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Keynes in Main Points

Auri Sacra Fames

by John Maynard Keynes - 1930

The choice of gold as a standard of value is chiefly based on tradition. In the days before the evolution of representative money, it was natural, for reasons which have been many times told, to choose one or more of the metals as the most suitable commodity for holding a store of value or a command of purchasing power.

Some four or five thousand years ago the civilised world settled down to the use of gold, silver, and copper for pounds, shillings, and pence, but with silver in the first place of importance and copper in the second. The Mycenaeans put gold in the first place. Next, under Celtic or Dorian influences, came a brief invasion of iron in place of copper over Europe and the northern shores of the Mediterranean. With the Achaemenid Persian Empire, which maintained a bimetallic standard of gold and silver at a fixed ratio (until Alexander overturned them), the world settled down again to gold, silver, and copper, with silver once more of predominant importance; and there followed silver's long hegemony (except for a certain revival of the influence of gold in Roman Constantinople), chequered by imperfectly successful attempts at gold-and-silver bimetallism, especially in the eighteenth century and the first half of the nineteenth, and only concluded by the final victory of gold during the fifty years before the war.

Dr. Freud relates that there are peculiar reasons deep in our subconsciousness why gold in particular should satisfy strong instincts and serve as a symbol. The magical properties, with which Egyptian priestcraft anciently imbued the yellow metal, it has never altogether lost. Yet, whilst gold as a store of value has always had devoted patrons, it is, as the sole standard of purchasing power, almost a parvenu. In 1914 gold had held this position in Great Britain de jure over less than a hundred years (though de facto for more than two hundred), and in most other countries over less than sixty. For except during rather brief intervals gold has been too scarce to serve the needs of the world's principal medium of currency. Gold is, and always has been, an extraordinarily scarce commodity. A modern liner could convey across the Atlantic in a single voyage all the gold which has been dredged or mined in seven thousand years. At intervals of five hundred or a thousand years a new source of supply has been discovered the latter half of the nineteenth century was one of these epochs and a temporary abundance has ensued. But as a rule, generally speaking, there has been not enough.

Of late years the auri sacra fames has sought to envelop itself in a garment of respectability as densely respectable as was ever met with, even in the realms of sex or religion. Whether this was first put on as a necessary armour to win the hard-won fight against bimetallism and is still worn, as the gold-advocates allege, because gold is the sole prophylactic against the plague of fiat moneys, or whether it is a furtive Freudian cloak, we need not be curious to inquire. But we may remind the reader of what he well knowsnamely, that gold has become part of the apparatus of conservatism and is one of the matters which we cannot expect to see handled without prejudice.

One great change, nevertheless probably, in the end, a fatal change has been effected by our generation. During the war individuals threw their little stocks into the national melting-pots. Wars have sometimes served to disperse gold, as when Alexander scattered the temple hoards of Persia or Pizarro those of the Incas. But on this occasion war concentrated gold in the vaults of the central banks; and these banks have not released it. Thus, almost throughout the world, gold has been withdrawn from circulation. It no longer passes from hand to hand, and the touch of the metal has been taken away from men's greedy palms. The little household gods, who dwelt in purses and stockings and tin boxes, have been swallowed ed by a single golden image in each country, which lives underground and is not seen. Gold is out of sight, gone back again into the soil. But when gods are no longer seen in a yellow panoply walking the earth, we begin to rationalise them; and it is not long before there is nothing left.

Thus the long age of commodity money has at last passed finally away before the age of representative money. Gold has ceased to be a coin, a hoard, a tangible claim to wealth, of which the value cannot slip away so long as the hand of the individual clutches the material stuff. It has become a much more abstract thing, just a standard of value; and it only keeps this nominal status by being handed round from time to time in quite small quantities amongst a group of central banks, on the occasions when one of them has been inflating or deflating its managed representative money in a different degree from what is appropriate to the behaviour of its neighbours. Even the handing round is becoming a little old-fashioned, being the occasion of unnecessary travelling expenses, and the most modern way, called "ear-marking," is to change the ownership without shifting the location. It is not a far step from this to the beginning of arrangements between central banks by which, without ever formally renouncing the rule of gold, the quantity of metal actually buried in their vaults may come to stand, by a modern alchemy, for what they please, and its value for what they choose. Thus gold, originally stationed in heaven with his consort silver, as Sun and Moon, having first doffed his sacred attributes and come to earth as an autocrat, may next descend to the sober status of a constitutional king with a cabinet of banks; and it may never be necessary to proclaim a republic. But this is not yetthe evolution may be quite otherwise. The friends of gold will have to be extremely wise and moderate if they are to avoid a revolution.

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