There’s a standard story economists and historians use to explain the global economy over the last 100 years: there was the gold standard, which gave way to the Bretton Woods system, which gave way to “neoliberal globalization”. 

But on this episode of the Rhodes Center Podcast, Mark talks with someone whose work challenges this story by attacking its foundational myth with deep archival work. 

James Ashely Morrison is an associate professor of International Relations at the London School of Economics and Political Science, and author of the new book England’s Cross of Gold: Keynes, Churchill, and the Governance of Economic Beliefs. 

In it, he recounts the fight over Britain’s return to the Gold Standard after World War I, and comes to a bold conclusion: there never really was a “gold standard” – at least, not as we understand it. As James makes vividly clear, the “gold standard” was always more of an idea about a perfect state of the world, rather than an economic reality. As such, fights over it have always been less about actual monetary policy, and more about how people believe the economy is supposed to work. 

James’ work not only adds depth and nuance to this misunderstood turning point in 20th century economics. As he and Mark discuss, it also forces us to reconsider so many of the more contemporary stories we’ve been told about how our economy works, and why. 

Learn more about James’ book England’s Cross of Gold: Keynes, Churchill, and the Governance of Economic Beliefs. 

Watch the talk James’ gave at the Rhodes Center this Spring.  

[SOFT JAZZ MUSIC PLAYING] MARK BLYTH: From the Rhodes Center for International Finance and Economics at Brown University, this is the Rhodes Center Podcast. And I'm Mark Blyth, the Director of the Rhodes Center. There is a sort of standard story economists and historians use to explain the global economy over the last 100 years. It goes like this. There was this thing called the gold standard, where currencies were pegged to gold, which fell apart.

Then it was Bretton Woods where the dollar was pegged to gold and everybody else pegged to the dollar. And that also fell apart. Then came what we might call neo-liberalism or neoliberal globalization, which depending on who you ask, is now falling apart. But on this episode, I talked with someone whose work challenges the story in a fundamental way.

[SOFT JAZZ MUSIC PLAYING]

James Ashley Morrison is an associate professor of International Relations at the London School of Economics and Political Science. He's also author of the new book, England's Cross of Gold Keynes, Churchill, and the Governance of Economic Beliefs. By re-examining the fight over the gold standard in the UK after World War I, James makes a bold claim, that there never really was a gold standard, at least, not as we understand it today.

He argues that the gold standard has always been more of an idea than an economic reality. As a result, debates over the gold standard then and now are less about the best monetary policy and more about how people believe the economy is supposed to work. By challenging the standard story, James forces us to reconsider so many of the stories we've been told about how our economy works and why.

[SOFT JAZZ MUSIC PLAYING]

I started by asking him how he came to see the gold standard differently than he and the rest of us have been taught back in school. Here's James.

[SOFT JAZZ MUSIC PLAYING]

JAMES ASHLEY MORRISON: So I had learned about the gold standard in this standard way, and I had thought that it was this material automatic situation in which non-gold currency was, for all practical purposes and, basically, in reality, as good as gold. And if you followed these simple rules automatically, the monetary order would make sure that your currency was either gold or something as good as gold. And then I went and looked at how they tried to restore the gold standard after the First World War, and everybody sat down and said, OK, right.

We all agree on what the gold standard was. How do we get back to it? But they very quickly discovered that they didn't all agree on what the gold standard was or how it worked or, to some extent, even whether it worked at all.

MARK BLYTH: So let's dive in right with this one. That's a bit of a shocker. I understood automaticity the same way you did. So long as I have a credible commitment to keep my capital account open and people can exercise what Quinn Slobodian called the human right to capital flight.

Then if your currency is tied to gold at some prearranged level, that automatically keeps things in balance. And, yet, one of the most remarkable things, and the many remarkable things in your book, is you discover that after World War I nobody knew how much gold was in the country. Give us a flavor of how chaotic and uncertain people really were about the gold standard at the end of World War I.

JAMES ASHLEY MORRISON: So even before the war ends, the government realizes that they need to prepare for the post-war monetary situation. And so they convene a committee, which is often called the Cunliffe Currency Committee after the Governor of the Bank of England who was the Chair of that committee. And this is what I mean when I say they sat down to figure out what the gold standard was and how it had worked and how to get back to it. They brought different estimates to the table of how much gold had been, not just in official reserves, but in the whole of the UK, in the British Isles really, for the previous several years.

