This zero hedge obsession with the gold standard and simplistic view that if it were reinstated the problems listed would be largely eliminated makes it hard to take them seriously. You know who also is not on the gold standard? Every other country where a large range of conditions exist.
> This zero hedge obsession with the gold standard and simplistic view that if it were reinstated the problems listed would be largely eliminated makes it hard to take them seriously. You know who also is not on the gold standard? Every other country where a large range of conditions exist.
I'm unfamiliar with zerohedge beyond this article, but I can empathise with any fond remembrance of a fiscal system that wasn't (intentionally or otherwise) designed to provide a perpetual and ineluctable boom-bust cycle.
I wasn't alive at the time, though I was present for Australia's following of the crowd (the global peer pressure was enormous by then) as we floated our AUD. The reason, comically stated at the time, was that 'it hasn't worked anywhere else, so maybe it will work here'. We adopted the same mantra for the introduction of GST (a la UK's VAT).
Anyway, I'll often recommend John Ralston-Saul whenever the subject of Bretton Woods comes up - he had this to say, tritely, in his Doubter's Companion (1994):
"A system for international financial management and stability which was put in place by the Allies, minus the Soviets, in 1944 and destroyed in 1973 by President Richard Nixon without consideration being given to a replacement.
"Nixon hoped in this way to solve some short-term American economic problems by re-creating the sort of financial disorder in which the largest power would be best placed to benefit. It could be said that this was the single most evil act undertaken by an elected leader in the postwar period. Other leaders should not be discouraged, however. The opportunity to do worse is perpetual."
His concern (fleshed out much more seriously in his other works) is not so much that the gold standard was by any measure The Best System, but rather that replacing it with a demonstrably even worse system was a horrendously woeful decision.
An addenda for anyone whose interest was piqued by that quote -- the book is a truly delightful anthology of pithy/laconic/dire observations, conveniently sorted into alphabetical order -- and related to the above (filed under Bretton Woods) was this gem, under the heading HOLY TRINITY - LATE TWENTIETH CENTURY:
"The main tenet of faith in the last quarter of the twentieth century has been the promise of a rational paradise reached through devotion to competition, efficiency and the market-place. In this fashionable and remarkably intolerant Holy Trinity, the role of the Father is taken by competition, of the Son by efficiency and of the Holy Ghost by the market-place.
"If these three mechanisms could be presented with both their strengths and their flaws, they would be valuable tools in a stable society. Treated as absolutes they quickly drag society into a confused and dangerous state where conventional wisdom is reliant on our denial of what we know to be wrong.As with our earlier worship of saints and facts, there is something silly about grown men and women striving to reduce their vision of themselves and of civilization to bean counting. The message of the competition/efficiency/marketplace Trinity seems to be that we should drop the idea of ourselves developed over two and a half millennia. We are no longer beings distinguished by our ability to think and to act consciously in order to affect our circumstances. Instead we should passively submit ourselves and our whole civilization—our public structures, social forms and cultural creativity—to the abstract forces of unregulated commerce. It may be that most citizens have difficulty with the argument and would prefer to continue working on the idea of dignified human intelligence. If they must drop something, they would probably prefer to drop the economists."
That faith also come with the tendency to see companies as timeless entities which are to be served by people (i.e. gods), instead of being just a mean an end of providing wealth to society (i.e. tools).
The boom bust cycle was much worse on the gold standard because when it busted, there was no way to stop it, and it could be manipulated by anyone with enough gold.
We had the gold standard during the Roaring 20s, and we had the gold standard during the Great Depression in 1929.
But it would appear that the way they are stopping the boom-bust cycle is by steadily giving ownership of everything to the 1%. I'd rather own more wealth that busts occasionally than the 1%'s wealth stays stable and high and I can't own a house.
The wealthy under the gold standard during the Gilded Era was DRAMATICALLY more wealthy and powerful than today. The Carnegies and Rockefellers, who owned American society during the gold standard in the 1800s, would be about 5X-10X more wealthy than our Musk and Bezos.
The idea that you would own more wealth under that standard is laughable. We are far more equitable today than we were in that era. Our concept of the middle class largely didn't even exist in their era. They paid everyone poorly and kept them under control.
What's good for the goose is good for the gander. I'll reply to people doing that by using their own arguments.
Based on the replies to me, the gold standard is the panacea for every ill in society. We'll all be rich, the wealthy will be torn down, we'll all be home owners, there will never be another bust, etc etc
It probably won't do any of that. But it does make it a lot harder to print money and hand it over to the wealthy without people figuring out who is paying the bill.
i have the impression, that abandondonment of the gold standard did create a kind of corrupting mindset, that goes as follows "if we can manipulate he CPI, so that it appears that there is no inflation, if we can create money out of nothing with tricks like quantitave easing, then we can do anything". This mindsets creates a kind of collusion between the establishment and the media. This collusion protects the consensus from further questioning - a kind of feeback loop sets in. (but that may not be true either, there was plenty of hypocrisy when the gold standard was in effect)
I'm not sure how much of what you're describing was limited to the USA for the span of 42 years, and how far it can be extended to the rest of the world, and a longer time frame?
