No one can say that Nero panicked in a crisis. Panic can kill; but so can fiddling. This fall's gold rush is a case in point.

The dollar price of gold has doubled this year and gone berserk in recent weeks because some oil-rich Arab countries have begun to switch some of their brimming coffers of dollars into gold. Superimposed on this has been the inevitable froth of speculation by others hoping to turn a quick profit on a rising market.

This last is the classic recipe for an unstable market. Values cease to reflect anything objective, such as future earnings or a carefully weighed hedge against inflation, but instead depend on faith that the price will rise because it has risen.

As in 1929, such bubbles are blown and they burst. The consequences can be ruinous or slight, according to how governments and others react. The trick is to treat real symptoms radically and to disregard the froth.

The true roots of the gold spasm lie in a quarter of a century of gradually accelerating inflation, homegrown in the Western economies; in the profligate squandering of the world's limited oil resources; in the real difficulty that some large oil producers with small populations have in either spending or investing their huge revenues; and, sadly, in the supposed erosion of American will and ability to guarantee the integrity and stability of the whole Western political and economic order.

Inflation gradually undermined the old $35-per ounce gold price, though it would not by itself have justified a price anywhere near half today's absurd levels. For 20 years, up to 1973, it also steadily ate into the real purchasing power of the dollar price of oil, so that the oil producing nations, who were poor, found themselves having to supply more and more oil for less and less manufactured goods in return.

The squandering of the oil resource led to a situation in which it was foreseeable that the supply and demand trends for oil would cross over in the 1980s and make oil extremely expensive. It made sense for oil producers to stop selling oil at knockdown prices.

They thereby, incidentally, did the West an unappreciated favor, giving early warning of what the 1980s would bring in earnest. Amazingly, a financially super-orthodox Republican administration determined to reinforce the OPEC cartel by holding down the price charged to the consumer, thereby inflating the demand for oil, while printing dollar IOUs to pay the mounting bills. The waste of energy went on in the United States.

Meanwhile, the third root was at work: the oil producers, who were only acting prudently in either keeping their investment appreciating in the ground or selling it at a realistic price, faced their own problems. If they held onto the oil, their protectors in the West could collapse. If they took the money and spent it, they risked going the way of Iran. If they just held the dollar IOUs, they were ripped off by inflation. Other assets were difficult; and so they turned to gold, even at prices that now bear no relation to its useful value or to its value as a hedge against likely inflation.

Others now see this happening and try to jump on the bandwagon. Dark memories are kindled of past financial collapses.

Even in the United States now serious and sober men talk of a flight of capital and look for exotic havens abroad. The smell of financial panic spreads beyond the financial districts.

The erosion of confidence in American leadership, even when unfair or irrational, compounds the fear. This drives people to seek primitive refuges like gold, which have been shunned throughout the more optimistic era when man-made institutions were seen as progress from previous barbarous practices.

There are many things the U.S. government should not do, when much of what we have to fear is fear itself.

It should not plunge the U.S. economy into a deeper recession than is already inevitable, to curb inflation, in 1980.

Especially, it should not shatter the foundations of the Western prosperity and security by plunging into protectionism and exchange controls. That would set off an economic civil war within the West that would do more for Soviet geopolitical ambitions that could be countered by doubling the U.S. defense budget.

Nor should it do nothing. For a start the United States should stop fighting with its strongest arm -- namely, the price mechanism in a free economy, tied even temporarily behind its back.

The only mechanism powerful enough to induce over 200 million free Americans to use energy economically is to make it pay for them to do so. And, lest my own new role as a part-time consultant to an oil company be thought to have warped my judgment, let me add that it matters not for these purposes whether this is done by imposing a tax on the consumer or by deregulating prices, with or without a real or a phony windfall profits tax, so long as the price to the consumer, every time he uses energy, is giving him clear signals that he pays to ignore.

Two other things are needed. The United States should commit itself, credibly and for good, to stop fueling inflation by printing money; and, with much higher gas prices, that will mean higher interest rates until inflation falls back. Once inflation stops, the oil producers will be able to hold their reserves in dollars and get a higher return than gold gives them.

Second -- a candid friend is bound to say -- the world will look for signs that the American government and people can still come together in facing the realities of their world position. The world is tired of hearing, even when it knows it is applying higher standards to the United States than to itself, that necessary things are politically impossible or that it is all the fault of the man in the White House because he is not the Archangel Gabriel, Genghis Khan and Rasputin rolled into one.