The Gold Standard Days in Word and Song
The Presidential candidacy of Ron Paul in 2008 was odd on any number of levels: his thin, dyspeptic, non-political countenance, his resignation to defeat from the start, his confrontational manner in dealing with the leaders of his own party. Oddest of all perhaps was his policy prescription abolishing the Federal Reserve Bank system and returning the United States to the gold standard, under which a unit of currency would be convertible into a fixed amount of gold. Many Republicans secretly agreed with some of his many criticisms of government intrusions and mounting government debts. His views on returning the country to the gold standard, however, struck much of the party as nothing short of insanity.
It was not always thus. The gold standard was the way in which the advanced countries of the world organized their monetary affairs and settled their accounts from roughly 1870 until 1914, and then again following the war sporadically and up until the early 1930’s. It was a period of great economic and technical progress.
Some conservative and libertarian thinkers have had a long love affair with the era. The gold standard limited a government’s ability to create credit and currency and therefore prevented debtors from devaluing their debts. Financial historians such as James Grant have regaled us moderns with tales of the glory that was the gold standard and of J.P Morgan’s central banking. The Austrian School economists and the followers of Milton Friedman approve of the tightly controlled growth in the money supply that was the essence of the gold standard. This fascination spilled over to the politics of the era, the willingness of the high government officials of the time to refrain from meddling with the operation of banking and free markets, and from the temptation to devalue the government’s debts. British Prime Minister Robert Peel, U.S. Presidents Grover Cleveland and Calvin Coolidge, French central bank president Emile Moreau were among the lions of the gold standard age.
The old photos leave the impression of an irrelevant, bygone era: the celluloid collars, the outlandish mustaches. It is almost useless to read the pronouncements of these gold standard bearers for insight into what held the system together; they were nearly all of them taciturn on economic matters, and to many of them the gold standard was a law of nature that didn’t need explaining. We must look elsewhere to find the stuff, the temperamental glue, that held the gold standard system together.
The amber-preserved essence of this gold standard world is found not in life but in art, specifically in the light operas of Gilbert and Sullivan that were so popular at the time. William Schwenck Gilbert, the odd librettist who got top billing over the author of the musical score, was the genius behind these artful comedies that so often poked fun at the powerful.
For those not up on their opera history, it is useful to point out how popular these Gilbert and Sullivan entertainments were at the time. From the 1870’s through the mid- 1890’s, their Savoy Theatre in London was the place to be, and opening night productions were the hottest tickets of the year. Their copyrights were valuable enough that the first productions were sometimes performed simultaneously in both Britain and the United States in order to secure the copyright in both jurisdictions. Their enthusiastic upper middle class audiences in London and New York, the financial nerve-centers of the gold standard world, were the staunch supporters of the gold standard system.
Modern sensibilities are easily put off by Gilbert’s corny, sentimental young tenors and the eye-batting young objects of their affection. The supporting characters, however, are often skillfully drawn caricatures of public figures. The sophisticated irreverence of these send-ups is a lost art.
The main reason for adopting the gold standard is to control the government’s issuance of paper money and credit, a control grounded in skepticism concerning governmental omniscience. Gilbert’s high government officials usually lacked anything even close to such. Lord Mountararat in the opera Iolanthe reflects on the record of the august legislative body of which he is a member:
The House of Peers made no pretence
To intellectual eminence
Or scholarship sublime…
When Wellington thrashed Bonaparte,
As every child can tell,
The House of Peers, throughout the war,
Did nothing in particular,
And did it very well…
And while the House of Peers withholds
Its legislative hand
And noble statesmen do not itch
To interfere with matters which
They do not understand,
Gilbert’s audience knew as well that government officials owed their posts more to palm-greasing and back-scratching than competence. The lawyer who becomes First Lord of the Admiralty in H.M.S. Pinafore confesses:
Of legal knowledge I acquired such a grip
That they took me into the partnership.
And that junior partnership, I ween,
Was the only ship that I ever had seen…
I grew so rich that I was sent
By a pocket borough into Parliament.
I always voted at my party’s call,
And I never thought of thinking for myself at all.
I thought so little they rewarded me
By making me the Ruler of the Queen’s Navee!
