Real and Pseudo Gold Standards: Could Friedman Tell the Difference?

One of the first academic papers by Milton Friedman that I read was “Real and Pseudo Gold Standards.” It’s an interesting paper presented to the Mont Pelerin Society in September 1961 and published in the Journal of Law and Economics in October 1961. That it was published in the Journal of Law and Economics, then edited by Friedman’s colleague at Chicago (and fellow Mont Pelerin member) Ronald Coase, is itself interesting, that estimable journal hardly being an obvious place to publish research on monetary economics. But the point of the paper was not to advance new theoretical insights about monetary theory, though he did provide a short preview of his critique of Fed policy in the 1920-21 Depression and in the Great Depression that he and Anna Schwartz would make in their soon to be published Monetary History of the United States, but to defend Friedman’s pro-fiat money position as a respectable alternative among the libertarians and classical liberals with whom Friedman had allied himself in the Mont Pelerin Society.

Although many members of the Mont Pelerin Society, including Hayek himself, as well as Friedman, Fritz Machlup and Lionel Robbins no longer supported the gold standard, their reasons for doing so were largely pragmatic, believing that whatever its virtues, the gold standard was no longer a realistic or even a desirable option as a national or an international monetary system. But there was another, perhaps more numerous, faction within the Mont Pelerin Society and the wider libertarian/ classical-liberal community, that disdained any monetary system other than the gold standard. The intellectual leader of this group was of course the soul of intransigence, the unyieldingly stubborn Ludwig von Mises, notably supported by the almost equally intransigent French economist Jacques Rueff, whose attachment to gold was so intense that Charles de Gaulle, another in a long line of French politicians enchanted by the yellow metal, had chosen Rueff as his personal economic adviser.

What Friedman did in this essay was not to engage with von Mises on the question of the gold standard; Friedman was realistic enough to understand that one could not reason with von Mises, who anyway regarded Friedman, as he probably did most of the members of the Mont Pelerin Society, as hardly better than a socialist. Instead, his strategy was to say that there is only one kind of real gold standard – presumably the kind favored by von Mises, whose name went unmentioned by Friedman, anything else being a pseudo-gold standard — in reality, nothing but a form of price fixing in which the government sets the price of gold and manages the gold market to prevent the demand for gold from outstripping the supply. While Friedman acknowledged that a real gold standard could be defended on strictly libertarian grounds, he argued that a pseudo-gold standard could not, inasmuch as it requires all sorts of market interventions, especially restrictions on the private ownership of gold that were then in place. What Friedman was saying, in effect, to the middle group in the Mont Pelerin Society was the only alternatives for liberals and libertarians were a gold standard of the Mises type or his preference: a fiat standard with flexible exchange rates.

Here is how he put it:

It is vitally important for the preservation and promotion of a free society that we recognize the difference between a real and pseudo gold standard. War aside, nothing that has occurred in the past half-century has, in my view, done more weaken and undermine the public’s faith in liberal principles than the pseudo gold standard that has intermittently prevailed and the actions that have been taken in its name. I believe that those of us who support it in the belief that it either is or will tend to be a real gold standard are mistakenly fostering trends the outcome of which they will be among the first to deplore.

This is a sweeping charge, so let me document it by a few examples which will incidentally illustrate the difference between a real and a pseudo gold standard before turning to an explicit discussion of the difference.

So what were Friedman’s examples of a pseudo gold standard? He offered five. First, US monetary policy after World War I, in particular the rapid inflation of 1919 and the depression of 1920-21. Second, US monetary policy in the 1920s and the British return to gold. Third, US monetary policy in the 1931-33 period. Fourth the U.S. nationalization of gold in 1934. And fifth, the International Monetary Fund and post-World War II exchange-rate policy.

Just to digress for a moment, I will admit that when I first read this paper as an undergraduate I was deeply impressed by his introductory statement, but found much of the rest of the paper incomprehensible. Still awestruck by Friedman, who, I then believed, was the greatest economist alive, I attributed my inability to follow what he was saying to my own intellectual shortcomings. So I have to admit to taking a bit of satisfaction in now being able to demonstrate that Friedman literally did not know what he was talking about.

US Monetary Policy after World War I

Friedman’s discussion of monetary policy after WWI begins strangely as if he were cutting and pasting from another source without providing any background to the discussion. I suspected that he might have cut and pasted from the Monetary History, but that turned out not to be the case. However, I did find that this paragraph (and probably a lot more] was included in testimony he gave to the Joint Economic Committee.

Nearly half of the monetary expansion in the United States came after the end of the war, thanks to the acquiescence of the Federal Reserve System in the Treasury’s desire to avoid a fall in the price of government securities. This expansion, with its accompanying price inflation, led to an outflow of gold despite the great demand for United States goods from a war-ravaged world and despite the departure of most countries from any fixed parity between their currencies and either gold or the dollar.

Friedman, usually a very careful writer, refers to “half of the monetary expansion” without identifying in any way “the monetary expansion” that he is referring to, leaving it to the reader to conjecture whether he is talking about the monetary expansion that began with the start of World War I in 1914 or the monetary expansion that began with US entry into the war in 1917 or the monetary expansion associated with some other time period. Friedman then goes on to describe the transition from inflation to deflation.

Beginning in late 1919, then more sharply in January 1920 and May 1920, the Federal Reserve System took vigorous deflationary steps that produced first a slackening of the growth of money and then a sharp decline. These brought in their train a collapse in wholesale prices and a severe economic contraction. The near halving of wholesale prices in a twelve month period was by all odds the most rapid price decline ever experienced in the United States before or since. It was not of course confined to the United States but spread to all countries whose money was linked to the dollar either by having a fixed price in terms of gold or by central bank policies directed at maintaining rigid or nearly rigid exchange rates.

That is a fair description of what happened after the Fed took vigorous deflationary steps, notably raising its discount rate to 6%. What Friedman neglects to point out is that there was no international gold standard (real or pseudo) immediately after the war, because only the United States was buying and selling gold at a legally established gold parity. Friedman then goes on to compare the pseudo gold standard under which the US was then operating with what would have happened under a real gold standard.

Under a real gold standard, the large inflow of gold up to the entry of the United States into the war would have produced a price rise to the end of the war similar to that actually experienced.

Now, aside from asserting that under a real gold standard, gold is used as money, and that under a pseudo gold standard, government is engaged in fixing the price of gold, Friedman has not told us how to distinguish between a real and a pseudo gold standard. So it is certainly fair to ask whether in the passage just quoted Friedman meant that the gold standard under which the US was operating when there was a large inflow of gold before entering the war was real or pseudo. His use of the subjunctive verb “would have produced” suggests that he believed that the gold standard was pseudo, not real. But then he immediately says that, under the real gold standard, the “price rise to the end of the war” would have been “similar to that actually experienced.” So take your pick.

Evidently, the difference between a real and a pseudo gold standard became relevant only after the war was over.

But neither the postwar rise nor the subsequent collapse would have occurred. Instead, there would have been an earlier and milder price decline as the belligerent nations returned to a peacetime economy. The postwar increase in the stock of money occurred only because the Reserve System had been given discretionary power to “manage” the stock of money, and the subsequent collapse occurred only because this power to manage the money had been accompanied by gold reserve requirements as one among several masters the System was instructed to serve.

That’s nice, but Friedman has not even suggested, much less demonstrated in any way, how all of this is related to the difference between a real and a pseudo gold standard. Was there any postwar restriction on the buying or selling of gold by private individuals? Friedman doesn’t say. All he can come up with is the idea that the Fed had been given “discretionary power to ‘manage’ the stock of money.” Who gave the Fed this power? And how was this power exercised? He refers to gold reserve requirements, but gold reserve requirements – whether they were a good idea or not is not my concern here — existed before the Fed came into existence.

If the Fed had unusual powers after World War I, those powers were not magically conferred by some unidentified entity, but by the circumstance that the US had accumulated about 40% of the world’s monetary gold reserves during World War I, and was the only country, after the war, that was buying and selling gold freely at a fixed price ($20.67 an ounce). The US was therefore in a position to determine the value of gold either by accumulating more gold or by allowing an efflux of gold from its reserves. Whether the US was emitting or accumulating gold depended on the  interest-rate policy of the Federal Reserve. It is true that the enormous control the US then had over the value of gold was a unique circumstance in world history, but the artificial and tendentious distinction between a real and a pseudo gold standard has absolutely nothing to do with the inflation in 1919 or the deflation in 1920-21.

US Monetary Policy in the 1920s and Britain’s Return to Gold

In the next section Friedman continues his critical review of Fed policy in the 1920s, defending the Fed against the charge (a staple of Austrian Business Cycle Theory and other ill-informed and misguided critics) that it fueled a credit boom during the 1920s. On the contrary, Friedman shows that Fed policy was generally on the restrictive side.

I do not myself believe that the 1929-33 contraction was an inevitable result of the monetary policy of the 1920s or even owed much to it. What was wrong was the policy followed from 1929 to 1933. . . . But internationally, the policy was little short of catastrophic. Much has been made of Britain’s mistake in returning to gold in 1925 at a parity that overvalued the pound. I do not doubt that this was a mistake – but only because the United States was maintaining a pseudo gold standard. Had the United States been maintaining a real gold standard, the stock of money would have risen more in the United States than it did, prices would have been stable or rising instead of declining, the United States would have gained less gold or lost some, and the pressure on the pound would have been enormously eased. As it was by sterilizing gold, the United States forced the whole burden of adapting to gold movements on other countries. When, in addition, France adopted a pseudo gold standard at a parity that undervalued the franc and proceeded also to follow a gold sterilization policy, the combined effect was to make Britain’s position untenable.

This is actually a largely coherent paragraph, more or less correctly diagnosing the adverse consequences of an overly restrictive policy adopted by the Fed for most of the 1920s. What is not coherent is the attempt to attribute policy choices of which Friedman (and I) disapprove to the unrealness of the gold standard. There was nothing unreal about the gold standard as it was operated by the Fed in the 1920s. The Fed stood ready to buy and sell gold at the official price, and Friedman does not even suggest that there was any lapse in that commitment.

So what was the basis for Friedman’s charge that the 1920s gold standard was fake or fraudulent? Friedman says that if there had been a real, not a pseudo, gold standard, “the stock of money would have risen more in the United States than it did, prices would have been stable or rising instead of declining,” and the US “would have gained less gold or lost some.” That this did not happen, Friedman attributes to a “gold sterilization policy” followed by the US. Friedman is confused on two levels. First, he seems to believe that the quantity of money in the US was determined by the Fed. However, under a fixed-exchange-rate regime, the US money supply was determined endogenously via the balance of payments. What the Fed could determine by setting its interest rate was simply whether gold would flow into or out of US reserves. The level of US prices was determined by the internationally determined value of gold. Whether gold was flowing into or out of US reserves, in turn, determined the value of gold was rising or falling, and, correspondingly, whether prices in terms of gold were falling or rising. If the Fed had set interest rates somewhat lower than they did, gold would have flowed out of US reserves, the value of gold would have declined and prices in terms of gold would have risen, thereby easing deflationary pressure on Great Britain occasioned by an overvalued sterling-dollar exchange rate. I have no doubt that the Fed was keeping its interest rate too high for most of the 1920s, but why a mistaken interest-rate policy implies a fraudulent gold standard is not explained. Friedman, like his nemesis von Mises, simply asserted his conclusion or his definition, and expected his listeners and readers to nod in agreement.

US Monetary Policy in the 1931-33 Period

In this section Friedman undertakes his now familiar excoriation of Fed inaction to alleviate the banking crises that began in September 1931 and continued till March 1933. Much, if not all, of Friedman’s condemnation of the Fed is justified, though his failure to understand the international nature of the crisis caused him to assume that the Fed could have prevented a deflation caused by a rising value of gold simply by preventing bank failures. There are a number of logical gaps in that argument, and Friedman failed to address them, simply assuming that US prices were determined by the US money stock even though the US was still operating on the gold standard and the internationally determined value of gold was rising.

But in condemning the Fed’s policy in failing to accommodate an internal drain at the first outbreak of domestic banking crises in September 1931, Friedman observes:

Prior to September 1931, the System had been gaining gold, the monetary gold stock was at an all-time high, and the System’s gold reserve ratio was far above its legal minimum – a reflection of course of its not having operated in accordance with a real gold standard.

Again Friedman is saying that the criterion for identifying whether the gold standard is real or fraudulent is whether policy makers make the correct policy decision, if they make a mistake, it means that the gold standard in operation is no longer a real gold standard; it has become a pseudo gold standard.

The System had ample reserves to meet the gold outflow without difficulty and without resort to deflationary measures. And both its own earlier policy and the classical gold-standard rules as enshrined by Bagehot called for its doing so: the gold outflow was strictly speculative and motivated by fear that the United States would go off gold; the outflow had no basis in any trade imbalance; it would have exhausted itself promptly if all demands had been met.

Thus, Friedman, who just three pages earlier had asserted that the gold standard became a pseudo gold standard when the managers of the Federal Reserve System were given discretionary powers to manage the stock of money, now suggests that a gold standard can also be made a pseudo gold standard if the monetary authority fails to exercise its discretionary powers.

US Nationalization of Gold in 1934

The nationalization of gold by FDR effectively ended the gold standard in the US. Nevertheless, Friedman was so enamored of the distinction between real and pseudo gold standards that he tried to portray US monetary arrangements after the nationalization of gold as a pseudo gold standard even though the gold standard had been effectively nullified. But at least, the distinction between what is real and what is fraudulent about the gold standard is now based on an objective legal and institutional fact: the general right to buy gold from (or sell gold to) the government at a fixed price whenever government offices are open for business. Similarly after World War II, only the US government had any legal obligation to sell gold at the official price, but there was only a very select group of individuals and governments who were entitled to buy gold from the US government. Even to call such an arrangement a pseudo gold standard seems like a big stretch, but there is nothing seriously wrong with calling it a pseudo gold standard. But I have no real problem with Friedman’s denial that there was a true gold standard in operation after the nationalization of gold in 1934.

I would also agree that there really was not a gold standard in operation after the US entered World War I, because the US stopped selling gold after the War started. In fact, a pseudo gold standard is a good way to characterize the status of the gold standard during World War I, because the legal price of gold was not changed in any of the belligerent countries, but it was understood that for a private citizen to try to redeem currency for gold at the official price would be considered a reprehensible act, something almost no one was willing to do. But to assert, as Friedman did, that even when the basic right to buy gold at the official price was routinely exercised, a real gold standard was not necessarily in operation, is simply incoherent, or sophistical. Take your pick.


24 Responses to “Real and Pseudo Gold Standards: Could Friedman Tell the Difference?”

  1. 1 JMRJ August 28, 2014 at 7:02 am

    I appreciate this post. I hope you’ll forgive me for a preliminary (i.e., not entirely thought through) comment because it’s a subject of great interest to me and I would appreciate input any way I can get it.

    I think Friedman, and probably you, have it exactly backwards owing to an implicit, and incorrect, understanding that the discipline of economics and markets supercedes the discipline of (natural) law. The “real” gold standard of Friedman isn’t a gold standard at all. The “pseudo” gold standard is the only rational description of a gold standard: the government defines its unit of account (e.g., the dollar) in gold terms. It’s a matter of weights and measures. It has nothing to do with the “gold market”; indeed, it seems to me once the dollar is defined in gold terms no “market” for gold in dollars exists. Thus the claim that under this regime the government must “manage” the gold “market” is, to me, unintelligible.

    Would you claim that by acknowledging the proper measure of a “quart” the government was thereby committing to manage the milk market, or the petroleum market?

    But I’d be interested to know what you think I’m missing, if that can be feasibly done.


  2. 2 Jim Caton August 28, 2014 at 7:37 am

    David: Fantastic post. I thoroughly enjoyed your dissection of Friedman’s arguments. Putting it int the context of “A Monetary History” sheds light on these inconsistencies, some of which I have been wondering about myself.

    JMRJ: Your right. I have a some recent posts that you may be interested in that argue that the international gold standard was an exchange rate standard that had the benefit of limiting monetary expansion as long as central banks were unable to coordinate (also see Hawtrey, The Gold Standard in Theory and Practice and Gustav Cassel, Foreign Exchange after 1914).


  3. 3 David Glasner August 28, 2014 at 10:45 am

    JMRJ, Glad that you got something out of it.

    I don’t know what it means for economics to supersede (natural) law or how that issue is relevant to understanding how the gold standard works. I also don’t know what Friedman means by a real gold standard since he never says explicitly what it is, except possibly a gold standard in which monetary authorities act the way he thinks they should. I don’t find that a very helpful way to think about the gold standard. So I certainly don’t understand how you can tell whether Friedman’s “real gold standard” is or is not a gold standard.

    You wrote:

    “The “pseudo” gold standard is the only rational description of a gold standard: the government defines its unit of account (e.g., the dollar) in gold terms. It’s a matter of weights and measures. It has nothing to do with the “gold market”; indeed, it seems to me once the dollar is defined in gold terms no “market” for gold in dollars exists.”

    Sorry, but I don’t agree with this at all. The gold standard is not just weights and measures. The government in defining its currency as a specific weight of gold is doing more than defining an abstract unit as it does when it defines the foot to be a certain length. The government is undertaking an obligation to exchange a unit of currency for the corresponding quantity of gold. When the government defines a foot, it is not undertaking an obligation to do anything. During World War I, the definition of one pound sterling remained what it always was, but the obligation to exchange a pound sterling for the corresponding weight in gold was silently abrogated (with an implicit, indefinite and unenforceable commitment to resume making such exchanges at some unspecified future date. Was there still a gold standard in operation during World War I?

    Jim, Thanks, glad you enjoyed it.

    I don’t understand what you mean by an exchange standard.


  4. 4 JMRJ August 28, 2014 at 1:14 pm

    David, defining the dollar in gold terms doesn’t necessarily impose an obligation on the government to exchange a unit of currency for the correct amount of gold. The government needn’t issue currency at all. If it does it is obligated to redeem the currency in the correct amount of gold, but so is anyone else who issues currency, such as a private bank. That’s not an obligation resulting from having a gold standard; that’s an obligation resulting from issuing currency.

    But going the other way, say, if people bring gold to the government and want dollars in the form of government currency, the government can charge “seigniorage”; that is, the government would not be obligated to pay the same number of dollars as the weight of gold, but something less than that depending on how much seigniorage it charges.

    Canada didn’t get a central bank until 1935, and if you ever get up to Parry Sound (about two hours north of Toronto) on the Georgian Bay, there’s a restaurant there with a display case of currency issued prior to 1935 by various Canadian banks – CIBC, Toronto Dominion. I don’t know why that display case is there (or was, last time I visited) but it’s very interesting to the likes of you and me.

    Currency is just a note; that is, a promise to pay “to bearer on demand”, by the maker of the note. Notes can be and are “made” by governments, banks, individuals, you name it. When they are “payable to the bearer on demand” they can, have and do circulate as currency.

    Thanks for the response.


  5. 5 jlcaton August 28, 2014 at 1:40 pm


    Exchange rate standard is the term I’ve coined to describe the mechanism of the classical and interwar gold standards since the constraint one policy was typically the maintanence of a peg. To be accurate, I would say that those gold standards were types of exchange rate standards. I have adopted the language because there seems to be a confusion, especially among gold bugs, about the way the gold standard functioned and what was necessary in order for it to continue functioning. As Hawtrey notes in “The Gold Standard in Theory and Practice” that “the only effect [of gold flows] was to make all gold standard countries keep pace with one another either in expansion or in contraction of credit (91).”

    I hope that better clarifies what I mean.


  6. 6 Frank Restly August 29, 2014 at 6:45 am

    From David: “The government is undertaking an obligation to exchange a unit of currency for the corresponding quantity of gold.”

    From JMRJ: “…defining the dollar in gold terms doesn’t necessarily impose an obligation on the government to exchange a unit of currency for the correct amount of gold.”

    Under a gold standard, the government is obligated to recognize the equivalence of a fixed amount of gold per fixed amount of currency when an individual settles a tax liability. Under a gold standard, the legal authority (government) is obligated to utilize the stated exchange rate in the settlement of private disputes.


  7. 7 David Glasner August 29, 2014 at 1:21 pm

    JMRJ, I agree that it would be possible for the government to define a unit of account and attach some name to it corresponding to a specific amount of gold. Historically, the government has also engaged in supplying coins and banknotes that were supposed to represent the designated amounts of gold. The term gold standard refers to systems in which banknotes can be redeemed in terms of the corresponding amount of gold on demand. My discussion of the gold standard relates to historical experience and what conditions need to be satisfied for a system of this kind to be considered a gold standard. I am well aware that private banks have often issued banknotes redeemable in terms of gold, the point is not that government has to be the issuer under the gold standard, but what makes the gold standard effective is that the issuer whoever it is must be prepared to redeem the banknotes at the stipulated rate of exchange in terms of gold on demand. My quarrel with Friedman is that his distinction between real and pseudo gold standards did not correspond to that criterion.

    Jim, O, that’s fine. In the 1920s, the gold standard corresponded to your paradigm as the mechanism for redemption was maintaining a fixed exchange rate against the dollar or the pound which were the only currencies directly convertible into gold. It was often referred to as merely a gold exchange standard. A lot of Austrians and gold bugs like to use “gold exchange standard” as a term of abuse, suggesting that it was not quite up to snuff. Friedman may have been trying to package his article in a way that would appeal to that sort of misguided prejudice.

    Frank, It is certainly possible that the government could have such an obligation. On the other hand, you could have a gold standard defined in terms of an abstract unit such as a dollar. Your obligation as a taxpayer would be to pay in dollars. The gold standard could operate perfectly well even if the dollar was not defined as a specific amount of gold, but the monetary authority exercising its discretion decided to maintain a fixed nominal price of gold by intervening in the gold market as needed to ensure that the market price did not deviate from the designated target value.


  8. 8 jlcaton August 29, 2014 at 2:14 pm


    It is interesting that Mises understood this, though he was not outspoken about it. In the Theory of Money and Credit, he write:

    Yet the gold-standard system was already undermined before the war. The first step was the abolition of the physical use of gold in individual payments and the accumulation of the stocks of gold in the vaults of the great banks-of-issue (or the redemption funds that took their place), not in actual gold, but in various sorts of foreign claims to gold. Thus it came about that the greater part of the stock of gold that was used for monetary purposes was gradually accumulated in a few large banks-of-issue; and so these banks became central reserve-banks of the world, as previously the central banks-of-issue had become central reserve-banks for individual countries. The War did not create this development; it merely hastened it a little. (391-92)

    Click to access tmc.pdf

    And in Human Action:

    The only difference between the “orthodox” or classical gold standard as it existed in Great Britain from the early ‘twenties of the nineteenth century until the outbreak of the first World War and in other countries on the one hand, and the gold exchange standard on the other, concerned the use of gold coins on the domestic market. (380)

    He exercised a greater degree of condemnation concerning the gold-exchange standard. Those who don’t understand the underlying mechanism of the gold standard conflate these differing degrees of condemnation by thinking of the classical gold standard as “good” and the gold exchange standard as “bad”. And so the significance of this nuance has been mostly lost to those who should know better.


  9. 9 Frank Restly August 29, 2014 at 2:17 pm


    “The gold standard could operate perfectly well even if the dollar was not defined as a specific amount of gold, but the monetary authority exercising its discretion decided to maintain a fixed nominal price of gold by intervening in the gold market as needed to ensure that the market price did not deviate from the designated target value.”

    The problem with that approach is that the central bank could fail in it’s efforts to suppress / raise the price of gold – it could run out of gold to sell / buy.

    With the taxation approach, a government does not use market operations to change a relative price. Instead they announce a relative price ($ / ounce gold), and allow taxes to be paid in either form. It is very similar to the government defining an ounce and defining a pound as equivalent to 16 ounces.

    I haven’t been able to find any online references, but have any economists in history developed a legal theory of value or value by decree?

    For instance, government declares a national holiday on September 1, and value of hours worked on that day falls. Less production gets done because half the people observe the holiday at home while the other half still working find that important phone calls, emails, etc. don’t get answered right away.


  10. 10 David Glasner August 30, 2014 at 8:24 pm

    Jim, Thanks for those quotations. They show a more acute understanding of the gold standard than Friedman did in his paper on real and pseudo gold standards.

    Frank, There is no technical reason why a central bank operating on the gold standard should ever fail to maintain the target price of its currency in terms of gold if that is its objective. If it fails to do so, it is because it is incompetent or because it has some other objectives which take precedence over maintaining the price of gold on target. A central bank doesn’t run out of gold by accident. In fact it would be perfectly possible for a central bank to operate a gold standard with almost no gold held in reserve. I am not sure what you are asking me about what economists having developed a legal theory of value or value by decree. It sounds similar to what it called the chartalist theory of money which is popular among modern monetary theorists. You might try looking at their stuff if you are interested in pursuing the idea further. That’s about all I could suggest.


  11. 11 JMRJ August 31, 2014 at 9:20 am

    David, it’s really rare to find someone who might be opposed to a gold standard but doesn’t seem to have that irrational hostility to it that characterizes a great many economists.

    And although my opinion is probably a reflection of my profession and background more than anything else, I think the role of the law (and thus lawyers) in monetary economics is grossly underappreciated if not neglected altogether.

    I used to be of the opinion that the gold standard could only consist of the monetary unit of account being defined by law as this or that quantity of gold. I still favor that idea, but have also been considering a gold standard that is managed by a central bank, although there are probably impediments to my understanding inasmuch as central banking is far more the bailiwick of economists than lawyers.

    Nevertheless, my idea of a central bank managed gold standard would be where, basically, the central bank setting the dollar gold price would be authorized by law, perhaps within certain limits or with certain limitations imposed by the legislature. Your idea seems to be (correct me if I’m wrong)that a central bank gold standard would be directly analagous to the way the central bank now “targets” interest rates.

    I guess one question I would like to ask you is, wouldn’t you prefer a central bank that could directly control the money supply (that is, the “dollars” in circulation) by adjusting the dollar price of gold, to a central bank that can at best influence the dollar price of gold through some sort of market operations?

    Of all the people I’ve been reading over the years on subjects like this, I believe I’m most likely to get a truly thoughtful response from you, so I thank you in advance. And of course if the other commenters like Jim have an opinion I’d love to know theirs as well.


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About Me

David Glasner
Washington, DC

I am an economist in the Washington DC area. My research and writing has been mostly on monetary economics and policy and the history of economics. In my book Free Banking and Monetary Reform, I argued for a non-Monetarist non-Keynesian approach to monetary policy, based on a theory of a competitive supply of money. Over the years, I have become increasingly impressed by the similarities between my approach and that of R. G. Hawtrey and hope to bring Hawtrey’s unduly neglected contributions to the attention of a wider audience.

My new book Studies in the History of Monetary Theory: Controversies and Clarifications has been published by Palgrave Macmillan

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