Is gold the barbarous relic?

We all know that John Maynard Keynes coined the phrase Barbarous Relic and we all know that he was referring to gold, right?

In fact, what Keynes actually said was:

“In truth, the gold standard is already a barbarous relic. All of us, from the Governor of the Bank of England downwards, are now primarily interested in preserving the stability of business, prices and employment, and are not likely, when the choice is forced on us, deliberately to sacrifice these to outworn dogma, which had its value once, of 3 pounds, 17 shillings, 10 1/2 pence per ounce. Advocates of the ancient standard do not observe how remote it now is from the spirit and the requirements of the age.” A Tract on Monetary Reform, 1924

If one reads the source, therefore, it can be seen that Keynes was not referring to the precious metal itself but to the version of the Gold Standard in use at the time.

Just as the Nixon government removed the tie to gold in the 1970s because of the need to inflate the money supply in order to pay for the costs of war, the combatants of World War One did the same. After the war, these countries returned to the Gold Standard but at a rate that was too high for the United Kingdom, whose economy had been severely weakened by the war. This meant that British goods were uncompetitive abroad and the decision caused a financial crisis in the UK and was highly criticised by Keynes.

Keynes was not saying that gold was a thing of the past with no value in the modern world, he was merely referring to relative rates of exchange. So the next time you hear someone talking down gold and writing it off as the Barbarous Relic, you can cheerfully explain that they do not know what they are talking about and put them right on the matter.

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