Gold!
John Maynard Keynes' “barbarous relic” is no longer money. There's plenty of it for use in jewelry. It bears no interest and suffers from wild swings in price. Yet we're seeing “gold rushes” in defiance of a weak economy.
The old gold standard was hated by populists, whose great illusion is that poverty can be ended by creating more money, i.e., a little inflation.
During the Depression, Franklin D. Roosevelt's think tank thought a little inflation was needed to drive up commodity prices to save farmers and reduce debt burdens.
One way to do that was to raise the price of gold, which was politico-speak for devaluing the dollar. FDR called in private gold in 1933, paying $20.67 an ounce, made private ownership illegal and raised the official price to $35.
This was the end of the “gold standard,” but the dollar was still evaluated internationally in terms of gold.
We got along without gold coins, which few people used, anyway. But the dollar did not inflate due to deep recession and trust in the U.S. government. In World War II, enormous expansion of currency and massive deficits cheapened it by about one-half, but war also ruined most other currencies. The dollar reigned supreme and, at fixed rates, became an alternative to gold in international exchanges.
Then President Richard Nixon's economists succumbed to the notion that a bit of inflation would increase employment (these guys, like the poor, are always with us), and in 1972 expanded the total money supply.
Cheap money raised prices; under the gold exchange system the French could swap dollars for gold, and they began to drain Fort Knox, where we kept our (sterilized) supply.
In 1973 we ended the gold-exchange system, removed the dollar from any connection with gold, made it legal and let the market set its price. The dollar was now worth only what the government said it was and could make stick.
