Reform UK published 'Our Contract with You' a while ago, and although the idea is not fully formed, there are hints, including from public statements from Richard Tice MP, that they are toying with the idea of a return to the gold standard. I have been explicitly asked to comment on this, and given the importance of the issue, I am happy to do so.
The idea of returning to the gold standard is pure economic fantasy. It is, however, a fantasy with dangerous consequences, not least because of the increase in inequality that would result in the UK. That needs explanation.
First, the gold standard needs explanation. Under such a system, the amount of money in circulation is linked, and is sometimes directly tied to the quantity of gold a country holds in its reserves. Money, in effect, becomes a token for a fixed quantity of gold, and governments are restricted in the amount of currency they can issue. The result is that the capacity of the state to act flexibly, or even adequately, is bound by the meaningless amount of metal that it possesses, held in a vault.
Second, this has nothing to do with the modern economy. The gold standard was abandoned for good reason: it made democratic management of the economy nigh-on impossible. If money cannot expand with the needs of a growing population and economy, the only way to redistribute or reallocate is through deflation and forced austerity, both of which are deeply harmful. There is no macroeconomic space for discretion under the gold standard: someone must lose for someone else to gain. Everything is a zero-sum game, but the real economy is nothing like that at all. It is dynamic, but the gold standard is linear.
Third, and most crucially, this scarcity promotes inequality. A gold standard might restrict the money supply, but not the number of people, or their needs. As the population increases, or as the economy demands investment, or the government wishes to supply more services, the limited quantity of money would lead to increasing competition for increasingly scarce money because of the deliberately imposed constraint on its availability. Unsurprisingly, those with power and assets, who already have the most money, would win since they would already hold all the aces, and so inequality would grow.
Fourth, this would lead to profound economic and social harm. With limited money available:
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Investment would slow as interest rates would rise in a scramble for scarce monetary capital.
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Wages would be suppressed to contain inflation, or worse, to 'restore economic equilibrium', which is itself a meaningless concept.
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Public services would be slashed because the state could no longer create money to fund them and would instead have to pay heavy interest costs to, in effect, borrow money from the wealthy, or seek to impose tax rates that would create political backlash in the wealthy-owned media.
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The poorest would be hit first and hardest, because the system would demand they carry the burden of “balancing the books” while the wealth of the asset-owning class remains protected.
Fifth, and it is vital to make this clear, if the gold standard were to be used, economic growth —whether of the sustainable variety or otherwise — would have to be constrained unless new gold was discovered or imported. A totally artificial constraint would prevent it from happening. And if the growth in question were to manage the crisis created by climate change, that too could not happen. Meanwhile, if the population kept growing, as is likely in the UK for a long time to come, this constraint would, on average, mean that real incomes must fall, unless some get more by ensuring others get less. That's the precise mechanism by which inequality is engineered into the gold standard system, as we can only presume that Reform wants by promoting it.
Sixth, none of this is accidental. Those promoting a return to the gold standard do so because they want to restrain the state. They want money to serve the interests of the wealthy, not of society. They want the government to be unable to invest, unable to spend, and unable to redistribute. That is not a bug of the gold standard: it is the point of it, and always has been.
So let me summarise what is at stake here. A return to the gold standard would:
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Strip the government of its ability to respond to crises, whether economic, environmental, or social.
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Undermine employment, growth and investment.
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Institutionalise inequality by embedding scarcity into the monetary system.
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Empower those with existing wealth at the direct expense of the majority.
This proposal is, then, not only backwards-looking, but it is also profoundly unjust. The gold standard is a system designed to serve the wealthy and disempower democracy. It removes from elected government the tools required to serve people and deliberately hands power back to unelected holders of capital. If we care about equality, justice, or the health of our economy, we must oppose any return to the gold standard. Money is a tool to serve society, not a means to bind it, as Reform suggests it should be.
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And given that Bitcoin aims to have an absolute limit on supply, similar arguments about using crypto apply? Assuming they all similarly aim to limit supply. Also notwithstanding their use as speculative betting instruments, in effect.
Yes, that’s right. Both the gold standard and cryptocurrencies move from endogenous money creation to a system analogous to the mythical loanable funds theory so beloved of neoclassical (orthodox) economists.
Under a loanable funds model consistent government deficits (which are required for economic growth) cause a rise in interest rates until the private sector stops lending and debt deflation sets in.
One of Farage’s side grifts is promoting the buying of gold as investment.
https://www.theguardian.com/politics/2025/jan/07/nigel-farage-paid-189000-last-year-by-gold-dealer-to-work-four-hours-a-month
Agree with all. Who gains? Amongst others: London Bullion Market Association (look up the market making members).
Did you know: London stores:
“gold and silver physically held in London vaults is currently more than 7,700 tonnes of gold and 33,700 tonnes of silver. The gold alone is valued in excess of $330 billion, more than the reported value of the metal held in Fort Knox, Kentucky and second only to the entire holdings of the US Government.”
Pressure for a move to gold will continue becuase it will move yet more power from govs to bankers.
Agreed
Nothing to add here for me – you said it straight.
You could ask at what point a fixed monetary system like it could be more viable.
