Gold and the “Barbaric Relic”: A differentiated consideration of the statements
The widespread claim that gold is a “barbaric relic” is often attributed to John Maynard Keynes. But a close look at his writings shows that this formulation was never used by him in this way. In fact, in 1924, Keynes wrote in his work “A tract on currency reform”: “In truth, the gold standard is already a barbaric relic.” With that, referencedKeynes explicitly on the system of the gold standard and not the precious metal gold itself. This distinction is central, as it makes it clear that Keynes saw the gold standard as outdated, but did not completely reject the gold itself. In the historical context of 1924, this assessment was quite understandable and reflected the economic and politicalrealities.
The Gold Standard Through the Times: Keynes’ attitude in the historical context
In order to better understand Keynes’ attitude to gold standard and gold, it is worth taking a look at the economic developments of the time. The classic gold standard, which has served as the basis of the global monetary order since around 1870, was abandoned by almost all warring states at the beginning of the First World War. Governments used their remaining gold toFinancing war efforts, leading to an abrupt end to the previous system. The British Treasury and the Bank of England also followed this path. Keynes, a proven pragmatist, recognized the need for this step. Although originally a gold standard advocate, he realized that under the extreme conditions of war, he was flexible andpragmatic action had priority.
Credit, War and Gold: The Importance of the Gold Standard for the UK
Keynes pointed out that the amount of gold available as a means of payment is limited while lending can be almost unlimited. However, it was crucial for Britain to maintain London’s position as a global financial center and to strengthen the country’s creditworthiness. Thanks to maintaining confidence in the UK financial system, it was possible toof Morgan in New York to obtain considerable loans. This funding was a key factor in the UK’s ability to survive in the war until the United States entered the United States in 1917. Only through these loans did it become possible to continue the war efforts until the end of 1918. For Germany and Austria, on the other hand, comparable borrowing abroad wasnot possible, which had a significant impact on the course of the war.
Return to the gold standard and the consequences: Keynes as Warner before Deflation
After the war, in 1925, the UK, under the leadership of Finance Minister Winston Churchill, faced the decision to return to the gold standard again – to pre-war parity. Keynes warned against it and explained that a return to old gold prices would trigger devastating deflation. He advocated the price of gold to be the new economic oneraise an appropriate level of realities. Churchill’s decision to ignore Keynes’s well-founded advice led to severe deflation and economic depression in Britain, which began many years before the global economic crisis and put a lasting strain on the country.
Bretton Woods and the vision of a new world currency
In July 1944, just a few months before his death, Keynes worked as a British delegation leader at the Bretton Woods conference on a new global monetary system. His innovative idea was to create a supranational currency called Bancor, which was to be based on a basket of raw materials, including gold. With this, Keynes wanted a flexible and stable framework for thecreate international trade. Although his proposal was rejected in favor of a dollar gold standard – under pressure from the United States – the basic idea was preserved and later found its way into the so-called special drawing rights (SDR) of the International Monetary Fund (SDR) in a modified form.
The multi-layered view of Keynes on gold and currency systems
From the beginning to the end of his career, Keynes developed a remarkably differentiated attitude on the subject of gold. At the beginning he was a dedicated advocate of the classic gold standard, which stood for stability and confidence in the international financial system. In the further course of his career he showed himself as a pragmatic advisor who had the disadvantages of an anachronistic gold standardrecognized and warned against sticking to outdated parities. Towards the end of his life, he finally advocated a new role of gold as part of a wider basket of raw materials. He wanted to adapt the international monetary system to the changing economic conditions without completely dismissing the importance of gold.
Keynes, the gold and the myth of the “Barbaric Relic”
The reduction of Keynes’ attitude to the catchphrase “Barbaric Relic” clearly falls short. His position against gold and gold standards was always characterized by pragmatism and a differentiated analysis of the respective economic situation. So if you quote the phrase about the “Barbaric Relic” next time, you should consider the historical background and the actualMake Keynes statements in mind. Gold and the gold standard were for Keynes instruments whose benefits and importance changed over time – and whose assessment should always be in the context of the respective challenges. This makes it clear that Keynes was by no means a general opponent of gold, but rather a clever analyst who played the role of gold in the change ofEconomic history understood and designed.
