The mainstream financial media is suggesting that the rising price of gold is nothing more than passing jitters. "Bets on Gold-Related Issues Reflect Events," The Wall Street Journal announced last month. "Gold Highest for Nearly Six Years on War Fears," splashed across the CNBC screen just last Monday. The New York Times blamed gold's rise on inflation fears, "a weakening dollar" and the looming war.

Prominent newsletters, meanwhile, say: Forget Iraq and North Korea-think bigger, and think historically. Richard Russell of the Dow Theory Letters kicked off the new year by announcing that "my choice for the sector to be in during 2003 is gold …. I believe that gold is in the early stages of a major or primary bull market." The refreshingly pessimistic Greed and Fear "remains firmly of the view that gold is at the very beginning of a multi-year bull market that will take the yellow metal many times higher than its present level. This is because gold is the only real hedge against the massive financial excesses that still prevail in the Western world."

Should phrasing so portentous make one quiver, or chuckle? The cranks, after all, are notorious "gold bugs"; they look on "fiat currency"-paper money made legal by law or fiat, but not backed by gold or silver-as a kind of fraud. During flush times, belief in gold seems hopelessly superstitious: Gold is beloved only by those who distrust the blizzard of financial activity that surrounds them in a boom, built as it is on easy credit. To them, gold remains the one "true" money. During the 20-year run-up in paper assets, the price of gold has plunged-from $850 a troy ounce in the early 80's to well below $300 in the late 90's-and the investing public has forgotten that faith in gold has a sound pedigree. John Adams declared, "Every dollar of a bank bill that is issued beyond the quantity of gold and silver in the vaults represents nothing and is therefore a cheat upon somebody."

Morerecently,JamesGrant summed up the respectable, if quasi-apocalyptic, case for gold. In a November issue of Grant's Interest Rate Observer , he wrote: "We on the fringe emphasize the impermanence of monetary systems …. The instability and contradictions of this system are what lead us to favor gold, paper money's antithesis." A gold standard enforces monetary discipline: It dampens inflation by imposing a brake on the minting powers of government, as every dollar printed represents a claim on a finite reserve of gold. If the dollars we spend on Hondas and brie can eventually be redeemed by the Japanese and the French for bullion, we must curb our national habit of consuming more than we produce. Since Nixon abandoned gold convertibility in 1971, the pessimists argue, easy money has financed a dizzy run-up in stock prices, an unsustainable housing boom and, perhaps most ominously, a yawning trade account deficit-the now-alarming discrepancy between what we import and export.

Fed Chairman Alan Greenspan years ago pronounced the dollar sound, and as long as "there is confidence in the integrity of government, monetary authorities-the central bank and the finance ministry-can issue unlimited claims denominated in their own currencies." But the true poet of paper money, and the confidence it's built upon, is Jason Goodwin, author of the best-seller Greenback , whose panegyric to scrip appeared in The Journal on Dec. 27. "Cold, old and remote, [and] it doesn't even pay interest," began Mr. Goodwin, looking down his nose at gold. Paper money does what gold never could: It establishes "a nation's right to life, liberty and the pursuit of happiness, the right to determine its own future. Currency is about self-control-the social contract in motion, the point where trust and promises elide, testament to our ability to live among ourselves and to frame our goals." Gold, meanwhile, "is a magnet for our wartime fears, it is only a brief outburst of irrationality in an irrational world, an atavistic sentiment, fleetingly indulged."

Who's Next?

What's the opposite of gold, if not the Internet analyst? Gold represents, to its fans, the fixity of value in an uncertain world. Henry Blodget's name has become synonymous, at best, with hope in a chimerical future; at worst, with institutionalized double-dealing. Saturday's Times brought with it news that the Wunderkind turned scapegrace-whose telegenic bullishness on Internet stocks made him one of the most highly compensated Wall Street analysts of the 1990's-will most likely be sued for fraud in the coming weeks. Regulators are apparently looking into the discrepancy between Mr. Blodget's public support of start-ups underwritten by Merrill Lynch, and his private disparagement of them over firm e-mail. They're also preparing to argue, according to The Times , that "Mr. Blodget's research reports were inappropriately influenced by Merrill Lynch's investment bankers."

The piece, co-written by the redoubtable Gretchen Morgenson, is notable for the language used to describe Mr. Blodget's claim to fame-his $400 price target for the then money-hemorrhaging online retailer, Amazon.com. "Mr. Blodget was perhaps best known for his December 1998 prediction that shares of Amazon.com … would reach $400 a share." The piece gently buzzes with classic Times deadpan, hinting at the ungoldlike, postmodern nature of the $400 call: Mr. Blodget's report was important for its prediction of a stock price, not an analysis of the actual worth of a company. By promptly rising to $400, Amazon in turn measured the power of Mr. Blodget's voice, the depth of investor credulity and the velocity of naïve money-not the intrinsic value of its business. "The stock surpassed [$400] less than three weeks later, largely because of Mr. Blodget's prediction." The item contained one small fudge, though: The Times pegged the current trading price at $20.52, but neglected to adjust for splits. This gives the false impression that Mr. Blodget was wrong by a factor of 20; he was merely off by a factor of 3.3.

