No Gold Standard in the 1920's

[Jerry Kraus]

The Gold Standard -- effectively tying available currency to tangible assets in precious metal -- was considered an essential means of avoiding catastrophic inflation and the destruction of the currency in the 1920's in Europe and the U.S. They feared the worthless currency of the Wiemar Republic, for example, as the worst possible outcome. As a result, taxes tended to be raised, and spending cut, by governments anxious to ensure that their currencies remained stable. Modern economists often blame everything from the Great Depression to the rise of Adolf Hitler to the Second World War to the Jewish Holocaust on rigid adherence to the Gold Standard. Is this reasonable? What happens in politics and economics in the world, if Britain and the U.S. simply don't apply the Gold Standard in the 1920's?

 

[MichaelWest]

Our modern world. During the Great War the belligerent economies shifted off Gold and onto fiat currency to allow for growth, fund the war and keep the economy working, post-war Germany effectively never left cash for Gold. Gold has limits and it served well enough post Bretton Woods. My best guess is that it feeds the inflationary growth of economies but retards the return to global trade. London and New York should be able to re-impose Gold but I think currencies get more flexibility in exchange. In its way Gold fed the American hegemony, undercut Gold and I think you see more room for Britain to hold on to global finance, especially in any scenario with the British not indebted by the Great War. Imagine oil being traded on Gold not Dollars?

 

[Jerry Kraus]

Our modern world. During the Great War the belligerent economies shifted off Gold and onto fiat currency to allow for growth, fund the war and keep the economy working, post-war Germany effectively never left cash for Gold. Gold has limits and it served well enough post Bretton Woods. My best guess is that it feeds the inflationary growth of economies but retards the return to global trade. London and New York should be able to re-impose Gold but I think currencies get more flexibility in exchange. In its way Gold fed the American hegemony, undercut Gold and I think you see more room for Britain to hold on to global finance, especially in any scenario with the British not indebted by the Great War. Imagine oil being traded on Gold not Dollars?

So, you're suggesting the British Empire might last longer, and be more stable perhaps? Possibly Gandhi sticks to British Imperialism, rather than becoming a social revolutionary? You're aware Gandhi actually signed up to fight for the British Empire during WWI, but, following, he became an ardent Indian nationalist. An excellent politician, Gandhi.

Presuming the Depression is less deep, without the Gold Standard, and if, as well, as you suggest, Britain is more powerful, for longer, then maybe no rise to power of Adolf Hitler, and no WWII?

 

[MichaelWest]

So, you're suggesting the British Empire might last longer, and be more stable perhaps? Possibly Gandhi sticks to British Imperialism, rather than becoming a social revolutionary? You're aware Gandhi actually signed up to fight for the British Empire during WWI, but, following, he became an ardent Indian nationalist. An excellent politician, Gandhi.

Presuming the Depression is less deep, without the Gold Standard, and if, as well, as you suggest, Britain is more powerful, for longer, then maybe no rise to power of Adolf Hitler, and no WWII?

Without the Great War the Empire has far more longevity. No, I never assume India is staying in the Empire but the remainder "white" Dominions likely stay more coherent without one or both World Wars. Without India the Empire is less relevant in many ways but as a trading bloc and self defense alliance it ushers in the modern world we know post-WWII. But I have a very altered back drop.

Taking the USA out of the Great War should eliminate the Depression, even as a deep cycle recession it has far less domestic impact and with a stronger Britain it likely barely ripples across the pond. I have left Imperial Germany surviving so the Nazis are dead before they were born. Post Versailles the Gold Standard worsens the Depression by re-imposing artificial exchange rates that unbalance trade, in my ATL the British Empire is far stronger and Germany a social democracy under the titular Emperor. I am still groping about looking for how Gold is re-imposed as I think the USA and also London prefer it as the system they know.

 

[kernals12]

The depression is probably less severe since central banks can use the same monetary policy tools that they have today. And hopefully it would get countries to move off of fixed exchange rates sooner than OTL. It's surprising how long it took for us to get rid of idiotic monetary policies.

