Book Review : Gold – The Once and Future Money

Last week I finally finished reading “Gold – The Once and Future Money” by Nathan Lewis and I thought I’d do a super quick book review.

The author Nathan Lewis is somebody that I was already familiar with and I bought the book thinking it was essentially an argument for a return to the Gold Standard. However contrary to what I expected it does not offer much argument for why a gold standard would work or why it would be superior in theoretical terms. Instead it bases it’s argument almost entirely on empirical evidence. Firstly it looks at the gold standard through the ages and at the times when governments moved onto or off a gold standard and the impact that it had. Secondly it looks in detail at the post gold standard modern era and the effect of movements in the value of currencies and subsequent economic events. The book spans most of human history and for a modern book on this topic it is refreshingly international.

One of the things that the book really brought home for me was the cyclical nature of political fashion. It is sometimes easy to believe that the past had a gold standard and low taxes and the present has floating fiat currencies and high taxes. However Nathan Lewis did a pretty good job of shreding that outlook. There have been high taxes and unstable currencies in many, many places during many times, from ancient civilisations to more modern times. In fact the golden ages, when taxes were low and currency was stable seem rare (although often very long lived) compared to the times of policy failure and decay. In essence the book isn’t really at all an argument for why we should go back to the gold standard (although the author clearly thinks it would be a good thing), but rather a forcast that a return to the gold standard is an all but inevitable part of long political cycles.

The book spends a little bit of time exploring how a gold standard may return. Whether through an initiative in the USA or via Europe or in Asia. Whether it will be via one country or via some form of currency block. This is one area of the book that I thought was too short and where I felt that the author could have offered a lot more detail.

Contrary to the books marketing it does seem to assume a fair bit of prior knowledge on the part of the reader. However overall I enjoyed the book and I do recommend it to anybody with an interest in economics. Steve H. Hanke, Professor of Applied Economics from the Johns Hopkins University had this to say about the book;

“When it comes to international monetary economics, most economists fail to connect the dots. In many cases, they fail to even see them. Gold doesn’t suffer these problems. Nathan Lewis’s book is a readable account of the present in light of the past for purposes of the future.”

If you want a copy of the book then make a case for why you want the book in the comments. I’ll buy a copy of the book for the two people that enter the best plea (judges decision is final even if arbitrary). Of course they must promise to actually read it.

14 thoughts on “Book Review : Gold – The Once and Future Money

  1. Perhaps the section on how we would be silly enough to return is thin because the truth is so unpalatable.

    Great civilizations rise and fall, the return to a gold standard (if we survive), the end of our motor cars, plasma TV and our high living standards is as inevitable as the fall of our current great civilizations. As sure as night follows day they will fall.

    The age of the gold standard is not so golden if your peasant; most of us will end up being peasants.

  2. In all my gray-bearded years, I have never read a ‘gold bug’s’ rigorous estimate of how many millions of people would be thrown out of work within the first two years of returning to a gold standard. A gold standard is deliberately deflationary; the havoc and misery of defaltion matches the anxiety and impoverishment of inflation (broken marriages, failed businesses, beaten wives, hungry children, a malaise society-wide; the perfect environment for Marx’s revolution). Neither inflation nor deflation is the ‘cure’ for the other; it is long past time for libertarians to understand the horrific social costs of deflationary economic policies. In neo-classical economic theory, the ONLY effective method of curing inflation is increased unemployment as a result of rising interest rates (the ‘i-U’ graph).

    Gold is not the answer to an inflation; a ‘hard’ currency is, and the hard currency does not require a metal standard. A hard currency is constructed by making the supply of currency adequate to its demand, not in excess of its demand. Excessive supply of the currency weakens the currency, eroding confidence in its future value. Eternally, gold bugs believe that only a metal standard can prevent the bias of politicians to print paper money in excess of its demand. But there are plenty of examples of central bankers who understand how to fight inflation, and even more examples of ecoomically-illiterate politicians who are clueless.