It's easy to forget that many aspects of the American past were as messy as the present of "failed states" that we're engaged with now. I was in Afghanistan when I read Greenback , Jason Goodwin's history of the American dollar. There, where three different sorts of local money-besides dollars and Pakistani rupees-are in circulation, the confusions of the early history of American currency don't seem so distant, or so improbable.

We have mainly forgotten the many inconveniences of monetary transactions in the early days of the Republic. Mr. Goodwin makes them vivid: the myriad local banks, whose currency was good only in the vicinity; the chronic lack of small change that increased the cost of daily needs; the widespread use of Spanish, French and British money up through the Civil War. Most of us, with our dim ancestral recollections of a past of silver dollars, probably never knew that Massachusetts issued paper money before any European state, in 1691.

Mr. Goodwin, whose earlier books include a well-received study of the Ottoman Empire, Lords of the Horizons , gets at the essential point early: Americans accepted paper money readily because its artificiality made sense to those whose newborn society was also an artificial transplant. Still, until the 20th century, paper money had influential opponents who fought a passionate, losing battle for a currency issued in, or at least exchangeable for, gold or silver.

To entice us into this essentially abstract subject matter, Mr. Goodwin focuses on the men who tugged our currency this way and that. His brief biographies of Benjamin Franklin and Thomas Jefferson are especially apt, the sketch of Alexander Hamilton more perfunctory. Mr. Goodwin brings to light the forgotten achievements of Jacob Perkins, whose success at foiling counterfeiters in 1804 made the dollar secure; Nicholas Biddle, president of the Second Bank of the United States; his populist enemy, Andrew Jackson; Lafayette Baker, founder of what became the Secret Service; and many more, up through William Jennings Bryan.

Franklin was an early advocate of paper money, and Mr. Goodwin makes a vivid case for his importance, dimmed for a century by his calculating morality. Franklin argued that the expansion of the money supply by paper would lead to an increase in the price of land and encourage people to spend their money rather than hoard it for the interest it would bear. Lower interest rates, in turn, would encourage the opening of new businesses.

The American Revolution can be partly laid to the cause of paper money. At the very beginning of the Declaration of Independence are two little-noticed complaints blaming Parliament for ignoring laws enacted by colonial governments. The laws in question authorized printing money. The colonists had long printed paper money to pay for the cost of the French and Indian wars, and the British had tolerated the practice. But by 1764, when the British finally banned paper money, Canada had been secured and the Indian threat subdued. That this currency increased the prosperity of the colonies interested the home country not at all; the point of the colonies was to provide cheap natural resources, period.

Since the colonies had no money with which to wage war, they simply printed it: the now-infamous Continentals. As Mr. Goodwin points out, these were the earliest symbols of the United States. Creating its own money was the first act of the infant confederation-which goes some way toward explaining the American preoccupation with money that Europeans always remark. Mr. Goodwin comments that in times of economic or political stress, Americans tended to blame money itself, arguing for paper or for silver dollars, as the crisis of the moment suggested.

After Franklin, Mr. Goodwin turns to Jefferson, an early opponent of a paper currency. Though he argued against paper money on the grounds of its potential to corrupt, Jefferson was himself perpetually in debt. He tried freeing some of his slaves in his will, but his heirs sold them to pay creditors. It was nonetheless Jefferson who decimalized our money (except for the quarter, a legacy of the practice of physically splitting larger coins for scarce change).

From here on, the story is about ubiquitous counterfeiters, wildcat banks, bank runs and bank failures. Some of Mr. Goodwin's best anecdotes date from this era: Louis Remme's heroic horseback ride of 1855 to redeem $12,000 in gold that he had deposited in a bank in danger of failing, for example, and the exploits of the fabulously talented counterfeiters Taylor and Brendell. (From a jail cell in 1896, they used a homemade photographic emulsion and the light from a barred window to create a counterfeit plate that experts later thought had been made with an eight-ton press.)

It's almost with a sense of wistfulness that we read of the closing of the dollar frontier with the defeat of the Populists, the 1873 omission of the silver dollar from the list of accepted currency and the adoption, in 1890, of a gold standard. The Wizard of Oz , Mr. Goodwin reminds us, is thought by some to chronicle these struggles. He also makes the interesting point that the dollar reveals an unexpected conservative streak in American culture: The currency's appearance was frozen in 1929; 19th-century notes are still legal tender; and the $2 bill was a flop. Any further changes in our currency are likely to be in the direction of its disappearance, as electronic money replaces the paper item.

A Briton living in London, Mr. Goodwin observes our culture from a useful remove. The price to the American reader is the occasional false note that an editor should have tuned to the proper pitch: Mr. Goodwin refers to land being "platted" and Cotton Mather's "laager mentality," and talks of slavery expanding to the Southwest: "Alabama, Florida, Arkansas, Louisiana, Mississippi, and Tennessee." And where can he have found the evidence for the claim that among the things the English have sold to Americans are "computers" and "the Net"? These are quibbles, though. Jason Goodwin's thoughtful meditation on what Americans have made of the dollar, and what it has made of us, rings as true as the silver we've banished. Greenback offers many suggestive asides and some screen-worthy stories along the way. And especially in this time of financial unease, it's useful to be reminded that the impeccable dollar we take for granted had a long, hard birth.

Ann Marlowe is the author of

How to Stop Time: Heroin from A to Z (Anchor).