 

[kernals12]

Our modern world. During the Great War the belligerent economies shifted off Gold and onto fiat currency to allow for growth, fund the war and keep the economy working, post-war Germany effectively never left cash for Gold. Gold has limits and it served well enough post Bretton Woods. My best guess is that it feeds the inflationary growth of economies but retards the return to global trade. London and New York should be able to re-impose Gold but I think currencies get more flexibility in exchange. In its way Gold fed the American hegemony, undercut Gold and I think you see more room for Britain to hold on to global finance, especially in any scenario with the British not indebted by the Great War. Imagine oil being traded on Gold not Dollars?

There wasn't really a gold standard after FDR's 1933 gold confiscation since the government didn't have to honor any obligations to exchange dollars for gold.

 

[MichaelWest]

There wasn't really a gold standard after FDR's 1933 gold confiscation since the government didn't have to honor any obligations to exchange dollars for gold.

Gold was the glue in the currency exchange values, it was the psychological balance and symbolic lever of wealth, the USA held the most gold and set its value, that locked the world into the American economy. Obligations to citizens are not the thrust, it is relations between Nations. Divorcing the Dollar from Gold released the Government to manipulate currency, that is how we create endless growth and we learned the trickery during the war. Money buys war.

 

[Jerry Kraus]

Gold was the glue in the currency exchange values, it was the psychological balance and symbolic lever of wealth, the USA held the most gold and set its value, that locked the world into the American economy. Obligations to citizens are not the thrust, it is relations between Nations. Divorcing the Dollar from Gold released the Government to manipulate currency, that is how we create endless growth and we learned the trickery during the war. Money buys war.

Very interesting. So, Michael, you're suggesting

1. Economics is, by its very nature, largely a psychological, rather than a material discipline.
2. The Economics of nation states are determined primarily by national, not individual interests.
3. To a high degree, nation states equate the process of war with national wealth and interests.
4. Currency manipulation is, in itself, economic growth, which facilitates war, which furthers the national interests.

I think that's rather an accurate picture, but, not a very pretty one! Sounds like the nation states are really doing a number on individuals, doesn't it? Almost sounds like individuals would much be better off, if at all possible, in opting out of the nation states!

 

[Jerry Kraus]

Without the Great War the Empire has far more longevity. No, I never assume India is staying in the Empire but the remainder "white" Dominions likely stay more coherent without one or both World Wars. Without India the Empire is less relevant in many ways but as a trading bloc and self defense alliance it ushers in the modern world we know post-WWII. But I have a very altered back drop.

Taking the USA out of the Great War should eliminate the Depression, even as a deep cycle recession it has far less domestic impact and with a stronger Britain it likely barely ripples across the pond. I have left Imperial Germany surviving so the Nazis are dead before they were born. Post Versailles the Gold Standard worsens the Depression by re-imposing artificial exchange rates that unbalance trade, in my ATL the British Empire is far stronger and Germany a social democracy under the titular Emperor. I am still groping about looking for how Gold is re-imposed as I think the USA and also London prefer it as the system they know.

So, geopolitically speaking, there would be significant changes in history, and, quite possibly, in the modern world. But, we'd still be off the gold standard, Michael, and, if I understand you correctly, that's the critical point. Because, without the gold standard, we are in a "virtual economy", with currency values subject to ready manipulation by unscrupulous governments, exclusively concerned with power. And wars will be created simply to create "virtual wealth" in this virtual economy. And, individuals are helpless to influence, or even understand what's really happening. Thus, the multi-billionaire Donald Trump, who many claim actually has nothing but debts. Thus the brilliant inventor Elon Musk, who many claim is simply rehashing technologies from over half a century ago.

 

[MichaelWest]

So, geopolitically speaking, there would be significant changes in history, and, quite possibly, in the modern world. But, we'd still be off the gold standard, Michael, and, if I understand you correctly, that's the critical point. Because, without the gold standard, we are in a "virtual economy", with currency values subject to ready manipulation by unscrupulous governments, exclusively concerned with power. And wars will be created simply to create "virtual wealth" in this virtual economy. And, individuals are helpless to influence, or even understand what's really happening. Thus, the multi-billionaire Donald Trump, who many claim actually has nothing but debts. Thus the brilliant inventor Elon Musk, who many claim is simply rehashing technologies from over half a century ago.

