The Original Gold Standard Did Not Submit Wage-Policies to Dictation But Made Them the Resultant of Impersonal Forces

Lord Keynes, however, is, I think, not right in saying that ‘the error of the gold standard lay in submitting national wage-policies to outside dictation’. The original gold standard did not submit wage-policies to dictation, by governing authority anywhere, but made them the resultant of impersonal forces issuing out of the disposition, and potentiality, of individuals to follow what they conceived to be their own interest. This system, as Professor Hayek points out, had many virtues, and we should be badly advised if we should throw away its virtues along with its imperfections. The automaticity of the gold standard was, per se, all to the good, and what we need is a similarly automatic system which will be free of the vices of the traditional gold standard. We should not forget that the once well-nigh universal adhesion to the gold standard was spontaneous rather than imposed, and that it was only after the gold standard had been subjected to varying national management, in an attempt to overcome the original objections against it, that it was abandoned by those countries that could not make their ideas on its management effective, that is, after (unstable) price levels had been imposed from without.

--Friedrich A. von Hayek, A Tiger by the Tail: The Keynesian Legacy of Inflation, ed. Sudha R. Shenoy, 3rd ed. (London: The Institute of Economic Affairs and the Ludwig von Mises Institute, 2009), 50.