And they didn't really agree on how the quantity of gold in the UK connected to the operation of the gold standard. So you have really serious people who are all zealously committed to restoring the gold standard disagreeing about whether you needed 100 million pounds sterling worth of gold in the UK or as much as twice that figure. And, ultimately, they settled on the midpoint, 150 million pounds of sterling.

MARK BLYTH: That became the totemic value. So for people listening and, honest, who have now asked the following question, OK, that's fine. But can you just tell me why they were so committed to gold? What's the rationale? What is it that unites this class of people in this belief that gold is very important?

JAMES ASHLEY MORRISON: This is a big question, of course, and there were many different rationales. Some of them were contradictory. And, as perhaps we'll get to, Keynes really challenged these systematically. But the one that remained, the one that really mattered, was this point about credibility, tying the hands of the monetary authorities.

Everybody believed, except for Keynes, essentially, that if you didn't tie the hands of the monetary authorities, the Treasury and the Bank of England, that you would lose control of the monetary system and you would suffer hyperinflation. This was both a kind of cornerstone of the 19th century version of the gold standard. And then it was given fresh, new evidence when, in Central and Eastern Europe, they left the gold standard and suffered massive hyperinflation in the nineteen-twenties.

MARK BLYTH: So you've got that real world example out there and you have the Bank of England. But the Bank of England doesn't have a coherent view. It very much varies depending on who's sitting in the top seat. So how does it vary over time over this period between the end of World War I and the restoration?

JAMES ASHLEY MORRISON: So there are three governors at the Bank of England between Nineteen-Fourteen and Nineteen-Forty-Four The first is Walter Cunliffe who, you might remember, served on the Cunliffe Currency Committee, and he had, actually, a very progressive view. He believed that innovations in the financial system, particularly the use of cheques and other non-gold currencies within the economy, meant that the UK could get away with having far less gold in reserve than it had before. So he thought that 150 million pounds sterling was far too much, and that the UK might be able to go back under the gold standard at the old gold value with just 100 million pounds using alternative financial instruments, like monetizing debt. Then, his successor, Brien Cokayne, lunges in the opposite direction.

He's what I call ultra orthodox. And when he testifies before the currency committee as the new governor of the Bank of England, he actually says that he doesn't think we'll have a gold standard until there are gold coins, once again, jingling in our pockets. And he goes so far as to suggest, seriously suggest, encouraging people to cash-in notes, to get gold, to, A, demonstrate that you can get gold. But, B, more importantly, to force the Treasury a contract the money supply massively to force through the structural adjustment. And the third governor is the longest serving governor in Bank of England history.

That's Montagu Norman. He starts in nineteen-twenty, and he has a third orthogonal view of the gold standard. He is really reluctant to leave the gold standard, of course, but he wants to erect all kinds of, what were called, gold devices to try to limit the use of gold in the economy, people's access to gold, all kinds of surreptitious capital controls, even sometimes outright capital control.

MARK BLYTH: So [INAUDIBLE], because he's the most fascinating character in many ways. But I'm fully committed to the gold standard means, in simple terms, capital account openness and convertibility. But I'm fascinated by all these gold devices and controls. What's he up to? Square the circle.

They have always had token currencies. That is, currencies that are not themselves comprised of precious metals. So we've always had a system where some of the money was gold. Some of the money was as good as gold. And then some of the money was maybe as good as gold in certain contexts if you're able to exchange it in the market.

And so when Norman comes along in the nineteen-twenties and says, we should have capital controls, we should use gold devices, he's really talking about increasing those kinds of intermediary impediments between currency that people use in their pockets and getting gold itself perhaps for export. He wants to expand that, have less gold in people's actual hands, make it more costly, more difficult for them to do that. Again, it's not unprecedented, but it's a change of scale.

MARK BLYTH: So this is a bit like historians of the medieval period talk about [INAUDIBLE], big money and little money. And little money is a pain in the ass for the sovereign to make. And you just leave it to private actors. You don't worry about it that much. And then there's big money, and big money is for exports and for big powerful people to do stuff. So is that, basically, the frame that he's using in a sense, right?

MARK BLYTH: First of all, how do you do that in wartime? And. Secondly, you don't want any gold mines in Britain. And, three, you're bleeding money out to the young. So how was that possible?

