This 1983 paper, from Alan Reynolds, was a very fine expression of basic gold standard principles. There have always been a few people who understood these things — but, for a long time, too few. One reason I took many years to write the “gold trilogy” was to provide a format from which a much larger number of people could learn these principles, and also, to provide a much more in-depth discussion backed up by a lot of historical detail and statistics. There was always the risk that the thin thread (a very thin thread!) of knowledge would be lost, and there are very, very few people who could reconstruct it from scratch. Today, this paper serves as a fine basic introduction, in a compact and easy to read format, which also serves to show the timelessness of these ideas. Unfortunately, it also shows the “timelessness” of monetary ignorance — a lot of the bad ideas of those days, from the Monetarist types for example, and academics in general, are still around today.
I was going to comment on some sections of the paper, but it is so tightly conceived, and covers issues that I have also talked about at length elsewhere, that I find little need. Thus, I will give Reynolds’ summary: “The practical answer to the question ‘why gold?’ is that it always works; nothing else ever has.” This was also the summary of my book Gold: The Final Standard. The rest of the book amounted to a historical support of this conclusion.
Roger Garrison adds a little comment to the end. Garrison apparently decided that he should have something to say, so he says:
To provide the greatest contrast between Reynolds’s ideas and my own, I will focus on those issues in which the institutional arrangements matter just as much, if not more, than mere convertibility. First, I will focus on the existing institutional arrangementand reconsider the old issue of the central bank’s will and ability to control the money supply. … I will deal with the relationship between a strong central bank and a workable gold standard, arguing that we can have one or the other but not both. My views run directly counter to Reynolds’s position that the issue of the appropriate monetary standard and of the appropriate institutional arrangement are separate issues.
This is a worthy discussion, but it runs the risk of careening into the weeds. The fact of the matter is that we have had “strong central banks” (the Bank of England 1694-1914, the Bank of France 1801-1913) that have adhered to the gold standard with admirable conviction. It might be asserted that we cannot expect such conviction today; but, that is just guessing.
Before the era of central banks, we had many centuries of “strong central governments” issuing coinage. Sometimes, they did so with extraordinary fidelity, keeping the coins’ contained metal unchanged over a period of over seven centuries in the case of the Byzantine solidus, over six centuries in the case of the Athenian drachma, and over four centuries in the case of the Spanish silver dollar — even while the domestic coinage of Spain was debased. Other governments debased (reduced the metal content vs. face value) their coinage regularly. By the eighteenth century, the French livre was worth about a hundredth of its original value from the eighth century. Other countries fared worse than this. We want a “monetary constitution” that is inherently reliable; but, we will never be able to solve the problem of corrupt governments with such methods alone. Just as is the case for the U.S. Constitution itself, its principles must live in the hearts of each successive generation.