a view- to considering how best to give effect to this recommendation. Article 31. It is desirable that all European currencies should be based upon a common standard. Article 32. Gold is the only common standard which all European countries could at present agree to adopt. Article 33. In a number of countries it will not be possible for some years to restore an effective gold standard; but it is in [t]he general interest that European Governments should declare now that this is their ultimate object, and should agree on the programme by way of which they intend to achieve it. Article 34. In each country the first step towards re-establishing a gold standard will be the balancing of the annual expenditure of the State without the creation of fresh credit unrepresented by new assets Article 35. The next step will be to determine and fix the gold value of the monetary unit. This step can only be taken in each country when the economic circumstances permit; for the country will then have to decide the vital question, whether to adopt the old gold parity or a new parity approximating to the exchange value of the monetary unit at the time. Article 36. These steps might by themselves suffice to establish a gold standard, but its successful maintenance would be materially promoted, not only by the proposed association or entente of central banks, but by an international convention to be adopted at a suitable time. The purpose of the convention would be to centralise and co-ordinate the demand for gold, and so to avoid those wide fluctuations in the purchasing power of gold, which might otherwise result from the simultaneous and competitive efforts of a number of countries to secure metallic reserves. It is suggested that the convention should embody some means of economising the use of gold by maintaining reserves in the form of foreign balances, such for example, as the gold exchange standard, or an international clearing system.
Few besides France's great "poet of finance" Jacques Rueff recognized, and warned, of the catastrophe that must, and did, ensue as the expedients unraveled and the world was plunged into the economic Hell of the Great Depression.
As the great contemporary philosopher Karl Popper (teacher and inspiration of George Soros) teaches in The Open Society and its Enemies, Plato is the proto-totalitarian and a great enemy of liberty and of social welfare. Many totalitarian ideas current today, both in academe and the worlds of politics and policy, can be traced to, or at least correlate with, Plato. Totalitarian is a shocking word. It is fit for a shocking thing. The replacement by tokens of gold has a rich totalitarian provenance.
Plato, copy of Silanion, Capitoline Museums
It therefore is notable that Plato, in addition to calling for holding women, children, and property in common (a value extolled in the Communist Manifesto), Plato also called for the prohibition of the ownership of gold and silver, holding citizens under his Laws to the use of mere tokens. Plato, The Laws, Book V (translation by Jowett):
The first and highest form of the state and of the government and of the law is that in which there prevails most widely the ancient saying, that "Friends have all things in common." Whether there is anywhere now, or will ever be, this communion of women and children and of property, in which the private and individual is altogether banished from life, and things which are by nature private, such as eyes and ears and hands, have become common, and in some way see and hear and act in common, and all men express praise and blame and feel joy and sorrow on the same occasions, and whatever laws there are unite the city to the utmost-whether all this is possible or not, I say that no man, acting upon any other principle, will ever constitute a state which will be truer or better or more exalted in virtue.
So lustful are philosophers -- our modern day academics and nomenklatura -- to become "philosopher-kings" that ideas such as these are again and again perpetrated on society. Such ideas consistently prove to make social conditions worse, rather than better, as well as infringing on human dignity.
Let those who aspire to a "state which will be truer or better or more exalted in virtue" consider the empirical record and recognize that the use of gold as a standard repeatedly proven, in the laboratory of history, far superior to all totalitarian regimes of which Plato's work are progenitor.
"[W]hat went down in the disaster and shame of the Great Depression was not the gold standard but its grotesque caricature in the form of the gold-exchange standard," observed Jacques Rueff in The Monetary Sin of the West, The Macmillan Company, New York, New York, 1972, p. 57.
Genoa Conference, 1922, courtesy of Wikipedia
The distinction between the classical gold standard and its "evil twin," the gold-exchange standard, continues to befuddle many monetary students and scholars. There is a critical distinction to be made. The gold standard was destroyed by World War I and thus could not possibly have been the cause of the Great Depression.
Confusion in the public and even academic mind arose due to the institution of a "gold-exchange standard" in Genoa, in 1922, well described by the learned Mark Skousen as "a fatally flawed mixture of gold, flat money, and central banking." The pound sterling remained defined by and internationally convertible into gold. Other central banks could hold as a legal reserve gold-defined currencies rather than gold itself.
As described by the Wikipedia:
Among the propositions formulated at the conference was the proposal that central banks make a partial return to the Gold Standard. The Gold Standard had been dropped to print money to pay for the war. Central banks wanted a return to a gold-based economy for easing international trade and facilitating economic stability, but wanted a form of Gold Standard that "conserved" gold stocks - meaning that the gold remained in their vaults and day-to-day transactions were conducted with the representative paper notes.
This, rather than the classical gold standard, was the true precipitating cause of the Great Depression.
Skousen wrote, in 1995, a perceptive critique of Prof. Eichengreen's Golden Fetters, published in The Freeman, from which this is extracted and bears reading in full:
Did the Gold Standard Cause the Great Depression?
The Postwar Monetary System Was Really a Gold-Exchange Standard
MAY 01, 1995 by MARK SKOUSEN
Berkeley Professor Barry Eichengreen has fueled the flames of anti-gold in his recent historical work, Golden Fetters: The Gold Standard and the Great Depression, 1919-1939 (Oxford University Press, 1992). Essentially, the author argues that (1) the international gold standard caused the Great Depression and (2) only after abandoning gold did the world economy recover. The book has been praised by colleagues, further dampening enthusiasm for the precious metal as an ideal monetary system.
It should be noted at the outset that Eichengreen, a Keynesian, is extremely biased against gold. In 1985, while teaching at Harvard, he edited a collection of essays entitled The Gold Standard in Theory and History (New York: Methuen, 1985), which pretends to offer a “complete picture” of how an international gold standard would operate, with pros and cons. Yet he failed to include a single article by a gold supporter! ...
Despite his extensive research and history, Eichengreen cannot crucify mankind upon a cross of gold. In reality, the blame for the Great Depression must be laid at the feet of Western leaders who blundered repeatedly in re-establishing an international monetary system following the First World War. Their mistake was establishing a fatally flawed mixture of gold, flat money, and central banking, known as the “gold exchange standard,” instead of returning to the “classical gold standard” that existed prior to the Great War.
As Lehrman Institute founder and Chairman Lewis E. Lehrman wrote in the Fall 2011 issue of The Intercollegiate Review:
BY RALPH J. BENKO: