The Power of Gold: Th History of an Obsession

Article excerpt

The Power of Gold:

The History of an Obsession

by Peter Bernstein

Wiley & Sons 2000 432 pages $27.95

When it comes to disparaging gold, Peter Bernstein can't be outdone. Among other traducements, he blames gold for: the institution of slavery; having "torn economies to shreds"; the Great Depression of the 1930s; and many other "horrors."

In Bernstein's view, people who advocated the gold standard were "deluded;' "intoxicated," "obsessed," and "haunted." He contends that the gold standard was "primitive" and the result of "cupidity and stupidity." Not only does he believe that gold is not useful for anything save adornment, but that dire political and social consequences result from its use as money.

The book, which is actually quite readable because of its many amusing anecdotes, has the odd benefit of collecting in one place virtually every negative about the gold standard. Among the more obvious and blatant misrepresentations Bernstein makes are: "As we shall see, the gold standard developed all the trappings of a full-fledged religion: shared beliefs, high priests, strict codes of behavior, creed, and faith."

In fact, the gold standard was a market response to the need for a medium of exchange (money) that would minimize the transaction costs of transferring wealth geographically and over time. Money helps facilitate a division of labor, and the better quality the money, the longer the investment time-- horizon, the more specialized the division of labor, and the higher the standard of living. Bernstein understands none of that.

Bernstein's misconceived attacks are relentless. "Despite all the gaiety associated with the Roaring Twenties, the fixation on gold during the 1920s and early 1930s makes the period resemble a horror movie," he writes. The real horror was money creation by banks, not a "fixation on gold."

"Over the years," Bernstein writes, "debasement has come to mean any irresponsible, or at least ill-advised, effort to create new money out of nothing-a process at which governments have become increasingly ingenious with the passage of time." But there is no such thing as "responsible" debasement. Debasement is theft, plain and simple. It is telling that those who oppose the gold standard have no trouble staking out the moral low ground. "Financial rectitude, though much admired, has never been a sure road to prosperity," Bernstein says. Financial rectitude is necessary but not sufficient for prosperity, which never emerges in a climate of government financial manipulation. …