Gilbert’s audience found the idea of limiting the power of a government so constituted to be wholly desirable. He and his audience held out no such hope for the poor souls throughout the rest of the world living under autocratic, non-British, non-Western rule. The most imperial, and non-British, of Gilbert’s titled characters was the Mikado, the all-powerful leader of Japan, who sought to encourage young Japanese men to steady themselves and focus their energies,
So he decreed, in words succinct,
That all who flirted, leered or winked
(Unless connubially linked),
Should forthwith be beheaded.
Gilbert’s audience knew that an all-powerful Mikado, no matter how ridiculous, would never lack for sycophantic ministers, and Pooh Bah among them instructs young schoolgirls as follows:
I think you ought to recollect
You cannot show too much respect
Towards the highly titled few…
Gilbert trusted his audience to recognize the public spirited man, the do-gooder, for the public menace that he was. In Princess Ida an earnest young King Gama introduces himself:
If you give me your attention, I will tell you what I am:
I’m a genuine philanthropist – all other kinds are sham.
Each little fault of temper and each social defect
In my erring fellow creatures I endeavor to correct…
A charitable action I can skillfully dissect;
And interested motives I’m delighted to detect;
I know everybody’s income and what everybody earns;
And I carefully compare it with the income-tax returns;
But to benefit humanity however much I plan,
Yet everybody says I’m such a disagreeable man!
And I can’t think why!
What has happened to that Gilbert and Sullivan audience, that perceptive and “happy breed of men” that, on being confronted with such a philanthropist, would have gladly ignored him or quickly turned him out of any government post that he might have wrangled for himself?
The skepticism Gilbert assumed in his audience certainly extended to financial matters. In Utopia Limited, a Mr. Goldbury, investment banker, explains to a remote island people (who greatly admire all English ways) that they might organize their public finances along limited liability lines…
They start out with a public declaration
To what extent they mean to pay their debts.
That’s called their Capital: if they are wary
They will not quote it at a sum immense.
The figure’s immaterial – it may vary
From eighteen million down to eighteenpence…
They then proceed to trade with all who’ll trust `em
Quite irrespective of their capital…
If you succeed, your profits are stupendous –
And if you fail, pop goes your eighteenpence…
If you come to grief, and creditors are craving
(For nothing that is planned by mortal head
Is certain in the Vale of Sorrow – saving
That one’s Liability is Limited), --
Do you suppose that signifies perdition?
If so you’re but a monetary dunce –
You merely file a Winding-Up Petition,
And start another company at once!
Our contemporaries who were recently so horrified at the thin thread of capital that was used to balance the huge financial risks that came to such grief in 2008 would have been branded hopelessly naïve by the audience at the Savoy Theatre of the 1890’s. Gilbert’s great warning (from H.M.S. Pinafore) to those seeking clarity and transparency in human affairs, financial and otherwise, is that…
Things are seldom what they seem,
Skim milk masquerades as cream.
Gilbert’s contempt for the idea of governmental and financial omniscience spilled over easily into ridicule of intellectual pretension. In Patience, we hear Bunthorne (a parody of the then popular young Oscar Wilde) instruct…
You must lie upon the daisies and discourse in novel phrases of your complicated state of mind,
The meaning doesn’t matter if it’s only idle chatter of a transcendental kind,
And everyone will say,
As you walk your mystic way,
“If this young man expresses himself in terms too deep for me,
Why, what a very singularly deep young man this deep young man must be!”
If only the 1880’s audience who laughed out loud at this could somehow have been present in the Congressional committee room to hear the illustrious and Delphic Mr. Greenspan favor the nation with his Humphrey-Hawkins testimony!
A democracy anxious to elect a “transformative” chief executive, and imbue this politician with meaning and power that would have caused Louis XV to blush, is not the sort that would question the limits of the wisdom of such an official. Those hordes of investors who made savants of CEO’s showing growing profits on the strength of investing ever larger sums of borrowed money also lacked the skeptical spirit. The requirement to back a government’s currency with gold, or any other substance of fixed value, was one not of economic barbarism but of doubt regarding the value of paper money and the wisdom of the people empowered to create and manage it.
Daniel C. Munson
Daniel C. Munson has written editorial commentary for Barron’s and other publications.