Going for the Gold

Washington, D.C.

I was astonished to read Stephen Mihm’s admiring review of Philip Coggan’s Paper Promises, especially in The Nation, because he seemed to share (or at least passively endorse) Coggan’s reactionary nostalgia for the gold standard and other “hard money” fantasies [“Paper Chase,” June 18]. The hoary certitudes preached by Hayek and other gold bugs are attempting a comeback now that the world is awash in failing debtors, but their libertarian version does not conform with the history of money and capitalism. A historian presumably knows this but chose not to mention it.

The gold standard did not guarantee economic stability or prevent recurring bubbles of overexuberant lending. Gold-backed currencies produced not stable money but often violent swings between inflation and deflation, banking breakdowns, brutal depressions and, yes, government rescues of misguided bankers. The Federal Reserve was created to meet that problem and tame it. Wall Street reluctantly recognized that it needed the helping hand of government, permanently, to protect bankers from themselves and the country from the bankers.

America should be having an informed debate right now about the Fed’s imperfect performance, its gross failures and biases and how the central bank might be reformed—modernized and democratized—not hearing sentimental longings for a past that never existed. The right-wing mythology is deeply misleading and dangerous because it can deform public opinion.

Mihm also left out the brutal inequalities associated with the money question. Americans long resisted a central bank because people and politicians understood that controlling the money supply and access to credit gave bankers and the creditor class a powerful way to dominate society and politics. The Fed did not entirely resolve the injustices and in some ways sustained them.

During the last generation, the central bank became a principal engine of inequality, helping to generate the vast disparities of income and wealth. If you want to know why people wound up deeply in debt, take a look at what happened to their incomes over the past thirty years. As the 1 percent prospered fabulously, the broad middle class (never mind the poor) struggled to hang on to its deteriorating standard of living. The Fed encouraged the group rewarded on the upside while it suppressed incomes for the other.

Conservative observers like The Economist described a wild party drunk on “Keynesian booze.” Participants experienced it as a nightmare of gathering insecurities. The libertarian urge to take the government out of its supervisory role would put the bankers exclusively in charge—determining the money supply, interest rates and all that.

Money is everywhere and inescapably a political question. This is another missing point. Despite the wishful claims made for the gold standard, money is artificial—created by human beings, not God. Therefore, it has to be managed by someone (fallible humans) because money reflects the full range of human possibilities for folly and error, destructive behavior and noble aspirations. Some would like to believe in money that is “real.” Mihm seemed to slyly encourage that notion when he implied that paper money is somehow less real than gold. This is an antiquated proposition, anti-modern and wrong.

Modern money has gone way beyond paper. It exists as digital traces inside someone’s computer. Neither the lenders nor the borrowers can see this money, not ever. Yet they accept it in payment. Should we abandon these newfangled machines called computers and get back to those olden days when money was as good as gold? That sounds like the ravings of a right-wing crank.



Mihm Replies

Athens, Ga.

I have been attacked many times by libertarians on the right oddly obsessed with the gold standard and the Federal Reserve, but this is the first time the attack has come from the left. It seems William Greider feels I was obliged to turn a review of a book about credit and debt into an angry polemic against gold bugs and Alan Greenspan. I did not. Thankfully, his lengthy letter redresses my grave failure.

As for his specific claim that my review was “admiring,” I suspect this will come as news to Philip Coggan. Evenhanded, perhaps. But any review that compares Austrian economists to religious fundamentalists, and then goes on to lambaste the author for falling victim to the Austrian school’s “counsel of despair,” is hardly a plea for libertarian economics, much less the gold standard.

I fear that Greider is confusing a careful exposition of the book with an endorsement of it. Coggan is indeed nostalgic for the gold standard. I am not, though we agree that there is no chance of resurrecting it. I discussed this at length, trusting Nation readers to draw their own conclusions without unnecessary displays of my pedantry or political bona fides. In any case, Greider’s obsession with the gold standard is misplaced. He would do better to worry about its twenty-first-century equivalent: the euro. As plenty of economists have observed, the euro has revived many of the evils of the gold standard. Nations like Greece and Spain have lost the ability to depreciate their currencies; they are trapped in precisely the kind of deflationary spiral that plagued countries in the nineteenth and early twentieth centuries.




In Robert B. Reich’s “Mitt Romney and the New Gilded Age” (July 16/23), we repeated eight lines of text and dropped a sentence. On page 12, right column, the following text should have appeared at the end of the first paragraph, after the words “payments on that debt load”: “But even as these firms sank, Bain and the other dealmakers continued to collect lucrative fees—transaction fees, advisory fees, management fees—sucking the companies dry until the bitter end. According to a review by the New York Times of firms that went bankrupt on Romney’s watch, Bain structured the deals so its executives would always win even if employees, creditors and Bain’s own investors lost out. That’s been Big Finance’s MO.” Our apologies to the author.