Ralston-Saul's book 'The End of Globalism' is a heavy read, but does dive into this with a significantly more serious tone. There's doubtless many other works on the subject, from myriad angles.
Certainly it's difficult to argue that since 1973 everywhere that's abandoned the gold standard, toeing the line as it were, has not suffered a sinusoidal cycle.
EDIT: Apologies, I failed to properly respond to your assertion:
> The boom bust cycle was much worse on the gold standard because when it busted, there was no way to stop it, and it could be manipulated by anyone with enough gold.
Is there a way to stop a bust in the a post-Bretton Woods? Are there some examples that you could cite where this has been done? (Australia's relative success through- and post-GFC I think is often held up as an example of something -- however it was, as is often the case, some accounting shenanigans whereby the selling of assets was shuffled into the revenue column.)
Follow-up -- do you consider the point of TFA to be that anyone with 'enough money (gold)' can manipulate the system to ensure legislative, and therefore legally binding, retention of that wealth (gold) is better, worse, or much the same?
> Certainly it's difficult to argue that since 1973 everywhere that's abandoned the gold standard, toeing the line as it were, has not suffered a sinusoidal cycle.
The same ups and downs existed on the gold standard, but much worse. From June 1919 to March 1933, when the US was on it, headline inflation started off at >15%, dropped to -15%, gyrated between 4% and 0%, was negative for a while in the 1920s, and dropped to -10% once the Great Depression started.
As a comparison, during the post-2008 period, it dipped to for a short period to -1% and then stayed positive but below 4%. 23 times less variance.
> Is there a way to stop a bust in the a post-Bretton Woods?
The busts in the post-BW era are a lot less worse than the busts under the gold standard AFAICT. And as we saw in 2020, large busts can be buffered by dropping rates and increases liquidity on the monetary side, and stimulus spending on the fiscal side.
This is standard Keynes:
> I would summarize the Keynesian view in terms of four points:
> 1. Economies sometimes produce much less than they could, and employ many fewer workers than they should, because there just isn’t enough spending. Such episodes can happen for a variety of reasons; the question is how to respond.
> 2. There are normally forces that tend to push the economy back toward full employment. But they work slowly; a hands-off policy toward depressed economies means accepting a long, unnecessary period of pain.
> 3. It is often possible to drastically shorten this period of pain and greatly reduce the human and financial losses by “printing money”, using the central bank’s power of currency creation to push interest rates down.
> 4. Sometimes, however, monetary policy loses its effectiveness, especially when rates are close to zero. In that case temporary deficit spending can provide a useful boost. And conversely, fiscal austerity in a depressed economy imposes large economic losses.
Your argument feels compelling, but I'm hesitant to embrace it fully given we're talking about ~50 years (post-BW) and a single country as an example (most western, and many other, countries embraced a floating currency as a response to this Nixon-change).
Depending how you measure it, the gold standard existed for a half century - so about as long as it's been gone, now - or perhaps much longer, at least de jure if not de facto.
(Economics still feels to be a lot of bluthering about in the dark.)
I'm wary about ascribing too much weight to the (exclusively) US experience since the 1970's, as the culture there skews both assessments and comparisons - which is basically what TFA is all about.
Comparisons to early 20th century elite are doubtless valid from a purely quantitative perspective, but perhaps less convincing in the abstract (coming back to TFA) of gross inequality (income & wealth).
For economic cycles, see point 5: Gold recessions could last for years.
The gold standard made the Great Depression worse; see Bernanke† and James (1991):
> However, Temin (1989) argues that, once these destabilizing policy measures had been taken, little could be done to avert deflation and depression, given the commitment of central banks to maintenance of the gold standard. Once the deflationary process had begun, central banks engaged in competitive deflation and a scramble for gold, hoping by raising cover ratios to protect their currencies against speculative attack. Attempts by any individual central bank to reflate were met by immediate gold outflows, which forced the central bank to raise its discount rate and deflate once again. According to Temin, even the United States, with its large gold reserves, faced this constraint. Thus Temin disagrees with the suggestion of Friedman and Schwartz (1963) that the Federal Reserve's failure to protect the U.S. money supply was due to misunderstanding of the problem or a lack of leadership; instead, he claims, given the commitment to the gold standard (and, presumably, the absence of effective central bank cooperation), the Fed had little choice but to let the banks fail and the money supply fall.
