Steil and Hinds on the Gold Standard

I wish I knew enough about the theory of money to offer a decent of appraisal of Benn Steil and Manuel Hinds, Money, Markets and Sovereignty (2009). It's got an irreproachable publisher (Yale); an honorable sponsor (Council on Foreign Relations) and an array of high-end endorsers. And yet it addresses a topic which I thought of as somewhere new the cold fusion of economic policy—the gold standard, its general virtues and its supposed superiority over mere “fiat money.”

Let's grant that “theory of money” is at least a potentially toxic subject—one that has generated about as much crackb-rained nonsense as, say, phlogiston. Let's grant also—thanks,I knew you would—that I am way above my pay-grade here: my general competence on this one is at the level of the barely informed amateur.

I may have been unintentionally hyped for Steill and Hinds by reading Barry Eichengreen, Globalizing Capital (1998 ), and in particular his history of the modern era, from Bretton Woods through Nixon's “closing the gold window” and beyond. Eichengreen is a superb narrator and (so far a I can tell) no fan of the gold standard. I found his history of the modern period maddening in its apparent complexity. But on sober reflection, I may not be the problem: it may be that the modern system is, in fact, a great adagio dance among smoke an mirrors which only keeps going because it can't quite figure out how to fall over.

Steil and Hinds strongest point is, I think, their argument about the place of “fiat money” (do I detect a sneer here?) in the panoply of monetary policy. Specifically: it's the last bastion of mercantilism. We believe in free trade in raw materials, in value-added resources, in ideas (properly hedged up by IP rights, of course). But in money, we are each sovereign (or supposed to be).

They couch their argument against an admirable (if brief) prehistory of the market idea. They trace at back to the pre-Christian Hellenistic era, when the night was long and the government far away; one had to learn how to define one's life on one's own. They conclude with another brief but equally penetrating account of the idea of sovereignty itself.

In between, they offer a lot of absorbing historical detail that I'd like to hear critically vetted. Did the gold standard in fact function effectively between 1870 and 1914 (reading Eichengreen creates some skepticism)? Is it true that there has never been a country that has not debased its fiat money (I can't think of one)?

If there is problem here, however, it is the one so often urged about leftist critiques: lefties, we say, are always comparing actual capitalism to hypothetical socialism. Here, I think we may a similar problem. Even granted the absorbing history, it seems to me that Steill and Hinds may be comparing actual fiat-money with a hypothetical system of non-state money (they themselves seem to concede that we aren't going back to 1870). The one thing we have (or should have) learned from the collapse of communism is that just getting the state out of the way is not the end of our problem. Even if we do get the state out of the way, what we want to find afterwards is a complex and subtle network of social relationships—property rights, rule of law, transparent accounting. None of these just happen. I suspect that reliable money doesn't just happen either, gold or otherwise. But this is a highly stimulating account on a topic about which I wish I knew more.

Afterthought: Benn? Does anyone pronounce the second "n?"