Wednesday, February 23, 2011

Gold Standard Versus Market Economics

Steven Bryan has just published a remarkable book: The Gold Standard at the Turn of the Twentieth Century: Rising Powers, Global Money, and the Age of Empire.


 “This book is about the gold standard and how it came to be adopted worldwide at the turn of the twentieth century in ways and for reasons that had less to do with fealty to English power or English theory than with realpolitik concerns of national power, prestige, and anti-English competition. It was a use of the gold standard distinct  from neoclassical ideas, English influence, and late twentieth century and early twenty-first century ideas of market economics.”

“Since Britain had been the first country to fix the value of its currency to gold in the nineteenth century – and was by the mid-nineteenth century the world’s primary financial and trade power – setting a fixed value of one’s currency to gold meant, in practice, fixing the value of one’s currency to the British pound sterling. It was, in short, similar to countries in the 1990s, such as Argentina and Thailand, that fixed the value of their currencies to the U.S. dollar.”

“The chapters that follow show how the gold standard emerged outside of Europe in the late nineteenth century as a tool of nationalists and protectionists intent on fostering domestic industry and imperial expansion. In so doing, the book shifts the center of gravity for the gold standard from a cosmopolitan world of free markets, economic liberalism, and laissez-faire to one in which nationalist concerns with infant-industry protection and military power dominated.”

My comment:

This is quite coherent with my analysis (in The Second Twentieth Century) of the last quarter of the nineteenth century as the beginning of the era of centralization, imperialism and decline of democracy, which was to last until the mid-1970s and the contemporary information and communication revolution. 

It may also explain why the major powers tried to reinstate the gold standard after WWI, not, -- contrary to what they said -- , as a return to classical liberal policies and free trade, but much in accordance with the dominant protectionist, statist, and authoritarian trends of the late nineteenth and early twentieth century. Their mistake then would not have been in the designing of the wrong policy, dissonant with the general trends of the period, but of going too far in the dominant direction of market fragmentation and protectionism, and of adopting, in the pursuit of these policies adapted to the conditions of the time, extreme disequilibrium and  unsustainable exchange rates.   

Advice to the "goldbugs" who advocate a return to the gold standard as an example of a classical liberal, pro market policy “par excellence”: beware of what you wish for !

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