Mises on the gold standard as the symbol of international peace and prosperity (1949)

Ludwig von Mises

Found in Human Action: A Treatise on Economics, vol. 2 (LF ed.)

Ludwig von Mises (1881-1973) noted that the gold standard had both practical and symbolic significance. It was a major means which enabled international trade to flourish and the industrial system to increase dramatically the wealth of all people. Yet, it was correctly identified by economic nationalists as a brake on the expansion of government power, especially by credit expansion and debt, and for that reason had to be dismantled:

The gold standard was the world standard of the age of capitalism, increasing welfare, liberty, and democracy, both political and economic. In the eyes of the free traders its main eminence was precisely the fact that it was an international standard as required by international trade and the transactions of the international money and capital market. It was the medium of exchange by means of which Western industrialism and Western capital had borne Western civilization into the remotest parts of the earth’s surface, everywhere destroying the fetters of age-old prejudices and superstitions, sowing the seeds of new life and new well-being, freeing minds and souls, and creating riches unheard of before. It accompanied the triumphal unprecedented progress of Western liberalism ready to unite all nations into a community of free nations peacefully cooperating with one another.

It is easy to understand why people viewed the gold standard as the symbol of this greatest and most beneficial of all historical changes. All those intent upon sabotaging the evolution toward welfare, peace, freedom, and democracy loathed the gold standard, and not only on account of its economic significance. In their eyes the gold standard was the labarum [(Latin) derived from the Roman, or Imperial, standard or symbol for which men live or die], the symbol, of all those doctrines and policies they wanted to destroy. In the struggle against the gold standard much more was at stake than commodity prices and foreign exchange rates.

The nationalists are fighting the gold standard because they want to sever their countries from the world market and to establish national autarky as far as possible. Interventionist governments and pressure groups are fighting the gold standard because they consider it the most serious obstacle to their endeavors to manipulate prices and wage rates. But the most fanatical attacks against gold are made by those intent upon credit expansion. With them credit expansion is the panacea for all economic ills. It could lower or even entirely abolish interest rates, raise wages and prices for the benefit of all except the parasitic capitalists and the exploiting employers, free the state from the necessity of balancing its budget—in short, make all decent people prosperous and happy. Only the gold standard, that devilish contrivance of the wicked and stupid “orthodox” economists, prevents mankind from attaining everlasting prosperity.

Mises agreed that the gold standard, “that barbarous relic”, was “merely” an historically determined institution, the use of which was not mandated by pure economic theory. However, it served such a useful function in promoting trade and productive activity that it had become a key institution in western societies up to the outbreak of the First World War.

Having lived through the economic and monetary upheavals of the war and its aftermath Mises was sensitive to the demands of the state that it be “freed” from the restrictions which the gold standard placed on its banking, credit, taxing, and trade policies. By the time he came to write the first edition of his magnum opus, Human Action (1949), the gold standard had become the symbol of the old capitalist order which had to be destroyed if states wanted to pursue policies of credit expansion and currency manipulation - which they all did. Mises continued to vigorously defend the gold standard as an essential non-state institution which could be used to defend the ordinary person from ruinous policies of the modern nation state.