Gold Goes with Freedom

November 28, 1949

The question whether or not it is desirable to return to a real gold standard, and when, and under what conditions, and at what rate, and by precisely what steps, has become so complicated that in spite of its great importance I have hitherto refrained from taking it up in these columns.

Fortunately an excellent take-off point is now provided by the speech of W. Randolph Burgess of the National City Bank of New York, before the American Bankers Association. His position seems to me, with one or two reservations, the most sensible and balanced recently presented. I quote in part:

“Historically one of the best protections of the value of money against the inroads of political spending was the gold standard—the redemption of money in gold on demand. This put a check-rein on the politician. For inflationary spending led to the loss of gold either by exports or by withdrawals by individuals who distrusted government policies. This was a kind of automatic limit on credit expansion. . . .

“Of course the modern economic planners don’t like the gold standard just because it does put a limit on their powers. . . . I have great confidence that the world will return to the gold standard in some form because the people in so many countries have learned that they need protection from the excesses of their political leaders. . . .

“There is a group of people today asking for the restoration of the full gold standard immediately in the United States. Today we have a dollar that is convertible into gold for foreign governments and central banks; these people are asking for the same rights to hold gold for our own citizens. In principle I believe these people are right, though I think they are wrong in their timing, and overemphasize the immediate benefits. . . .

“If you try to force the pace by resuming gold payments before the foundations are laid through government policies on the budget, on credit, and on prices, the gold released may simply move out into hoards and become the tool of the speculator.

“Gold payments are only part of the building of sound money, and they are in a sense the capstone of the arch. ...”

The great virtue of this statement is not only that it recognizes the central importance of returning to a real gold standard but that it takes account also of the formidable difficulties that our past and present errors and sins have placed in the way.

For the gold standard is not important as an isolated gadget but only as an integral part of a whole economic system. Just as “managed” paper money goes with a statist and collectivist philosophy, with government “planning,” with a coercive economy in which the citizen is always at the mercy of bureaucratic caprice, so the gold standard is an integral part of a free-enterprise economy under which governments respect private property, economize in spending, balance their budgets, keep their promises, and refuse to connive in over-expansion of money or credit. Until our government is prepared to return to this system in its entirety and has given evidence of this intention by its deeds, it is pointless to try to force it to go on a real gold basis. For it would only be off again in a few months. And, as in the past, the gold standard itself, rather than the abuses that destroyed it, would get the popular blame.

Last week I recited the shabby record of Sir Stafford Cripps, not as a personal criticism but as an illustration of what typically, if not inevitably, happens under a “managed” paper-money system. For Sir Stafford is not the lowest type of politician likely to be entrusted to manage the people’s money; he is the highest type. To millions he had been the very symbol of political integrity and courage. “If gold ruste,” as Chaucer asked, “what shal iren do?”

Which reminds us that real gold doesn’t rust. As a currency basis it may lack one or two of the perfections that theorists dream of, but it weighs more and can be kept longer than a politician’s pledge.