Posts tagged ‘gold standard’

April 2, 2012

Character of Gold

If you don’t know about it, Tristram Shandy is a famous 18th century novel. Academics call it the postmodern novel two centuries before the postmodern. What’s more, it’s a great read.

One of the things I remember from the novel, which appeared in nine installments from 1759 to 1767, was part of the author’s dedication before volume IX. The sentence in it I really liked goes like this.
Honours, like impressions upon coin, may give an ideal and local value to a bit of base metal ; but Gold and Silver will pass all the world over without any other recommendation than their own weight.
Laurence Sterne is talking about character, of course. The title of Lord or Duke can be confer importance even upon the most vile man, but true quality of character will shine through anywhere regardless of the approval of powerful people. It is a noble sentiment.


I am reading David Graeber’s book Debt, which talks about the history of money and credit. I may decide to write something about it when I’m done with it, but I came across this passage and remembered Sterne’s dedication. (The passage is a bit long, so I have chopped it up a little to shorten it, but the thread, I believe is there.)
“Yet the great public debate of the time [1690s], a debate about the very nature of money, was about not paper but metal. […] Something had to be done. A war of pamphlets ensued, which came to a head in 1695, one year after the founding of the bank. Charles Davenant’s essay on credit, which I’ve already cited, was actually part of this particular pamphlet-war: he proposed that Britain move to a pure credit money based on public trust, and he was ignored. […] The man who won the argument, however, was John Locke, the Liberal philosopher, at that time acting as advisor to Sir Isaac Newton, the Warden of the Mint. Locke insisted that one can no more make a small piece of silver worth more by relabeling it a “shilling” than one can make a short man taller by declaring there are now fifteen inches in a foot. Gold and silver had a value recognized by everyone on earth; the government stamp simply attested to the weight and purity of a coin, and – as he added in words veritably shivering with indignation – for governments to tamper with this for their own advantage was just as criminal as the coin-clippers themselves:
“The use and end of the public stamp is only to be a guard and voucher of the quality of silver which men contract for; and the injury done to the public faith, in this point, is that which in clipping and false coining heightens the robbery into treason.”
Therefore, he argued, the only recourse was to recall the currency and restrike it at exactly the same value that it had before. This was done, and the results were disastrous.”
(I added the emphasis, as well as the hyper link, obviously.)

Something interesting is going on here. As far as I know, most countries do not tie their monetary units to the gold standard. Britain went off it in 1931, and the US in 1971. I know that Marx argued against the concept that money ultimately derived its value from gold. Which means that Charles Davenenat was right, and John Locke was wrong. (Doesn’t it?)

But then, where does the value of gold come from? It’s not like Locke invented the idea of precious metals being valuable in themselves. Ancient civilizations already valued gold and silver, and we still do today. What makes them able to “pass the world over without any other recommendation than their own weight,” as Sterne wrote?

Could it be that gold is valuable in the way Davenant claimed money should be, that is, it simply has public trust? Is it valuable for no other reason than that somehow all of humanity (or a large portion of it, anyway) thinks it is valuable? Would that make both Davenant and Locke right, since it is a value based on trust, but is also recognized by everyone on earth?

And what of Sterne’s metaphor? If gold and silver have no intrinsic value, does that debase the metaphor? Should the sentence read “Gold and silver will pas the world over without any other recommendation than that which they already have from everyone, but that’s only because nobody has thought about it?” In which case they are not that different from base metal rendered important with honors. Somehow, this makes me unhappy…