What I know is that the imperatives of the Great War took the belligerents off Gold, the disruption to global trade destroyed the working Gold Standard and post-war the attempt to get back on Gold was badly timed and mostly a failure. For example the UK simply wanted to go back to its old exchange values without conceding they were not the same economy, the Government also sought to rein in the inflated currency, all things that sank the British economy. The USA had gained not just Gold but huge debts from other nations that fed an economy both inflated and inflating as it had no place to reinvest the money, as it stopped loaning the cash found its way into the stock market buoyed by cuts in interest rates meant to ease the debtors burdens but fuelling a market boom that exploded. If you have a USA not at war this is altered, take away the UK too and one might change enough to allow Gold to remain functioning and reabsorb the belligerents. Orthodox economics might not have failed or been blamed, I really do wonder how that world functions on the economic side. The best I can guess is that pre-1914 is the better guide than post-1918. Post-1918 one increasingly has faith in money, you trust it has value, before that Gold at least offered a tangible measure.

 

[Deleted member 92195]

Winston Churchill adopted the Gold standard, I dont even know why he got chancellor of the Exchequer, he did not have any economic knowledge whatsoever. He did want to study economics but did not have the time or the inclination, which he should of.

 

[kernals12]

So, geopolitically speaking, there would be significant changes in history, and, quite possibly, in the modern world. But, we'd still be off the gold standard, Michael, and, if I understand you correctly, that's the critical point. Because, without the gold standard, we are in a "virtual economy", with currency values subject to ready manipulation by unscrupulous governments, exclusively concerned with power. And wars will be created simply to create "virtual wealth" in this virtual economy. And, individuals are helpless to influence, or even understand what's really happening. Thus, the multi-billionaire Donald Trump, who many claim actually has nothing but debts. Thus the brilliant inventor Elon Musk, who many claim is simply rehashing technologies from over half a century ago.

Gold is far more volatile than fiat currency. Commodities are subject to abrupt changes in supply and demand. There's a reason why both William Jennings Bryan and Milton Friedman thought the gold standard was a terrible idea.

 

[Jerry Kraus]

Gold is far more volatile than fiat currency. Commodities are subject to abrupt changes in supply and demand. There's a reason why both William Jennings Bryan and Milton Friedman thought the gold standard was a terrible idea.

Nevertheless, Gold is a real, tangible commodity, money is merely an abstraction of totally indeterminate meaning. Or, do you question this simple fact? I've always been fascinated by "The Philosophy of Money" (1900), by Georg Simmel, in which he attempts to prove systematically that money is the only true reality in existence. I've always thought he was simply satirizing Sigmund Freud's psychoanalytical theories that sex was the only reality in existence, but, perhaps you take this view literally?

 

[kernals12]

Nevertheless, Gold is a real, tangible commodity, money is merely an abstraction of totally indeterminate meaning. Or, do you question this simple fact? I've always been fascinated by "The Philosophy of Money" (1900), by Georg Simmel, in which he attempts to prove systematically that money is the only true reality in existence. I've always thought he was simply satirizing Sigmund Freud's psychoanalytical theories that sex was the only reality in existence, but, perhaps you take this view literally?

money is backed by the full faith and credit of the countries that issue.

 

[UpontheHill]

Gold is far more volatile than fiat currency. Commodities are subject to abrupt changes in supply and demand. There's a reason why both William Jennings Bryan and Milton Friedman thought the gold standard was a terrible idea.

The reason William Jennings Bryan thought the gold standard was a terrible idea is because he wanted a currency with higher inflation than a gold tied currency could deliver. 'Free Silver' ring any bells? Seriously, pretending WJB had objections to gold for academic, reasoned economic stability reasons is silly.

No gold standard in the 1920's is difficult to achieve. It took the Great Depression for the American people to be OK with breaking the golden fetters and the American economy in the aftermath of WWI was in a position to dictate monetary policy to the rest of the world. That is WHY the inter-war gold standard was a gold exchange standard, with gold and American public securities tied to gold making up the international exchange medium. The Americans were owed large debts from other belligerent powers and wasn't about to accept anything but gold or trusted (read: the aforementioned American public securities) in payment.