    The greatest long-term growth of any economy in human history is that of the United States (between 2-3%, compounded). If a gold standard were imposed for the years since 1972 upon a 220 year graph of the American economy, the graph would show a dramatic contraction of the prosperity of the American people as their money supply contracted BELOW the rate of annual mining of gold (due to competition from other purposes for gold).

    Libertarian philosophy is about how freedom increases human happiness, prosperity, and life-nurturing; it is not about blind loyalty to conservatism principles in economics. We libertarians should argue for the social benefits from hard currencies, and leave to the bugs their nostalgia for 18th century mercantilism.

  3. I don’t have an opinion on Gold money standards one way or another, but there is no reason adopting a gold should be massively deflationary. Supposing it caused a minor deflation (1% a year or so), as I understand it did during the 19th century, it is unlikely to cause massive “havoc and misery”.

    Using gold production in a non-gold base system to predict gold prodution in a gold system is just foolish. The big point of gold is the automatic stabiliser effect – that as gold gets scarce (deflation) more will be mined, and any surplus will see production fall.

    I don’t quite understand the mechanics of Terje proposed gold system, but I don’t think it involved 100% backing, anyway, at least initially.

  4. charles – you are talking utter rubbish. You predictions are simply demented doom mongering. We had a gold standard during one of the periods of greatest economic growth ever. But you reckon a gold standard would lead to the greatest economic crisis ever.

    The gold standard is sound. The problem is implementing its return and the fact that it is a great check on Government excess, until the Government decides to turf it.

  5. I would want to read this in conjunction with banking history. Because the times when they were on gold and there was also instability will almost definitely coincide with fractional reserve. Fractional reserve is unstable independent of gold. The difference is that gold cannot crash in value like unbacked paper money always does in the end.

    Look at our unbacked paper money. Its only gone 37 years now. And it doesn’t have much longer to go.

  6. In all my gray-bearded years, I have never read a ‘gold bug’s’ rigorous estimate of how many millions of people would be thrown out of work within the first two years of returning to a gold standard.

    It would depend on whether you return at an inflationary price, a deflationary price or a stable price. Let me know which of those option you are refering to and I’ll try and give you an estimate on how good or bad it would work out.

  7. A hard currency is constructed by making the supply of currency adequate to its demand, not in excess of its demand.

    and how do you know when supply=demand? The market, through the price of gold, tells us.

  8. Here is an observation- if Australia had a hard-metal currency, like gold, what would have happened to our money in the last few months, with all these fluctuations?
    And here’s an idea to play around with! I think the term is demurage money. If you are a bank, and have a gold coin in a safe, you issue not a cheque, but a demurage note. This would be like a cheque, but with a limited lifetime, printed on the note! A One-year note might redeem a 100gs of gold fully up until day 256, and then start to lose a gram of gold a day in value. This way, no-one would horde notes under the bed, and clunky coins don’t need to be used. Money has often been called the blood of civilisation- but blood cells wear out. To keep the analogy going, we’d need notes with limited time, hence demurage money.

  9. Demurage is a carry cost and has some interesting effects on the time value of money (in investment NPV terms it can make the future worth more than the present which should excite conservationist). Gold bullion already has a carry cost which is the burden of carrying it, storing it and insuring it. Which is why most people would give it to a bank in times of a gold standard.

  10. I would love the book, please, because after I had read it, and recommended it to all my friends, I would then give it to my local library in the hope of persuading other people to the cause of metal-backed money.
    You wouldn’t just be preaching to the converted! Generations yet unborn will bless you for showing them the Way, the Truth, and the (golden) Light!
    So when do I get the book?

  11. I sent you my postal address, but have not got any reply. Are you waiting for more contestants?

  12. Doesn’t sound like you have read the book. It’s a great read.

    You say, “Gold is not the answer to an inflation; a “hard” currency is and the hard currency does not require a metal standard.” You are exactly right, logically, but only theoretically.

    The book details how time and time again down through history, leaders have strayed from the logical intention of keeping the money “hard”, for political reasons, and “goosed the economy” to gain temporary favor with the populace.

    The book shows that having a gold standard was the only system that succeeded in safeguarding and maintaining stable money given the human foibles of politicians and leaders.

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