Preface

The publication in volume form of the articles I have drafted in the last eight years, in favor of a return to gold, requires a short justification.

For many writers, contempt for gold is a new idea and praise of paper money an original thought. But the history of ideas about money shows, on the contrary, that we are dealing with a very old conflict that comes up periodically.

Immediately after the Second World War, the great majority of writers on money were in favor of paper money. To defend the gold standard was an anomaly. The memory of the depression of 1929 to 1932 was still present in our minds. The interpretation given to that depression by Anglo-Saxon economists was that gold was responsible. Gold, it was said, had increased in value.

It was necessary to note the effects on international commerce of the absence of a common standard in order to return to gold a part of its prestige and to rediscover a few elementary truths regarding it. It is also quite remarkable that the partisans of paper money refrain generally from answering the arguments of the defenders of gold. They repeat mainly a few reflections which appear true at first sight, but whose superficial character reveals itself as soon as one goes deeply into the problem.

I have thought that it would display a certain faint-heartedness on my part if I did not take sides in this great conflict, and if I did not defend once more the few simple ideas that I have held for a long time and that may be summarized thus:

1. Gold is the only metal capable of serving as a base to international commerce, because it is the only one that is asked for and accepted in payment in all the countries of the world, as bullion or in the form of money. It is merchandise-money par excellence.

2. It has this privilege because it is rare. No other product, whatever it be, is desired in like manner by all nations, from the most primitive to the most civilized. This immense demand, in relation to its limited production, gives it its prestige.

3. It is erroneous to consider in money only its purchasing power. The ability to conserve purchasing power through time is at least as important. All the errors in monetary organization are due to the fact that we forget this second aspect of money and consider only the first. It is contrary to the most elementary justice and to the welfare of individuals that the amount of money received in exchange for services or merchandise should fluctuate rapidly over a period of time, causing the one who has received it to lose the benefits of the services or merchandise furnished by him.

4. The adversaries of gold say freely that gold is useless, that it is useful neither in production nor in consumption, and that consequently it could be replaced by any other object, particularly by paper money. This is a superficial argument that a bit of reflection suffices to dismiss.

The habit of economists of classifying goods as goods for production or for consumption encompasses only a fraction of all goods. There exists an immense category of goods demanded, desired, for which we pay considerable prices, which are the rare goods. One always comes back to the old doctrine of Galiani, who attributed to rareness that characteristic conferring value to services or merchandise.

The list of rare commodities could be arranged in the following order: rare metals, like gold, silver, platinum, to which there have been added in the last few decades radium, plutonium, uranium, etc.; precious stones of all kinds, of which the principal is the diamond, the list being too long for enumeration here; finally, the immense category of works of art, which comprises the treasures accumulated in the form of paintings, gems, jewelry, whether in the hands of individuals or in the museums of the world.

Let us consider simply the value represented by the treasures contained in the British Museum and the National Gallery in London, at the Louvre in France, at the Metropolitan Museum in New York, in the museums and churches of Italy, Belgium, Holland, and Germany, and in private collections, and one will realize that the goods that are useful neither to consumption nor to production constitute a large part of the total goods at the disposal of man.

An Irish critic of art, William Butler Yeats, has rightly said: “The things that have the greatest value are those that are not useful.” Economists are too apt to forget this.

What characterizes all these goods is that without serving a useful purpose they lend themselves admirably to conserving value in time, precisely because the demand for them, far from decreasing, increases with time itself, with whose passing the oldest among them become more precious. So true is this that besides the pleasure of contemplating and possessing, one of the reasons for their demand is the presence of their value in time.

At all periods of history, especially during periods of political difficulty, men have sought the possession of goods of this nature, in the hope that after the pillage and destruction of all kinds, they would have at least something of universal value and assured price.

What gives gold its particular place in this category of commodities is the fact that it is practically indestructible and remains identical under all latitudes. Thus it is that in the history of humanity it is equally desired by all peoples and at all times. It enjoys a more extensive and more universal market than any of the other rare goods. The possession of gold gives to the one who holds it the assurance of being able to exchange it at any time and any place, for goods for consumption or production.

