Roy W. Jastram The Golden Constant. The English and American Experience, 1560-2007, with updated material by Jill Leyland, Edward Elgar, 2009

Review by Pierre-Cyrille Hautcoeur (Paris School of Economics – EHESS), for the Journal of Economics.
The final publication is available at www.springerlink.com

"This new edition of Roy Jastram's The Gold Constant has been produced with the support of the World Gold Council. Roy Jastram's original text has been reproduced with no changes. Part III comprises additional chapters by Jill Leyland, former Economic Adviser to the World Gold Council" (p. xvii). "Founded in 1987, the World Gold Council is an organization formed and funded by the world's leading gold mining companies with the aim of stimulating and maximizing the demand for, and holding of, gold by consumers, investors, industry, and the official sector" (p. xviii). These quotes give one reason for the reprint of this book, which was originally published in 1977 by a retired Professor of Business at the University of California, Berkeley. The enduring fascination for gold on the part of many investors or central bankers is another reason, which the title (and cover: a gold bar) of the book actually reinforces.

Other arguments would have suggested avoiding a reprint: the book is mostly a compilation of statistics on the price of gold and on the cost of living (or other price indices), in England since the 16th century (sometimes the 14th) and in the United States since 1800. The analysis is very descriptive, mostly concerned with commenting periods of varying length, during which the gold price, the cost of living index or the real price of gold followed some apparently clear movement. Some of the various interpretations which have been proposed in the historiography are alluded to, but never seriously analysed and discussed, even less tested against each other. Actually, the historiography is largely ignored, and not only the one in languages other than English or the voluminous and important one published since 1977. The perspective is almost entirely national (UK and US), concentrating mostly on debasements and some other public policies, which makes it very narrow in the interpretation and explanations considered. The fact that the author has no training in history and has not considered deeply the meaning of very long term index building (especially the fact that technical innovation makes the comparability of goods and consumption baskets almost impossible in the long run) makes much of its contribution either little original (when historical explanations are given) or of little significance (for the macroeconomist for example).

The book is organized in three parts, two of which from the original book by R. Jastram, the third prolonging the story "after the gold price was freed, 1971-2007", by J. Leyland. The first part deals with "the English experience". It is by far the most detailed, including five chapters

(compared to three in part II and two in part III). After detailing the sources on the price of gold since 1343, the author studies commodity prices and the problems of building an index of them, before studying the purchasing power of gold over long periods (chapter 4) and in the Kuznets-Schumpeter-Simiand business cycles (chapter 5). Chapter 6 introduces to the history of the gold standard in the U.S. before turning to the purchasing power of gold during the nine periods of either inflation or deflation running from 1800 to 1976.  Chapter 8 provides remarks on the long run, as well as on the “Gold Nostalgia”. In part III, J. Leyland tells the story of prices, inflation and the purchasing power of gold after 1971, and provides some (very rapid) comparisons with four other countries (France, Germany, Japan and Switzerland).

The conclusions of the book are summarized as follows: “Gold is a poor hedge against major inflation. Gold appreciates in operational wealth in major deflations. Gold is an ineffective hedge against yearly commodity price increases. Nevertheless, gold does maintain its purchasing power over long periods of time” (pp. 132 and 175). In other words: gold’s relative price is unstable in the short and medium run but relatively stable in the very long run; precisely that long run in which not only everyone is dead, but even everyone’s children are dead, and structural changes in relative prices, consumption and the distribution of income and wealth makes it impossible to compare correctly standards of living. E. Elgar makes no help to scholarship when reprinting this book.