In Defense of Gold

September 18, 1961

Between 1946 and 1954 the eminent French economist Charles Rist, who died in 1955, wrote a series of articles advocating a return to the international gold standard. He published these as a short book. Now Philip Cortney has performed a public service by translating this into English, under the title The Triumph of Gold (Philosophical Library, $4), and writing an introduction.

Rist’s central theme is that gold is the only metal capable of serving as a base for international commerce, because it is the only one that is asked for and accepted in payment in all countries, as bullion or in the form of money. It holds its value because of the rarity imposed on it by nature. It is precisely this rarity and this retention of value over time that makes it infinitely superior to paper money. The demand for it, as money, has existed since the beginning of history.

Rist devotes a great deal of his space to answering the specious arguments offered in defense of paper money. For many writers, he points out, contempt for gold is a new idea and praise of paper money an original thought. The history of ideas about money shows, on the contrary, that this is a very old conflict.

JOHN LAW

Rist’s book is beautifully lucid and readable. One of his most fascinating chapters is that in which he traces current arguments and even phrases denouncing gold and praising paper back to the Scottish adventurer John Law, who instituted a paper-money system in France and defended it in letters published in 1720.

Rist reminds us that Law suspended the convertibility of bank notes in order to issue larger quantities. In order to prevent the depreciation of the paper from being apparent in exchange for gold or silver, he forbade the possession of gold and silver by the public, “exactly as was done by President Roosevelt in 1933.” Law ordered searches in homes. He encouraged denunciations. He seized silver deposited with notaries and in savings banks and replaced it with paper money.

Rist believed that only by a return to a full international gold standard could the world get back to monetary stability and insure the continuance or resumption of a truly international economy. But he did not believe it would be possible to retain the gold value of the dollar at $35 an ounce. Any effort to do this, he was convinced, would precipitate an American and a world deflation that would have consequences equivalent to those of the depression of 1929.

$70 AN OUNCE?

He looked forward to action on the part of the United States, or a world conference, to revalue gold in terms of currencies and prevent such a deflation. “It will become indispensable not, as is currently said, to modify the price of gold in paper dollars, but, more correctly, to modify the price of the paper dollar in gold.”

Though he saw that the problem would involve difficulties, uncertainties, and chance, his opinion (in 1952), on the basis of the price rise and the currency increase that had taken place since 1940, was that the price of gold should be raised from $35 to $70 an ounce.

Philip Cortney, in an introduction that pleads eloquently and convincingly for a return to the gold standard, and dissects further arguments of the defenders of a managed paper money, also, and with more confidence than Rist, insists that “the price of gold will have to be raised to at least $70 an ounce.”

I find myself in agreement with Rist and Cortney on practically every point but the exact procedure for getting back to gold convertibility at a new valuation for the paper dollar. I am inclined to believe, though I am not sure, that a price of $70 an ounce might be strongly inflationary. A safer way to proceed, in any case, would be a temporary suspension of export of the government’s gold supply, accompanied by authorization of a free gold market. This would help the government in fixing a tenable new gold value for the dollar. What cannot go on is continued inflation and a continued adverse balance of payments accompanied by the right of foreign central banks to withdraw all the gold they want until our supply is exhausted.