JAMES ASHLEY MORRISON: Well, what happens is in Nineteen-Fourteen as war is declared, the Treasury does something which is unprecedented. His Majesty's Treasury prints its own currency, treasury notes, what are later called Bradburys. Now the Bank of England is a private institution, so they make very clear that these are not their obligation. Oh, we only print bank of England notes. You take a bank of England note to the Bank of England, we'll give you bank of England gold.

And so they're increasing their gold partly because the Treasury gives them some gold because, eventually, the Treasury makes those notes legal tender. So, in law and then even in practice within the UK economy during the war, the Treasury notes circulate alongside the Bank of England notes. And it's fascinating because some of the bankers who testify before the Commonwealth committee and then the subsequent currency committees try to suggest that there's a kind of premium on Bank of England notes, a kind of big money-type premium. This is the good stuff. We don't want those worthless treasury notes, which, by the way, were really terribly produced in the first instance.

Bank of England notes, big beautiful notes versus these little treasury notes. Well, those bankers who try to make that claim are rebutted. They're refuted. There is no premium in the UK market on the Bank of England note versus the Treasury note. And, again, it's printed in big letters right on the Treasury notes, these.

Are legal tender and so how does the bank have all these treasury notes, which are, ostensibly, redeemable in gold in the Bank of England's vault not have everybody come and cash them in? Well, you guessed it, gold devices and moral suasion. So this guy, Brien Cokayne, the one who wants gold in people's pockets, the one who wants to encourage people to cash-in their notes, proudly testifies about how he has used moral suasion to dissuade people from cashing in any of their notes, Bank of England notes or Treasury notes, for the gold itself. This, of course, gives Norman some ideas that maybe we can continue this on indefinitely in the years to come.

MARK BLYTH: So this is all beginning to sound very best sociological, if not, slightly, how can I put it? Well, your book is littered with religious imagery and iconography. It's quasi religious, right? I mean, it becomes a series of beliefs rather than anything it's firmly attached to reality. Let's talk about someone who pops up in the book and who you've done a tremendous job, not deliberately, but you have done this rehabilitating, and that's Winston Churchill.

Now, of course, I come from Dundee, and I know that you've got a slide of the tank and the main square in Dundee in Nineteen-Eighteen and all that sort of stuff. So he's a bit of a controversial character. But he's actually much more sophisticated than we think. He's an interlocateur of both Montagu Norman and also Cunliffe and, over time, Winston Churchill himself. How did the conversations amongst this very, very small group of elite guys shape what happens next?

JAMES ASHLEY MORRISON: So Churchill becomes Chancellor of the Exchequer in the autumn of Nineteen-Twenty-Four quite unexpectedly. I mean, one, you have the labor liberal coalition fall and the labor government fall, a bit unexpectedly, a bit rapidly. And then, two, Stanley Baldwin comes in as prime minister and decides to make Churchill Chancellor despite the fact that Churchill had, basically, no experience in financial matters, in anything related to the economy. At this point, he's probably best known for the disastrous invasion of Gallipoli the decade before. So here comes this guy who had done poorly, it would seem, as First Lord of the Admiralty, to come in to try to understand and then make policy regarding the British economy.

And in some sense, that becomes a strength that Churchill has because he doesn't come with a lot of preconceived notions. Now, by disposition, ideology party loyalty, he obviously wants to restore the gold standard for all the obvious reasons. But he doesn't have decades of economic orthodoxy drilled into his head. He is, of course, I think one of his stronger character traits, is he's a bit iconoclastic or, at least, willing to question the conventional wisdom. And he does that.

And, at first, I think he's doing it just to protect himself. He read the economic consequences of the peace. He saw what John Maynard Keynes did to Woodrow Wilson, how he pilloried him and made him look like a fool. And Churchill realizes early-on he's going to be responsible for the gold standard. And there's this guy, Keynes, now saying the gold standard is a disaster and we shouldn't do it.

So Churchill, in the first instance, is just trying to preempt Keynes's attacks, figure out how to respond to them. But, again, I'll criticize Churchill in a moment, but one of his positive traits in this instance is he had enough of an open mind that he began to see that Keynes had a point, that a lot of Keynes's criticisms of the gold standard seemed founded. As well, Keynes described this world after the First World War when they weren't on the gold standard and when everything seemed to be going relatively well. And so Churchill finds this quite appealing. Why do we need to go back to the gold standard?

