The “Barbarous Relic” Helped Enable a World More Civilized than Today’s
One of history’s greatest ironies is that gold detractors refer to the metal as the barbarous relic. In fact, the abandonment of gold has put civilization as we know it at risk of extinction.
The gold coin standard that had served Western economies so brilliantly throughout most of the nineteenth century hit a brick wall in 1914 and was never able to recover, or so the story goes. As the Great War began, Europe turned from prosperity to destruction, or more precisely, toward prosperity for some and destruction for the rest. The gold coin standard had to be ditched for such a prodigious undertaking.
If gold was money, and wars cost money, how was this even possible?
First, people were already in the habit of using money substitutes instead of money itself—banknotes instead of the gold coins they represented. People found it more convenient to carry paper around in their pockets than gold coins. Over time the paper itself came to be regarded as money, while gold became a clunky inconvenience from the old days.
Second, banks had been in the habit of issuing more bank-notes and deposits than the value of the gold in their vaults. On occasion, this practice would arouse public suspicion that the notes were promises the banks could not keep. The courts sided with the banks and allowed them to suspend note redemption while staying in business, thus strengthening the government-bank alliance. Since the courts ruled that deposits belonged to the banks, bankers could not be accused of embezzlement. The occasional bank runs that erupted were interpreted as a self-fulfilling prophecy. If people lined up to withdraw their money because they believed their bank was insolvent, the bank soon would be…
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