More broadly, there was no alternate framework for the victorious powers to work from. The gold exchange standard was a radical new thing that was kind of made up as they went along (which is why there were so many conferences on the international monetary system and German reparation debt -- which was intimately tied up in the former -- over the ocurse of the 1920's), they wouldn't have any clue what to try to put in its place. Gold was the natural thing to try to go back to: Creditors trusted it and creditors dictated a lot of state financial policy in this period.

Even if you handwave away the challenges of achieving the policy, I don't think that things would have turned out dramatically differently. There is a truism that you either have a gold standard or an activist central bank, you can't really have both, in practice. All of the powers in the 1920's had activist central banks, the gold exchange standard only really resembled the automatic mechanisms of the pre-war gold standard at a distance, while squinting. I think the central banks in question would have acted in more or less the same ways, for the same reasons, leading to many of the same consequences as IOTL. Modern ideas about monetary policy didn't exist at the time (or were in their infancy -- this is the age of Irving Fisher, monetary economics-as-modern-science was brand spanking new at this time; monetary economics-as-monetary-policy-guide wasn't on the radar). They couldn't conceive of alternatives, they hadn't been invented yet.

 

[Indicus]

Possibly Gandhi sticks to British Imperialism, rather than becoming a social revolutionary? You're aware Gandhi actually signed up to fight for the British Empire during WWI, but, following, he became an ardent Indian nationalist. An excellent politician, Gandhi.

Many early Indian nationalists didn’t necessarily hate the British Empire. Initially, they wanted home rule and dominion. However, events like the Jallianwala Bagh massacre, where a British general murdered Indians celebrating Vaisakhi and got accolades by high British society, and the Government of India Act 1919, where Britain gave India legislatures with as little power as student councils, resulted in Indian nationalists being radicalized, resulting in republicanism growing to the extent that the British monarchy became as hated as it is today in India. Gandhi signing up to fight in the First World War doesn’t mean he wasn’t an Indian nationalist.

 

[Jerry Kraus]

Many early Indian nationalists didn’t necessarily hate the British Empire. Initially, they wanted home rule and dominion. However, events like the Jallianwala Bagh massacre, where a British general murdered Indians celebrating Vaisakhi and got accolades by high British society, and the Government of India Act 1919, where Britain gave India legislatures with as little power as student councils, resulted in Indian nationalists being radicalized, resulting in republicanism growing to the extent that the British monarchy became as hated as it is today in India. Gandhi signing up to fight in the First World War doesn’t mean he wasn’t an Indian nationalist.

Gandhi was a fascinating character. A political genius from a family of political geniuses. I'm quite sure Gandhi would have done whatever he saw as being in India's best interests. If Britain had remained as strong after WWI, as she was before, I strongly suspect Gandhi would have played along, as he had up to that point in his life. So, again, the issue is what bearing the gold standard has on that fact, as on others in the political-economic spectrum.

 

[Indicus]

Gandhi was a fascinating character. A political genius from a family of political geniuses.

A “family of political geniuses”? His father was the prime minister of a minor princely state and that’s pretty much it. I’m afraid I don’t understand your point.

If Britain had remained as strong after WWI, as she was before, I strongly suspect Gandhi would have played along, as he had up to that point in his life.

He would have fought for dominion, or at the very least home rule, in virtually any scenario.

And no, he did not play along until the First World War. Hell, he sent medical aid to Zulus against Britain in the Bambatha Rebellion. I don’t see why you’re ignoring his experience in South Africa.

 

[Jerry Kraus]

A “family of political geniuses”? His father was the prime minister of a minor princely state and that’s pretty much it. I’m afraid I don’t understand your point.



He would have fought for dominion, or at the very least home rule, in virtually any scenario.

And no, he did not play along until the First World War. Hell, he sent medical aid to Zulus against Britain in the Bambatha Rebellion. I don’t see why you’re ignoring his experience in South Africa.

In South Africa, he worked as an ambulance driver supporting the British troops against the Boers.

 

[Jerry Kraus]

money is backed by the full faith and credit of the countries that issue.

money is backed by the full faith and credit of the countries that issue.

Since when are the politicians who run countries either faithful, or creditable?

The point is, the manipulation of currency values is easy and convenient for nation states, but, has very little meaning in terms of real world values of anything. When money is based on nothing, so are economies, and everything they represent.