"Here is a paradox. Everywhere the leading monetary economists were contemptuous or skeptical of the importance of gold as money. Lenin is variously quoted as saying that in the classless society they would use the gold to pave the public privies, and economists of the capitalist "camp" have not been much kinder in their references to the metal. Some have proposed, with some acuity, that instead of keeping such a vast quantity of gold in vaults built deep in the earth at such expense, we simply dump it all into the sea. This school of economists, of whom John Maynard Keynes became the principal exponent, held that, more important than the intrinsic value of the standard were the wisdom and skill of the central bank authorities in controlling the quantity of money and the uses to which it was put. These objects the bank managers achieved by means of the official interest rate and by intervention in the market by buying or selling securities and thereby affecting the general flow of bank credit. So influential was this school that by mid-century few central banks were under any restriction so far as gold reserves were concerned, or as to the amount of circulating notes or bank credit they might create; they were governed only by their reaction to the movement of the price indexes, the indexes of employment and production and other criteria.

"It should be elementary that if gold has no importance for the individual, it has little monetary importance to governments, and can be dismissed in fiscal calculations. Gold reserves in the central banks would be about as useful as a warehouse of pork in Saudi Arabia. It is evident, however, that despite the general prohibitions on the ownership and trade in gold, and the protestations of theorists, gold remains of immense importance to individuals, and so long as it does it will be in short supply.

"The reason for this importance is not hard to discover: it lies in the corruptibility of governments and the uncertainty of peace. Until government administrators can so identify the interests of government with those of the people and refrain from defrauding the masses through the device of currency depreciation for the sake of remaining in office, the wiser ones will prefer to keep as much of their wealth in the most stable and marketable forms possible -- forms which only the precious metals provide."

The late Elgin Groseclose was a financial analyst and consultant, head of his own firm. At one time a specialist in Far Eastern finance with the U.S. Department of Commerce, he later became the first financial editor of Fortune magazine and also a university professor. He returned to Washington as economist for the Treasury Department. Dr. Groseclose was founder and president of the Institute for Monetary Research.