Fifty years without a gold-based monetary system is not only unprecedented in human history but unfriendly to economic prosperity, too. When President Nixon jettisoned the Bretton Woods gold-exchange standard on August 15, 1971, many thought it was temporary; but the balkanized, nationalistic non-system that followed has persisted, endorsed by Marxists, Keynesians, and Monetarists alike.

Most economists who examine the gold standard — a dwindling lot of us — focus on its history or mechanics, regardless of the different forms the standard might take and apart from whether they identify as fans or foes of gold-based money. Most economists today are foes, a pattern that developed in the 1960s. Few would say knowledgeably that they oppose the gold standard because it “didn’t work.”

The fact is that it worked efficiently, elegantly, and nearly automatically, especially when least managed or manipulated by monetary authorities. I contend that gold-based monetary systems were known for facilitating price discovery, profit calculation, private planning, saving and investment, international trade, and — consequently — economic prosperity. Efficient, practical success was most evident in the late 19th and early 20th centuries.

Gold-based systems were less successful when government hoarded and debased gold under the gold-bullion standard, which obtained between 1914 and 1948, and even less so under the gold-exchange standard. That, of course, was Bretton Woods, between 1948 and 1971, when the dollar alone was directly redeemable in gold (for foreign central banks) and then further debased.

The history illuminates how these three distinct versions of the gold standard tracked closely to the prevailing size, scope, and power of the United States government. A more limited government prevailed under the classical gold-coin standard; it was four decades with free trade, no income tax, no central bank, no welfare state, and no major wars. Subsequent versions were accompanied by massive increases in the welfare-warfare state.

During those versions — between 1914 and 1948 and between 1948 and 1971 — gold money suffered amid wars, deep recessions and depressions, systemic bank failures, and mass unemployment. Disingenuous observers, and perpetrators, of these various catastrophes falsely blamed the gold standard and capitalism, even as each was being assaulted in accord with the wishes of socialists and fascists.

Successively weaker versions of the gold standard between 1870 and 1971 mirrored successively stronger (i.e., more statist, more invasive) versions of federal governance. The welfare state has grown enormously but for electoral reasons can’t be sustained by ever-higher taxes; it needs more deficit spending, hence more public debt, more debt monetization and more fiat money creation. None of that is consistent with a gold standard of any type.

This alone explains why gold-based money was jettisoned and why its restoration won’t be easy. It’s not the mechanics that bar the path to monetary sanity; it isn’t difficult to end central banks and reinstate the gold standard. The problem is that central banks exist precisely to accommodate public profligacy; they won’t vanish anytime soon, to the extent fiscal profligacy persists–and it not only persists but intensifies the longer we lack a gold money.

The best that can be done in the near term is to make central banks adopt a gold price rule, an approach I’ve explained and defended elsewhere (“Real and Pseudo Gold Price Rules,” Cato Journal, 2020). Even this requires rulers to follow a rule; in today’s world, where objectivity and the rule of law are in retreat, any rule is dismissed by monetary central planners as too rigid, even dangerous.

In truth, these planners want to evade accountability; they also tend to like more statist government. The philosophical basis of the gold standard includes an individualistic ethic, a widespread love of liberty, robust entrepreneurship, respect for property rights, a constitutionally limited government, free trade, and peace. When these features are diluted, disdained, or dismantled, gold-based money necessarily leaves the scene.

More than a quarter century ago, I wrote that:

Free banking and the gold standard require a context of greater political freedom. All over the world, people have been protesting big government and voting for freer political systems. If the growing resentment of the failures of central planning and the growing respect for free markets grow further, free market money may be possible one day. The factual evidence of its past performance is a matter of public record — it must be taken seriously by monetary reformers. What is needed above anything else is a clear and unequivocal endorsement of the classical liberal philosophy held by America’s Founding Fathers.

Prospects for a gold-based monetary system in our future are as bleak as are prospects for liberty.

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Mr. Salsman, assistant professor of political economy at Duke and a senior fellow at the American Institute for Economic Research, is the author of, among other books, “Gold and Liberty” (AIER, 1995). Photo: Duke University Web site.