Review of In Gold We Trust—The future of money in an age of uncertainty
By Dave Birch
Just as I put down this enjoyable read by Matthew Bishop, American Business Editor of The Economist, and the economist Michael Green, I saw that the Indian government has doubled the import duty on gold (to 4%) having already doubled it at the beginning of the year. Why? Because massive gold imports have led to widening current account deficits as money flows out of the country to pay for them. It seems that gold’s ability to bend the trajectory of money remains, pun intended, unalloyed.
The authors say at one point that money is “a technology invented by humans to help us to get things done.” Absolutely. It’s a technology: the Bank of England and £20 notes are not laws of nature! This is why it is so important to develop the debate around the future of money. We are about to undergo a seismic shift in the nature of money, possibly triggered by a near-future euroquake. Money’s foundations will crumble, its walls will fall. And then it will be time to rebuild for the post-industrial economy just as it was for the industrial economy. Then we saw the invention of the central bank, paper money, industrial coinage and the gold standard. What will we see a generation from now?
The current version of the technology (Money 4.0, by my reckoning) is fiat national currency. It’s showing signs of failure and is surely due a refresh soon. Which means that, while it’s reasonable to observe that new technologies do take some time to percolate through society, a generation now money will look as different to us as the money of 1717 did to the people of 1687. I couldn’t agree with Bishop and Green more that money is subject to the same “rules” of innovation as any other technology (including our welcome friend, the law of unintended consequences) and this makes it very hard for them to make specific predictions, but it doesn’t stop them from asking important questions. Will new forms of money be invented? If they are, will they be better than gold or “traditional” fiat currency? And what does “better” mean in this context anyway?
One thing that “better” might mean is “more reliable store of value” and therefore “efficient mechanism for deferred payment”. In which case, as the authors show, gold isn’t quite the technology that the “gold bugs” proclaim. In their brisk and informative history of the gold standard from Newton to Nixon they make it clear that the history of this particular mechanism for managing international monetary affairs is not one of undeviating stability and prosperity. So better doesn’t mean gold. Perhaps an alternative technology might be acquired through innovation.
The focus of Silicon Valley-style innovation to date has been on the mechanisms for storing and transport fiat currency (apart from some early experiments with Beenz and Flooz and the like) but perhaps the focus is now shifting. A great many potential moneyers will have read Facebook’s S1 declaration with interest, noting that they saw more than half a billion dollars revenue from Facebook Credits last year. Google may well have shelved “Google Bucks” for the time being, but they and others will be back, because just as English thinkers wanted a currency capable of supporting the nascent English industrial revolution so Mark Zuckerberg, Sergei Brin and other internet revolutionaries want currency capable of supporting the next wave of commerce, trade and prosperity, money founded not on central control and paper but mobile phones, the internet and competition. (Whether Mark Zuckerberg might be the John Locke or the John Law of post-industrial money it is impossible to say!)
We have the technology to reinvent money, certainly. But if it’s not going to be electronic fiat currency, then what will this new money look like? The authors say that “as we try to understand how to improve money in the 21st century, the ideas of these two rival 20th century intellectual giants are a great place to start on a journey that could end at a range of destinations from a recommendation to buy gold to the use of an algorithm to build an entirely new virtual currency”.
They are, of course, talking about Keynes and Hayek. Keynes saw no need for a return to the gold standard after the war and he was implacably opposed to Churchill’s insistence on deploying the weapon of mass deflation. The authors seemed to me to agree that whereas his alternative (the synthetic global currency) might make sense on paper and in an ideal world, Hayek’s prescription for competing private currencies might afford a better prognosis in this one. I think I detect a slight tilt toward Hayek – I share the authors’ animal sentiments here – and while in the book the authors only really look at gold and Bitcoin in detail, I support their observation that (as Hayek thought) we might reasonably expect many forms of private currency to develop in the post-fiat world and there is no reason to imagine that only a single alternative will emerge.
Personally, I think that some of the hankering for the single alternative of gold, while well-founded in its suspicion of government management of fiat currency, is tinged with a misplaced nostalgia for a simpler time. The renewed interest in a gold standard is therefore both a reflection on uncertain economic times and the first step on a path of monetary innovation. We might not know where that path will take us, the authors argue, but we do know that it will take us away from the technology of government-controlled fiat currency.
In summary, an enjoyable read with thought-through conclusions that helped me to clarify my thinking on an important topic. The only uninteresting section of the book is the chapter on whether to invest in gold or not, which seemed oddly out of place and doesn’t add to the narrative.
In Gold We Trust? The Future of Money in an Age of Uncertainty (Kindle Single)