> For our purposes here it does not matter much to what extent central bank choices could have been other than what they were. For the positive question of what caused the Depression, we need only note that a monetary contraction began in the United States and France, and was propagated throughout the world by the international monetary standard.
I recommend Money: The True Story of a Made-Up Thing by Jacob Goldstein, which goes over some situations where various countries have switched to and from 'fiat regimes' over the course of history before the modern age.
As for economic cycles, in the GS/pre-BW regime US economic growth was 2.81% with a variation of 4.46%, while in the non-GS/post-BW world the numbers are 2.75 ±2.06%:
And the later years are also including inflation from the Vietnam War and the oil shock: hardly regular events. Take those out and the variation would probably be even lower. Once Volcker tamed the oil shock, the Fed has managed to run a pretty tight ship when it comes to inflation:
> I'm unfamiliar with zerohedge beyond this article, but I can empathise with any fond remembrance of a fiscal system that wasn't (intentionally or otherwise) designed to provide a perpetual and ineluctable boom-bust cycle.
Look at the boom-bust cycle in the second half of the 1800s. We were on the gold standard. We still had horrific crashes in a perpetual boom-bust cycle. To think the gold standard wasn't giving regular crashes requires ignoring all economic history before World War II.
They may have a fondness for conditions as they exist in their imagination, but the reality of life on the gold standard was much less rosy...
It's really weird watching people declare the gold standard to be the way to prevent a boom-and-bust cycle. It's hard to imagine a way for history to more directly prove somebody categorically wrong.
Usually there's at least some question of viewpoint, or value judgment, or some other way where two people can reach different conclusions from the same facts, especially in economics. But there's simply no way to know anything about American history and believe that the gold standard solidified its economy.
It's like flat-earthing for economics. I'd have thought that impossible for such a vague and poorly-defined field.
> It's really weird watching people declare the gold standard to be the way to prevent a boom-and-bust cycle.
Au contraire.
I don't think a gold standard prevented such a thing.
I do think that it was irresponsible to lurch into the current (post 1970s) arrangement without more thoughtful preparation, or at the least, higher expectations than 'more of the same, slightly ameliorated'.
Claims regarding previous boom-bust cycles (under vastly different socio-economic structures) and wealth inequality (Rockefellers, Carnegies, etc) to my mind fall under the category of whataboutism.
If we've just risen above the worst possible scenarios, it's only due to a poverty of expectations.
Yeah using the gold standard limits the pace of progress of society to the pace of which gold can be mined, which is a completely arbitrary unnecessary limit ever since printed money was invented.
The problem is using an inherently inflationary currency that is tied to usury. Now, every single person is affected by interest whether they deal with it or not. This is immoral.
Any rate over 0% is immoral. This is how we have it in Islam. Loans are strictly an act of charity. Otherwise, there are moral and ethical ways to invest your money that are not predatory.
The modern economic concept of tying wealth directly to economic output was a huge step.
What it stepped towards can be considered anything from utopia to irrecoverable disaster. Some people closer to the latter end of the scale consider economic limiters like deflationary currency (bitcoin et. al) and gold/silver standards as a good thing.
Who is right? I don't know if any individual human can, in the space of a single lifetime, really have the breadth of experience and insight to choose the right option.
The dollar was pegged at $35 from 1933 to... was it 1973? In what sense had the US abandoned the gold standard in the 1930s? What is your definition of the gold standard, where the dollar pegged to gold isn't enough to mean you're on the gold standard?
It's funny how the time of the gold standard was the other time in US history where it was a banana republic but I'm sure that's a coincidence and not a collary.
>This zero hedge obsession with the gold standard and simplistic view that if it were reinstated the problems listed would be largely eliminated makes it hard to take them seriously. You know who also is not on the gold standard? Every other country where a large range of conditions exist.
When the developed world went off the gold standard it flipped how taxation works. Without a gold standard, the fiat money + government no longer can tax.
Mind you, the 'gold' factor doesnt matter. Maybe it's a crypto standard or oil or something. It doesnt matter but right now it's broken. If the USD and all these other currencies dont go back on a standard, it effectively means a caste system will form.
Instead, you have the endless pressure to drop taxation, but the government can only pretend to drop taxation. If you look at the USA, every single tax break has been entirely fake with no actual or real net change in taxation. Fully intentional because nobody can touch that.
> You know who also is not on the gold standard? Every other country where a large range of conditions exist.
Every other country follows usa. After the second world war finished europe was reconstructing and depleted of any financial power
so america set the tone in finance since it was the biggest winner. That s how we got the removal of the gold standard and dollar as the reserve currency for every other country.You make it seem as if every country reached the conclusion that gold standard must go by itself.
I disagree, and that is fundamental point. It is not just one view, you can pretty much check the different authors or find the original sources and they are not in agreement.
Propaganda is useless, but calling bullshit on another certain countrys propaganda, that is refreshing.
