Trust Mises and Gold, Not Keynes, Bernanke, and Fiat Money

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A preference for a tangible gold currency is no longer more than a relic of a time when Governments were less trustworthy in these matters than they are now, and when it was the fashion to imitate uncritically the system which had been established in England and had seemed to work so well during the second quarter of the nineteenth century.

~ John Maynard Keynes, 1913

This statement appears in the first book written by John Maynard Keynes, Indian Currency and Finance. I regard this statement as one of the early academic salvos against the gold standard. It was an early phase of what I have called the gold wars. You can download my 100-page study here.

In my recent article, "Why Gold Owners Are Targets of the Government," I made the point that the international gold standard served as a restraint on the ability of governments to defraud their citizens through monetary inflation. With the destruction of the gold standard, beginning in 1914 with the outbreak of World War I, citizens around the world have seen the destruction of purchasing power in every nation through monetary inflation. Not one currency has maintained its purchasing power of 1914. There is a reason for this: not one currency is redeemable on demand in gold.

In 1912, Ludwig von Mises’ monumental book appeared, The Theory of Money and Credit. The 20th century can be regarded as confirmation of Mises’ suspicion that governments cannot be trusted to manage their monetary systems for the benefit of the people. The 20th century is a lasting testimony to the naive view asserted by Keynes that governments are more trustworthy than they had been in the 19th century.

Keynes regarded the 19th century as a time in which governments were constrained by the gold standard because they were untrustworthy. Mises agreed with Keynes on this point. Where they disagreed was with respect to the trustworthiness of 20th-century governments that were not restrained by a gold standard. Keynes was wrong. Mises was right.


The gold wars have been conducted by governments because Keynes was wrong and Mises was right. The reason why we are living in a time of monetary inflation is because governments escaped the restraints placed on them by a legal requirement that anyone may present government-issued IOUs for gold at a bank. These IOUs, called money in 1913, transferred power to the holder of each IOU. The holder was in a position to demand payment in gold at a fixed rate of exchange.

In the 19th century, voters did not allow governments to expand the purchases of votes by means of expanding government expenditures. There was a great hostility throughout the 19th century to the idea that government can in any way successfully regulate the economy. There was great distrust of government spending generally, and the public’s means of enforcing controls over national governments involved the establishment of a gold standard.

A government that adhered to the gold standard domestically gained investors from around the world. People trusted the government, and so the government was able to attract investors for its debt at interest rates lower than the interest rates that investors required from governments that did not adopt a full gold coin standard. It was profitable for the British Empire to adhere to a gold standard for 1815 to 1914. It gave the British Empire a tremendous advantage because it enabled the government and commercial enterprises to borrow money at low rates of interest.

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Gary North [send him mail] is the author of Mises on Money. Visit He is also the author of a free 20-volume series, An Economic Commentary on the Bible.

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