Keynes says everything is fine. Everything seems fine. Do I want to commit a sin of commission or a sin of omission? And, ultimately, the Treasury and the Bank of England experts do persuade Churchill who, begrudgingly, accepts the return to gold. But Keynes's influence on Churchill is, actually, far deeper than we understand.

A lot of the innovations that Churchill and the governor of the Bank of England Montagu Norman bring to the "new gold standard" follow directly from critiques that Keynes had issued and from suggestions that Keynes had made.

MARK BLYTH: So Nineteen-Eighteen until Nineteen-Twenty-Four, you have capital controls. You have the wonderful named Cokayne basically, banging on about we need to have the most austere gold standard possible. But that's not really going anywhere. Things are OK, relatively speaking. So what do they hope to get by the restoration?

What is the restoration of gold? What is putting Britain on the cross? What does he imagine it's going to do? Because one of the things that comes across in the book is they're aware of the fact that it's going to lead to a very painful deflation. It's going to lead to a rise in unemployment. So if things are OK, why do you think they feel they need to do this?

JAMES ASHLEY MORRISON: This is a great question. It's one I struggled with all the time as I was doing the research and on writing on this book. And there is a wonderful battle of counterfactuals that plays out. The basic story is that war is declared and they pass the defense of the Realm Act, which gives the government massive control over everything, including the economy. Now they don't start to flex that muscle right away in the war.

They don't begin to really limit capital controls formally until I think, Nineteen-Seventeen or so. But they don't have to because the war itself, and particularly the submarine warfare, makes shipping gold extremely costly, very risky, and so nobody will insure it, as Keynes writes about. So you get this de facto capital control imposed by the war. And then what happens is the war ends, supposedly, in November Nineteen-Eighteen. Now, if we look at the actual legislation, the war didn't end as a legal matter from the standpoint of the government for some time thereafter.

But the government realized that the informal externally imposed capital controls of German submarines, u-boats, was no longer going to be operative. So they actually begin to liberalize capital flows between Nineteen-Eighteen and Nineteen-Twenty. Then in Nineteen-Twenty, for reasons that, I think, previous discussions have missed, the Conservative Party, Stanley Baldwin at this point, authors the legislation to extend the capital controls until the end of Ninet to create new, essentially, formal controls. Then, in that period between Nineteen-Twenty and Nineteen-Twenty-Five the Battle of Counterfactuals emerges. Keynes says, the gold standard is dead, is mutton.

Everything is fine. It'd be fine if you carried on just like this indefinitely. Churchill, however, becomes convinced by the other side. The orthodoxy tells Churchill that it's the promise to return in Nineteen-Twenty-Five that has allowed them this breathing space of five years. If you don't fulfill that promise, all the expectations will have been proven wrong.

People will panic. So we have to go back. Essentially, it's been priced in that we're going to go back. That's why things are going well. That's the Battle of Counterfactuals.

MARK BLYTH: That's great. I mean, you see this all the time in discussions of the economy. The reason that this didn't work is because we didn't try hard enough. The reason that things went bad is because we tried too hard. And it's just another version of that one neither of which are anchored in reality in any way.

Let's talk about partisanship and the way that sort of standard political economy models. Think about this because there's a rich literature on this. And it starts with the not unreasonable premise that asset holders, kind of like price stability if not outright deflation, that wage earners don't like too much inflation, but they like a little bit of it. So they have orthogonal preferences. This is related to party politics.

The left, basically, will trade off a little bit of inflation for a little less unemployment and the right does the opposite. And your book seems to suggest that that's deeply flawed because when you actually look into what the expressed preferences of groups are, they're actually the opposite of what the models would tell you. Give us a couple of examples of that.

JAMES ASHLEY MORRISON: Sure. So this is a great question. And I did spend quite a bit of time on this precisely because we have these political economy models that make so much sense and seem to be true in other contexts. So we projected these preferences back onto these interest groups and assumed that this must have been what they asked for and what they wanted. Well, I wasn't exactly satisfied with that because I started to find little examples where people did the opposite, like for instance, Churchill.

We've just talked about this conservative, who was a conservative at the time, who seemed very reluctant to go back into the gold standard. And then I started to find instances where, and in some of my other research, I was quite certain that I found instances where the Labor Party, and even the Labor Unions, were quite in favor of the gold standard. So that sent me into the archives. And I mentioned to you in a previous discussion, I spared no time and no effort on this project to try to get to the bottom of this. And I found that the Labor Movement was deeply committed to the gold standard and, ultimately, for reasons that made quite a bit of sense.

