Gold the Missing Years

Gold has been money for thousands of years. Gold standards emerged in the late 1600s, and for 300 years major economies of the world were on a gold standard of some form. What is interesting is that there is no large body of reference that accounts for this historical event. There are no books from the 18th and 19th century dedicated to an explanation of gold and gold standards.  

When the world abandoned the monetary discipline of gold standards with the end of Bretton Woods, gold became an investment hedge against central bank fiat monetary error. President Ford allowed citizens to own and trade in gold again in December 1974, a right that FDR terminated in 1933. An industry emerged that promotes gold as an investment through gold and mining analysis. In the same post-Bretton Woods era, supply-side economics, a distillation of Classical economics, rose to prominence revitalizing the view of gold as a monetary reference.  

Classical economics emerged in the late 1700s with Adam Smith’s The Wealth of Nations and others who followed his intellectual path. Great Britain’s gold standard had already existed for 80 years when Adam Smith published The Wealth of Nations. Smith didn’t write anything definitive about gold and got a lot wrong. David Ricardo corrected some of Smith’s error and properly defined gold and a gold standard. Karl Marx described gold as the Numeraire, the money par excellence. Gold as a monetary reference transcends political ideology. However, among the Classical economics writers, there were no books dedicated to the unique monetary properties of gold and the workings of a gold standard. Books dedicated to explaining gold didn’t emerge until after the world abandoned gold as a monetary standard of reference in 1971.

I think the reason there exists no historical canon that academically defines gold as the monetary reference is because gold has always been money. It became intuitive in the same sense that all the things we don’t normally think about and take for granted are intuitive. Gold had risen organically as the most monetary of all commodities and was adopted universally as a means of exchange and standard of reference. This occurred without the edict of Kings or governments. There was no need to record and academically dissect what was patently obvious. Great Britain linked its currency to gold in 1694. Sir Isaac Newton, the master of the Royal Mint, defined British currency at a fixed, specific weight of gold in 1717. This held for nearly 200 years until Britain abandoned its gold standard during WWI. The sun never set on the British Empire during its gold standard years.

Over time with population and economic growth and advances in banking and finance, the physical use of gold as money declined. Paper currency linked to gold had the same value as physical gold and was more convenient and efficient in exchange. There was a gradual decline in the use of physical gold as money as population growth, banking, and technology progressed. During this same period, the rise of economists as a profession occurred. In the late 1800s, economists attempted to elevate economics as a scientific discipline in league with advances in physics and mathematics. Over the next 100 years, gold increasingly became anathema to economists’ desire to scientifically manage economies. You can’t fiddle with the value of money and advance one’s academic monetary theories when a gold standard links a currency to the stable value of gold.

The Great Depression was a defining event in America’s economic history. Reinterpretation of the cause of the GD is the foundation for all of today’s global monetary problems. It started with Keynes 1936 publication of The General Theory and has metastasized in the ensuing 80 years. Conventional economic theory now blames the GD on the gold standard. The global QE liquidity flood after the 2008 financial crisis is a direct result of the errant view that the Fed could have prevented the GD with an expansion of dollar liquidity.

Edwin Kemmerer’s Gold and the Gold Standard, published in 1944, is one of the best attempts to explain the monetary properties of gold. Yet, Kemmerer, who assisted countries in establishing gold standards, didn’t understand gold. He saw gold’s value as unstable and a function of its purchasing power relative to commodities. Despite not understanding gold’s stability of value, Kemmerer recognized that gold was far better as a monetary reference than anything else and had worked in practice for centuries. He was satisfied to leave it at that.

It was only after the end of Bretton Woods that serious explanations of gold and gold standards began emerging. Jude Wanniski, another non-economist, properly defined gold and gold standards in his 1978 book, The Way the World Works, and at his massive Polyconomics archive. Wanniski was at the epicenter of revitalizing Classical economics under the genus of supply-side economics. Understanding gold as the monetary standard of reference is essential for returning to stable money under a gold standard. Many others followed in Jude’s wake adding their own insight to a growing library of gold knowledge. Nathan Lewis has written a trilogy of books on gold, which are a must-read for anyone wishing to orient themselves in a proper understanding of gold.