For example, if there was a budget surplus so there is a means to put something aside for unexpected events. If the population was declining so the fixed supply was not being shared thinner and thinner. Just those 2 conditions aren’t expected any time soon in the UK.
They still wouldn’t make it a good idea. It’s just a jingoistic call to return to a mythical ‘prior better time’. It is popular mostly with those who feel increasingly out of touch with modern society who desire as simpler time.
For all that this blog rails against neoliberal economic policies, it should be clear that further evolution of policies is necessary rather than a regression to one that was abandoned for good reason.
But no government ever needs to put money aside for a rainy day.
This is a meaningless, household analogy, concept.
Devil’s advocate here…
Doesn’t our current combination of Rachel Reeves and the “household analogy” do all those bad things already? Haven’t we been effectively pretending we were still on the gold standard for nearly half a century with neoliberal macro-economics?
With the household analogy, we serfs get all the benefits of austerity without having to worry about the price of the shiny yellow stuff?
(Fa***e is returning to his metal trading roots?)
You are very largely right….
Thank you, Richard.
You roll back the years.
Soon after the 2010 election, a colleague, head of government affairs, and I met Steve Baker at Portcullis House and tried to talk him out of lobbying for a return to the gold standard. It worked in a fashion as he and his Cobden Centre gang later espoused crypto.
When I caught up with my parents over supper, I mentioned it to dad. He wondered how someone like Baker became an RAF officer and an MP.
So do I
But then, my uncle was a Wing Commander and quite the most racist person my sons have ever met – and they think they have met a few
You might enjoy this from the Church Times.
He struggles a bit with the question about sewage and “too big government”!
Mostly, for both political and theological reasons, I couldn’t follow his logic at all.
https://www.churchtimes.co.uk/articles/2022/29-april/features/features/power-is-a-disgusting-awful-thing-steve-baker-mp-interviewed
Thank you.
Baker was MP for the neighbouring constituency.
Baker was (is?) an engineer, that was his RAF officer role, I believe.
So one can understand his tendency to try to use inappropriate physics analogies in economics. (Remember the economy model using water tanks and pipes?)
But why then he’s a climate science denier, who knows?!
I’ve noticed a few of my less politically inclined colleagues talking about gold standard recently, it seems to be a bit in vogue at the moment.
I think its advantage is that it’s easier to grasp mentally and explain than fiat.
in the pandemic Sunak created £400 bilion.
Could a Chancellor do that if on the gold standard?
I suspect, like 1931, in the face of large scale crisis , it would be abandoned.
No, they could not
It would have to be abandoned, but the harm would still have been done
financial crises happen regularly. The gold standard wasn’t much help in the Great Depression in 1933.
How would we have coped in 2008 if we were “under” the gold standard?
another Greek tragedy like the 2010s with the “help” of a new troika?
In other words, we vitally need what most of the mainstream and Rachael Reeves deny exists – the Magic Money Tree. If they are right , and it doesn’t exist, there is no “problem” to be solved and no need to change anything.
A timeline regarding the Gold Standard, with sources, can be found on my own web site at:
https://www.mmt.works/money-from-gold-standard-to-labour-standard/
Thanks
That’s an excellent website. Thanks for sharing. I will be referencing it often.
Another thing a return would do, despite us having the 2nd largest supply of gold in the country, we would still need to import to grow as you said. This then makes the UK even more at the mercy of other countries, especially where gold is mined. This would be an incredible amount of power to hold over another country by being able to effectively cripple all growth to it by restricting supply.
Which are the top 5 gold mining countries?
China
Russia
Australia
Canada
USA
The top 2 countries accounting for more than the other 3 combined, approximately, and not especially friendly. Oh and neither is the USA anymore.
“This proposal is, then, not only backwards-looking, but it is also profoundly unjust. The gold standard is a system designed to serve the wealthy and disempower democracy.”
Well certainly.
That is right, but it is also the *point*. The Reform cynics leading the less able populace and the easily led know that the latter may be made to believe any old crap such as the credit-card model of government, so the gold standard – which has nice, reassuring resonances with things like Olympic success – sounds good, prudent and tidy, so they might well vote for it.
Churchill abandoned the Gold Standard at the start of each World War.
Economists today claim that printing money must cause inflation.
Was there inflation after the end of the two World Wars?
Did Britain prosper?
Since the gold standard was abolished in 1971, so much new fiat currency has been created that there cannot be enough mined gold worldwide to support it without their being a major revaluation of the value of gold. This would be totally impractical.
True
Can’t believe any serious politicians are peddling this nonsense.
Oil (money) lubricates the machine (economy). Restrict the supply of oil and the machine grinds to a halt and then shrinks until it suits the amount of oil.
Madness.
Richard,
You rightly pickup on the issues for public money. But the government isn’t the only place money is created. And we didn’t have a ‘vibrant financial services industry’ the last time the gold standard was in place.
I assume returning to the gold standard would force a rewriting of banking regulation – and High Street banks would only be allowed to loan a multiple of the amount of gold they owned with a trashing of their balance sheets and a house price crash?
Or am I missing something?
You are right: capital controls would be required
We might need those anyway – but for other reasons
The gold standard would, though, fundamentally change banking
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