In its 2025 review, Ruffer reflects on a pivotal economic decision from a century ago: the United Kingdom’s return to the gold standard in 1925. Recalling Winston Churchill’s controversial move as Chancellor, the article explores the unintended consequences of hard currency policies and how they echo into the present investment landscape.
Churchill’s choice, driven by a desire to restore credibility and financial discipline after the First World War, saw the pound pegged to gold at its pre-war rate. However, this decision overlooked significant shifts in the global economy and domestic political environment. In particular, it ignored rising labour power, post-war inflationary dynamics and the emergence of the United States as the dominant financial force. The result was prolonged deflation, wage suppression, industrial unrest and, ultimately, deep economic malaise that contributed to the conditions of the Great Depression.
Ruffer highlights how the episode illustrates the danger of applying outdated frameworks to evolving economic realities. The gold standard, while effective in an earlier era of empire and limited democratic accountability, became unsustainable in a post-war world shaped by expanded suffrage, new social contracts and greater political pressure for economic inclusion. Monetary orthodoxy, when rigidly applied, failed to adapt to this shift.
The failure to acknowledge structural change in the 1920s offers a warning against complacency in assuming that past formulas will work under new conditions. Economic regimes evolve, often under pressure, and investment strategies must be designed to respond to such changes rather than remain anchored to outdated assumptions.
Ruffer Investment Company Limited (LON:RICA) is a British investment company dedicated to investments in internationally listed or quoted equities or equity related securities
