American Dream narrative justifies people’s desire to purchase expensive cars,
extravagant homes, and other lavish consumer products and services. The
narrative has probably boosted the real estate sector, both directly through
consumer demand and indirectly via government support, or expected future
government support, should anything go wrong in that market. On the other
hand, the American Dream as embodied in the desire for homeownership played
a strong role in the US housing boom before the 2007–9 world financial crisis
and thus added to the severity of the crisis.
Today, the American Dream narrative justifies conspicuous consumption and
the ownership of a pretentious house, in stark contradiction to the frugality
narrative that was popular during the Great Depression. The American Dream
narrative offers a justification for feeling proud of one’s accomplishments, a
sense of moral rectitude. The gold standard narrative, to which we turn in the
next chapter, has a similar moral theme.

Chapter 12
The Gold Standard versus Bimetallism
Especially prominent among perennial economic narratives, the gold standard
narrative dating back over a century remains somewhat active today. For
example, President Donald Trump has repeatedly advocated a return to the gold
standard in the United States. In a 2017 interview, he said:
We used to have a very, very solid country because it was based on a gold
standard.… Bringing back the gold standard would be very hard to do, but
boy, would it be wonderful. We’d have a standard on which to base our
money.1
Stated simply, bringing back a gold standard means defining the nation’s
currency in terms of a fixed unchanging amount of gold, and the government
promising to redeem currency in gold or to do the reverse, on demand, so that
the currency is perfectly interchangeable with gold. The world solidly
abandoned the gold standard in 1971. Since then, countries have used fiat money
—that is, money not backed by anything.
Central banks (with the notable exception of the Bank of Canada)2 still own
gold, though gold no longer backs their currency. According to the World Gold
Council, central banks and finance ministries around the world own a total of
33,000 metric tons of gold, worth approximately $1.4 trillion US dollars.3 But
gold doesn’t back the currency, so why do central banks hold it?
US Congressman Ron Paul asked the US chairman of the Federal Reserve,
Ben Bernanke, why the Fed holds gold and not diamonds. Bernanke gave a
candid answer: “Well it’s tradition—long-term tradition.”4 Bernanke was
apparently referring to narratives and to the idea that central banks are
apparently worried about stories that upset the public if a central bank rids itself
of its gold holdings. Some people even think the United States is still on the gold
standard, or at least have no clarity that it is not.
We shall see in this chapter that narratives about gold and money have a
peculiar emotional tone, analogous to the emotions we see in cryptocurrency

narratives today. There is a mystique about gold and money and innovations, and
a mystique about pretentious theories on these topics. This mystique is difficult
to explain.
The stories of gold and the gold standard are not simple. In fact, in history the
gold standard has long been associated with prolonged deflation and other
economic problems. In addition, the narratives about the gold standard have
historically been sharply divisive and acrimonious, much like the cryptocurrency
narratives in recent years. Let us look first at this long tradition, at the
nineteenth-century excitement about gold, and see how it persists today and how
it has recurred in mutated form with the cryptocurrencies.