The last place you would seek this knowledge is in our formal education system. There is no university-level curriculum that I’m aware of that properly instructs on the history of gold and the gold standard. Academia has responded to gold standards the way Soviet Russia responded to Stalin’s out of favor comrades. It has airbrushed knowledge of gold standards from history. Academia disappears gold standards by omission and views gold standards as an anachronism of a less enlightened era. They have it backward. It is fiat money and its uninterrupted history of failure that is the anachronism.  

Here is an example from Frederic S. Mishkin’s textbook, The Economics of Money, Banking and Financial Markets, ninth edition. It’s a university course in macroeconomics, and it contains these two paragraphs on the gold standard.    

Before World War I, the world economy operated under the gold standard, meaning that the currency of most countries was convertible directly into gold. American dollar bills, for example, could be turned in to the U.S. Treasury and exchanged for approximately 1/20 ounce of gold. Likewise, the British Treasury would exchange 1/4 ounce of gold for £1 sterling. Because an American could convert $20 into 1 ounce of gold, which could be used to buy £4, the exchange rate between the pound and the dollar was effectively fixed at $5 to the pound. Tying currencies to gold resulted in an international financial system with fixed exchange rates between currencies. The fixed exchange rates under the gold standard had the important advantage of encouraging world trade by eliminating the uncertainty that occurs when exchange rates fluctuate.


As long as countries abided by the rules under the gold standard and kept their currencies backed by and convertible into gold, exchange rates remained fixed. However, adherence to the gold standard meant that a country had no control over its monetary policy, because its money supply was determined by gold flows between countries. Furthermore, monetary policy throughout the world was greatly influenced by the production of gold and gold discoveries. When gold production was low in the 1870s and 1880s, the money supply throughout the world grew slowly and did not keep pace with the growth of the world economy. The result was deflation (falling price levels). Gold discoveries in Alaska and South Africa in the 1890s then greatly expanded gold production, causing money supplies to increase rapidly and price levels to rise (inflation) until World War I. 

There’s nothing wrong with the first paragraph. The second paragraph tosses out two inane gold fallacies to summarily dismiss thousands of years of gold as money and centuries of successful gold standards. This is what passes for intellectual rigor under our Keynesian economics monopoly.

When Mishkin writes that a “country had no control over its monetary policy,” he means that it couldn’t fiddle endlessly with the value of the currency causing inflations and deflations for perceived economic goals while cheating the owners of the currency out of the value of their labor.

Then for good measure, he introduces the most pedestrian gold fallacy of all, that the production of gold determines a currency’s supply. There is zero evidence of this in practice, yet it gets repeated by current Fed officials like Neel Kashkari. It’s embarrassing. (See this link for a refutation.)

Obtaining a degree in economics based on an errant monetary model is negatively enforced learning. It becomes very difficult to unlearn. Most people are not willing to admit that years of time, effort, and money spent achieving an economics degree based on an errant monetary model is a total waste.  That’s how an economic theory like secular stagnation gets produced. They will cling to it in some form.

Suggested resources for a start at filling in gold the missing years.


Robert Bartley – The Seven Fat Years

Jude Wanniski – The Way the World Works

Nathan Lewis trilogy – Gold: The Once and Future Money, Gold: The Monetary Polaris, Gold: The Final Standard

George Gilder – The Scandal of Money

Judy Shelton – Money Meltdown, Fixing the Dollar Now

Steve Forbes and Elizabeth Ames – Money: How the Destruction of the Dollar Threatens the Global Economy


Jude Wanniski Polyconomics Archive with specific reading of Money Basics, Mechanisms of Money Creation, A Gold Polaris, The Numeraire

Nathan Lewis New World Economics Archive

And of course, Man on the Margin


h/t John Prine



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