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buildings, are real
assets. It does not depend for its value on credit or on estimates of its
future earning power. Gold is at the same time a liquid asset. It is possible
in almost all circumstances to change gold into money or into other kinds of
money, at an hour’s notice; and in extreme circumstances, gold can be used to
purchase other goods when money is not acceptable. Gold is, therefore, the only
investment which is almost 100 per cent real and almost 100 per cent liquid.
    The classical argument against gold as an
investment is that it does not produce any income. In a period of price
stability this is a serious argument for confining investment in gold to a
small proportion of the total assets of an individual or of the reserves of a
nation.
    Gold, insists Rees-Mogg, is the only
investment which has the virtues of cash and the virtues of reality.
    M.S. Mendelsohn, a British economist, is an
opponent of gold. He points out that the use of gold as money went through four
important stages. The first, lasting about 2,000 years to the late 17th
century, was the era of the king’s money. Citizens brought the precious metal to
licensed moneyers who minted it, kept a small charge for themselves and passed
on seigneurage to the king for the use of the royal dies which gave the coins
their face value. The second and most renowned phase was the full gold standard
which prevailed in Britain during the century to 1914, and in the wider world
for the past forty years of that period. Official mints coined all gold brought
to them free of charge; all paper currency was convertible into gold at face
value; and the full freedom to import and export gold, which was an essential
part of the system, provided equilibrium between countries, though less
automatically in practice than in theory as it was customary for national banks
to cheat by borrowing gold from each other whenever a drain threatened unduly
harsh repercussions.
    Britain’s brief and notorious return to gold
from 1925 to 1931 was a return only to a modified standard known as the bullion
standard under which convertibility was limited to standard 400-ounce bars
(meaning that it was limited to the rich). This was accompanied by a first
experiment with the gold exchange standard under which national currencies were
no longer directly convertible to gold for international settlements, but only
through the medium of certain key currencies. After the war, this became the
basis of the Bretton Woods system under which foreign exchange holdings were
convertible into gold only through the dollar.
    General de Gaulle referred to gold in 1965,
‘which’ he said, ‘does not change in nature, which has no nationality, which is
eternally and universally accepted as the unalterable fiduciary value par
excellence’. “History,” says Mendelsohn, “contradicts these sentiments in every
particular.” It is for a start by no means true that gold enjoyed unbroken historical
primacy. For over a thousand years, to the late 13th century, Europe relied
mainly on silver and for the next 500 years there was continuous rivalry
between silver and gold. At the end of that period Britain became the first to
start drifting into a gold standard largely because the Indian trade was
draining it of silver. The use of precious metals did not ensure the stability
of money. Kings commonly debased the currency by ‘crying up’ the face value of
coins and by other means, usually to finance state expenditures, but sometimes
to meet the demand for more liquidity to finance the growth of trade. Henry
VIII, for example, devalued the English currency by no less than 60 per cent in
seven years. Medieval and renaissance Europe was a crazy quilt of fluctuating
currencies; 15th century Germany had about 600, and every important Italian
city had its own. There was constant arbitrage between currencies and between
gold and silver, ineffectually countered by controls on trade and bullion
shipments. Contracts came