A Weekly Dose of Hazlitt: The Return to Gold

In “The Return to Gold“, Henry Hazlitt’s Newsweek column from July 6, 1953, Hazlitt uses the occasion of the publishing of a new edition of The Theory of Money and Credit by Ludwig von Mises to argue for a return to a gold standard.

It is good news that the Yale University Press has made
available a new edition of The Theory of Money and Credit,
by Ludwig von Mises (493 pages, $5). In his introduction
to the English-American edition in 1935, Lionel
Robbins wrote: “In Continental circles it has long been
regarded as the standard textbook on the subject.”

To this latest edition the author has added a new
section of 44 pages on the present problems of monetary
reconstruction. No two economists seem to agree
in every detail regarding the monetary policies that
should now be adopted and the order in which particular
steps should be taken, but Mises’s discussion seems
to me on the whole the soundest, most thorough, and
most illuminating that has so far appeared.

No one, for example, has explained better than
Mises the detailed process of inflation and the exact
nature of the evils it entails. His basic argument for
a return to the gold standard is nontechnical: “The
excellence of the gold standard is . . . that it renders
the determination of the monetary unit’s purchasing
power independent of the policies of governments and
political parties. . . . It makes it impossible for them to
inflate.”

Today, unfortunately, only a minority of economists
agree that it is both possible and desirable to return
eventually to a gold standard. When it comes to such
questions as when? under what conditions? how? and at
what rate? even this minority of gold-standard advocates
is split 40 different ways.

Mises’s answer runs something like this: Monetary
reform presupposes first of all a change in the prevailing
economic ideology. “There cannot be stable money
within an environment dominated by ideologies hostile
to the preservation of economic freedom.” The first step
must be to put an absolute halt to any further monetary
inflation. “The main thing is that the government
should no longer be in a position to increase the quantity
of money in circulation and the amount of checkbook
money not fully—i.e., 100 percent—covered by
deposits paid in by the public. . . .

“At the same time all restrictions on trading and
holding gold must be repealed. The free market for gold
is to be re-established. Everybody, whether a resident
of the United States or of any foreign country, will be
free to buy and to sell . . . to import and to export, and,
of course, to hold any amount of gold, whether minted
or not minted. . . . In this first period of the reform it
is imperative that the American Government and . . .
the Federal Reserve System keep entirely out of the
gold market. . . .

“It is probable that the price of gold established
after some oscillations on the American market will
be higher than $35 per ounce. . . . It may be somewhere
between $36 and $38, perhaps even somewhat higher.
Once the market price has attained some stability, the
time has come to decree this market rate as the new
legal parity of the dollar and to secure its unconditional
convertibility [into gold, and vice versa] at this parity.”

Regardless of their merits, these proposals are
unlikely to get serious official consideration at this time.
Very few monetary economists, for example, today favor
anything as drastic as a prohibition of any increase in
bank deposits (and, incidentally, in bank loans) beyond
an increase of the same amount in gold reserves. Even
most supporters of a return to the gold standard merely
wish to stop the kind of credit expansion that comes
through bank purchases of government bonds, not the
kind that comes from an increase in the total volume
of loans to business. And even most of those who favor
a restriction on loans to business wish to carry it out
solely through increases in interest rates (and perhaps
in member-bank reserve requirements) rather than
through any direct quantitative limitation.

But though there will be dissent from some of
his detailed conclusions, Mises’s answer cannot be
neglected by any serious student of the problem of
returning to a gold standard. And that return is imperative
if the world is not to drift even deeper into monetary
chaos.

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