5. The experience of 1929 to 1932 proves nothing against the stability of the value of gold. The level of prices in the United States, resulting from the issue of paper money, was so high that the return to normal production was bound to make it come down by virtue of a fact which I have always considered true, that the rapid increase of a mass of merchandise in relation to a stable quantity of money must necessarily bring prices down. This reaffirmation of the quantitative theory of money, under its simplest and most general form, will not fail to annoy the numerous economists who have tried to make us believe for the last fifty years that the level of prices is not influenced by the quantity of money.

What deceived the public and the economists after 1920 was that the United States was able to maintain the convertibility of the dollar into gold, while undergoing considerable paper inflation, by reason of an absolutely exceptional situation which obliged Europe to send gold to the United States throughout the entire war. It is perhaps the most important monetary phenomenon of the last hundred years, and it has been enough to distort completely international monetary relations. Above all, it has caused a false interpretation of the decline of the gold-dollar prices which in reality was a decline in paper-dollar prices accidentally guaranteed by gold. I have tried to explain this situation in my Histoire des doctrines monétaires, but apparently it has not persuaded all those who continued and who still continue to see the depression of 1929 to 1932 as an ordinary depression, when it was in reality a postwar deflation, as classic a phenomenon as a war inflation.

I have always thought that the lesson of those years should be kept in mind in case of a new war, and that is why I have maintained since 1945 that we should expect the devaluation of the dollar.

What differentiates the situation today from analogous situations previously is that the problem of the return to gold has become international. It does not suffice, as in the eighteenth and nineteenth centuries, to recreate locally, after a devastating war, a monetary system based on the precious metals. It is a matter of reconstituting an international money. The inevitable devaluations must therefore be made in the interest of other countries by the country which holds the greatest mass of gold, that is, the United States.

6. All the plans, such as the one which Keynes proposed with the view to prevent a world deflation after the war, are based on an international system of paper money. All these systems ignore a fundamental psychological phenomenon, which is an international distrust with regard to paper money. Every effort, therefore, to combat deflation must be based on an international money which inspires confidence. That can only be gold.

The thesis I defend here has also been defended by M. Busschau, with a great deal of talent and a perfect knowledge of the facts, in a book—The Measure of Gold¹—which I consider the best that has appeared on this subject. Like all works on economics of lasting value, it was at first criticized by all the economists, and it was only little by little that the correctness of his views came to be accepted.

7. The prohibitions during and since the Second World War against commerce in gold, the freedom of its purchase and sale, show quite well that those who have promoted these injunctions know perfectly the universal desire that exists for the possession of this metal. By their antimetal zeal they only confirm the prestige that gold enjoys in the world. These prohibitions, followed by sanctions, which we have experienced during the last ten years, remind us forcibly of the battles, bloody at times, that the prohibition of liquor occasioned in the United States, a prohibition that showed only the extent of the taste for alcohol in all forms of our friends on the other side of the Atlantic, a prohibition that was not long in being abolished, as will all the present prohibitions against the yellow metal, infinitely more innocent than alcohol and whose interdiction from circulation represents a form of fanaticism in favor of paper scarcely less than the fanaticism of American prohibitionists in favor of water.

I have just outlined the essential thesis of the articles of this little volume. I would like to add one word only that deals not with monetary questions, but with social questions. It happens that at the present time the extraction of gold, in certain of the countries where the gold metal is more abundant, takes place under conditions that can only incite the greatest indignation. They are real slaves who are employed in Siberia or in South Africa in the extraction of gold. Their situation is unworthy of civilized countries. There is something particularly disturbing about seeing the metal most indispensable to the normal functioning of international exchange obtained by means which humanity reproves. Gold, the international metal so necessary to international prosperity, is furnished to the world by methods which are contrary to the principles that have been firmly established by international agencies. One must hope that some international action will now be taken to prevent this gold, so indispensable to nations, from continuing to cause those who extract it suffering and humiliations such as should be unthinkable to those who use it.

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¹ W. J. Busschau, “The Measure of Gold,” Central News Agency, Ltd., South Africa, 1949. Together with Mr. Busschau I wish to mention Mr. Philip Cortney, who has constantly and energetically fought for the ideas I am defending.