So there are two things to say. The first thing in all of these Union discussions and reports and so on, we find that they were very concerned about the rising cost of living, what we would say, as their decline in real wage. And they had the correct observation that during the war, all that increase in the money supply, all that government spending had driven up the price level, but driven it up faster than their wages had gone up. And so the real wage had gone down.

Their wages went up a bit, but the prices went up a lot. And so they saw the gold standard as a way to get deflation, which is what they wanted. They wanted prices to come back down a lot and assumed that their wages would only fall a bit.

MARK BLYTH: But how would they square that with the knowledge that this would create unemployment? Is it because we're in a pre-Keynesian understanding of unemployment where they're thinking about it as an individual market solution rather than, basically, consumption in the aggregate, which becomes a depression? Is that, basically, what's missing in that analysis?

JAMES ASHLEY MORRISON: Well, so they have a kind of monetarist theory. And they, in fact, are working with Left Wing economists, not a lot of those around at this point, so they're not Keynesians, of course, but also conservative orthodox economists. And they all have a version of monetarism such that they think that there will be unemployment, but once they get back to the pre-war equilibrium, things will go back to the way they were, which, of course, is their attempt to restore the UK's greatness, to bring back that imagined past.

MARK BLYTH: Do you recall that shock therapy?

JAMES ASHLEY MORRISON: (LAUGHS) That was more or less what many people said. But there's another factor here as well, which is key, which is that they accepted entirely the orthodox assumption, the expectation, the prediction, the warning that, if you go off the gold standard, if you trifle with that credibility, you are going to suffer hyperinflation, which was vastly worse than even high. 20% is what the labor unions estimated, 20% unemployment. They were willing to suffer whatever it took because hyperinflation, as they saw, again, in Central Europe, was so awful.

MARK BLYTH: So it's remarkable because we think about inflation these days, and we're back in the middle of an inflationary scale, and the same dynamics are still around. So there was a report the other day that came out of The Guardian that the median Americans firms profits has gone up 49% over the past, I guess, 12 months. And, yet, wages have only risen 1.6%. And, yet, what we're doing is all those wages are pushing things up when clearly that's not the case. It's profits that's doing it.

So there's a way in which the material story makes sense, but is always mediated, is always obfuscated through the way that we think about these problems. And that doesn't seem to have shifted much at all. Let's shift the terrain a little bit. You mentioned the word restoration. And a part of this, well first of all, being hoist on a cross of gold is deeply restorative in many ways, I suppose.

But there's a way in which you're telling the story, it's about Britain getting its mojo back. It's about its greatness. And it seems to be the case that every 50 years or so, it's always the Conservative Party in the UK, that does this. Let's start with after World War I. This one is the first restoration.

It's meant to bring back greatness. It causes a hemorrhaging of capital mass unemployment and the near collapse of the state. Go forward to, let's see, where we go to? The nineteen-fifties. Anthony Eden East of Suez restoring greatness only to be humiliated and have to drag your way back.

Thatcher's restoration of Victorian values in the nightwatchman state. And, most recently, Brexit, which is very much trying to restore a mythical past. So what I want to suggest, and I think your book makes it explicit, is that politics is driven by myths, isn't it?

JAMES ASHLEY MORRISON: Absolutely. The stories that we tell ourselves, and we tell others about ourselves, are hugely powerful. And for many people, not unreasonably, but for many people, they think the past exceeds the future. They don't like where things are going. There is, here I'll bring in some of this religious metaphor and analysis, which is this story of Paradise Lost.

When we were virtuous, we did things in what manner A, B, and C. And, look, now we've been profligate. We've sinned. We've done these bad things. And now we're suffering.

And now we're on a bad trajectory towards the hell of hyperinflation. We must restore our virtue. We must go back to that moment when we chose to leave the Garden of Eden and try to make a different kind of choice. And so I think that kind of thinking colors, again, not unreasonably, many people's views about these things. And the difficulty, of course, is that if that past is imagined, or if you leave important things out, you can end up creating catastrophe.

I said that I was going to criticize Churchill a bit, and let me just say a word about this. Absolutely, my time in the archives, really working through Churchill, trying to empathize with him as a policymaker, as a human being, made me appreciate the qualities of his mind and also, frankly, his own empathy for the suffering that he was sure was to follow. But at the same time, he imagined a kind of British imperial order, the 19th century, that doesn't really hold up to critical scrutiny. We're learning more and more all the time about his participation, or lack of action, in the face of the Bengal famine or, indeed, the Holocaust. And we see this in action and we rightly criticize it.

But there's a bit of a lesson here that maybe even Churchill today would learn about how we need to be humble ourselves about our ability to understand what has happened and what is happening in the world, and not be so confident that we can put Humpty Dumpty back together again, even if, indeed, we might prefer those old days, even if, indeed, we have the right notions about how to get there. Sometimes it's just not possible. We have to learn to look forward and move forward.

MARK BLYTH: So seen in that way was the gold standard and the understanding and the confused and partial and contested understandings that you document a kind of coordination of or totemic device that allows people to, basically, coordinate their actions around a place that they want to get to, even if it's impossible to get to. And that's perhaps why when it fails to get you there, you keep riding the bus because it really is an article of faith that you'll get there.

JAMES ASHLEY MORRISON: Yes, that's right. One of the things that I try to highlight in the book is just how important this particular thing was, the restoration of the gold standard. Now, some of your listeners, if they made it this far, are probably scratching their heads saying, gold devices, capital controls, what are these people on about? And I can't say I blame you. You and I find these things fascinating, but they're certainly esoteric.

Yet, at the same time, in the nineteen-twenties, everybody agreed, as Polanyi put it, this was the one thing, the essentiality of the gold standard, was the one thing that everybody agreed on. All the different members of the social classes, social philosophies, races, creeds, everybody agreed we need the gold standard. And they did elevate it to this incredible height as the single most important thing. From that, everything will follow. And that, too, is not unreasonable.

The gold standard is about the monetary system, which is about our property rights and everything. Really, if you control property rights and money, you control much of else of human experience. So it's not unreasonable that they put this kind of significance on. This it's just a horrible tragedy that they operationalized this monetary system in this completely unnecessary, unachievable way when they could have done something far more sensible as Churchill considered seriously and as Keynes proposed and as the UK, ultimately, did.

MARK BLYTH: How do you make sense of the past 40 years? If you will, the kind of neo-gold moment, only without gold? The move towards independent central banks, et cetera, is that, basically, just an echo from the past again?

JAMES ASHLEY MORRISON: I think it is. In fact, in some sense, I think it's unfinished business, and this is partly why I spent the time and energy to try to get this story right. Because we haven't gotten it right, and the mythology that we've created around these events, the gold standard, the restoration of the gold standard, all these misunderstandings, I think, that we continue to have, have shaped our political discussions, our political economy, and our economic policy these days. I'll give you a specific example. So in, I think, it was the summer of Nineteen-Forty-One with the axis rolling through the Soviet Union and the US quite far from joining the Second World War, John Maynard Keynes sat down to think up the post-war monetary system.

Now, of course, you know this and perhaps many of your listeners will as well, Keynes had been at the Paris Peace Conference, and he had seen Wilson come to the conference with the right liberal values, but completely unprepared. So Keynes in '41 was determined to right those wrongs to not make the same mistake. And his opening line to his first draft for what would become the Bretton Woods System was something to the effect of the following. The problem of imbalances of payments between countries has never been solved. And I think that's exactly what we face today.

We have different parts of the global economy. They grow at different speeds. Some of them want to be savers. Some of them want to be debtors, so on and so forth. And, unfortunately, so long as we continue to have our monetary policies and our economic policies organized on a national basis rather on a international basis the way that Keynes and White tried to organize things, we're going to continue to have these imbalances of payments.

We're going to see people like Charles Schumer, a Democrat, in the United States accuse China of undervaluing the exchange rate to promote their exports. Now, maybe he's right, maybe he's wrong, but this all follows from the same kind of fundamental challenge. When we don't have a way of trying to mediate between the different countries needs and desires and to share the prosperity globally, and to also, as necessary, share the difficulties, the pain that would come from something like COVID, then we are incentivizing countries to see their interests at odds with one another. And that is going to then make the politics within those countries all the more fraught. It's going to increase the tension between the savers and the spenders within those economies as well.

MARK BLYTH: So seen in that way, just as the gold standard was an imaginary but, nonetheless, kind of real, kind of real set of principles around which we could imagine how to reduce volatility in the system, what we've had for the past 40 years is a kind of epistemic community of central bankers with common beliefs that function, more or less, the same way despite not being gold.

JAMES ASHLEY MORRISON: Yes. So what happens, as your first book is all about this, so I can't say anything about this, I think, without saying in a less refined way, things that I've learned from you and from your research, but in the nineteen-seventies, the new belief is that we need to get back to the kind of Victorian morality. Now that, of course, was morality in the conventional sense, but also in terms of political economy. So we need to get rid of the bit government sector, tighten the belt, impose austerity. We need to contract the money supply, and the central bankers are going to lead the charge to do this, and we have to give them the independence required to do this kind of thing.

At the end of the book, I quote Paul Volcker, the US Central Banker, who said at the time, well, I didn't do anything. I didn't raise interest rates. The market pushed those rates up. So at the same time that they're doing these things and we're asking them to do these things for us because of our belief in the need to restore the old virtues, they're disclaiming that they're really doing anything at all.

And there's a tension there. There's a real tension there. I don't know why we assume that giving central bankers independence necessarily means that they're going to turn the cranks and wheels in this particular way. But somehow we assume that it does.

MARK BLYTH: Maybe because at the end of the day, all of this is distributional. It's not obvious how the distributions work out. Sometimes it is. And the trick for money, whether it's dressed up as a gold standard or whether it's dressed up as global derivatives or whether it's dressed up in whatever theory we want, is, essentially, a way of pushing around who benefits, who loses. And, if you're a central banker, you don't want to be identified as really making those choices when, in fact, you are.

JAMES ASHLEY MORRISON: This is exactly right. So a previous life, I did a little bit on study of law, and I even taught international law for a couple of years, which I quite enjoyed because it was quite different from my core interests, but in the same way that, say, the US Supreme Court says they're just interpreting the law, the Constitution, and applying it, they're not inventing law. They're not writing law. Well, they like to be beyond scrutiny for understandable reasons. So, too, are central bankers.

One of the points about the gold standard itself is that this is meant to really rein in the agency, the discretion of central bankers. We've got material stuff in the world. It's an element. We can't create more of it. It's gold.

And, ultimately, you have to have gold in your vaults. And the central bankers agency, his or her discretion is going to be controlled as a result of that material constraint. And the reality is that's just not what we saw. Even this situation where we're supposed to have the strongest material constraints didn't exist. They're able to significantly increase the money supply.

The gold-to-note ratio before the First World War was about 85% coverage. After the restoration in '25, it drops to 33%. 33% from 85%. And, yet, the price of gold in the London market is the same across both periods. So, evidently, they either had 2 and 1/2 times as much gold as they needed subject to their discretion or they are able to run the gold standard with vastly less. And there's a lot of room for agency there.

MARK BLYTH: And it reminds me of the great quip about Goldfinger. So you remember, Goldfinger--

[LAUGHTER]

--I think Goldfinger is '67 or something like that.

JAMES ASHLEY MORRISON: Could be.

MARK BLYTH: [INAUDIBLE]. And for those of you who don't know, this is the James Bond film Goldfinger. And the plot is we're going to blow up Fort Knox by irradiating

[INTERPOSING VOICES]

--gold supply so the dollar will collapse, whatever. And I forget who it was that said it. It might have been Leo Melamed, the trader, around the same time who said, well, you can't irradiate the bureau markets--

[LAUGHTER]

--because that's really where the dollar's come from. So where we think things are and where we think things are tied to value is absolutely not really where they are.

JAMES ASHLEY MORRISON: I completely agree. And the point here is not to try to pick winners and losers about this historical figure or that one. We're trying to empathize and understand their constraints and glean insight from them. But also to promote a more open and frank conversation about how a lot of decisions are being made that have massive consequences for people. And we should have that in a Democratic and open way rather than behind closed doors with committees of these guys in London ordering the global financial system according to their, essentially, folk theorems and hunches.

MARK BLYTH: And also their naked greed and interest.

[LAUGHTER]

And, on that note James, thank you very much for joining us.

JAMES ASHLEY MORRISON: Thanks so much for having me. This was wonderful.

[SOFT JAZZ MUSIC PLAYING]

MARK BLYTH: This episode was produced by Dan Richards and Kate Dario. I'm Mark Blyth. You can listen to more conversations like this by subscribing to the Rhodes Center Podcast wherever you listen to podcasts. We'll be back soon with another episode of the Rhodes Center Podcast. Thanks.

[SOFT JAZZ MUSIC PLAYING]