AHC/WI: Have Classical Gold Standard Survive into 21st Century

This is a rarely (if ever) discussed alternate history scenario or challenge, but one which for a variety of reasons has been of interest to me since long before I joined this site.

The challenge is to have the classical gold standard of pre-World War One maintained up to the present day, and to examine the effects it would have on the planet’s economy, politics, demographics, and anything else you can think of.
 
The first fruit of the retention of the gold standard would be the absence of inflation. Indeed, at a time when the progress of technology reduced the costs inherent in making, moving, and selling goods, we would see a steady reduction in the prices of many things.

The experience of this pattern of price adjustment, which would teach people that a penny saved would grow in purchasing power, would tend to make people more thrifty than they would otherwise be. This would have the effect of increasing the amount of capital available for investment, which, all other things being equal, would have the effect of increasing the rate at which useful devices of various sorts were invented, produced, and put to work.

The benefits that the absence of inflation provided to savers would also increase the number of people who possessed sufficient means to devote their lives to productive leisure. Thus, we would see an increase in self-directed literary output, scholarship, scientific inquiry, and philanthropy. While a proportion of the people freed to do this work would be cranks, the freedom from institutional pressures enjoyed by such people would do much to enhance its quality.
 

BigBlueBox

Banned
The first fruit of the retention of the gold standard would be the absence of inflation. Indeed, at a time when the progress of technology reduced the costs inherent in making, moving, and selling goods, we would see a steady reduction in the prices of many things.

The experience of this pattern of price adjustment, which would teach people that a penny saved would grow in purchasing power, would tend to make people more thrifty than they would otherwise be. This would have the effect of increasing the amount of capital available for investment, which, all other things being equal, would have the effect of increasing the rate at which useful devices of various sorts were invented, produced, and put to work.

The benefits that the absence of inflation provided to savers would also increase the number of people who possessed sufficient means to devote their lives to productive leisure. Thus, we would see an increase in self-directed literary output, scholarship, scientific inquiry, and philanthropy. While a proportion of the people freed to do this work would be cranks, the freedom from institutional pressures enjoyed by such people would do much to enhance its quality.
Nobody in modern mainstream economics agrees with you.
 
The first fruit of the retention of the gold standard would be the absence of inflation.

Nobody in modern mainstream economics agrees with you.

Inflation with a Gold Standard is difficult.

Deflation is more probable, not enough Specie for too many goods. Goods don't sell, businesses start layoffs, the new jobless buy fewer goods, a viscous cycle

Example, Great Depression, where some cities started printing Script to get sales going.

Most importantly, however, was the fact that there was little money in the hands of the people, and given their uncertainty about their prospects of getting more of it, people tended to hoard what little money they did have. Hoarding slowed the velocity of circulation, which further reduced the volume of business being transacted. Serious human needs went unmet -- until people began to organize.

Besides learning how to "make do, or do without," people began to establish mutual support structures, like workers' cooperatives, many of which would recycle and repair donated or broken items. People learned to share what they had, and to by-pass the market and financial systems. Most of these measures were considered stop-gaps to be utilized until things "got back to normal," but in some of them there seemed to be the promise of more permanent improvements. One of these "stop-gaps," which was intended to address the problem of the dearth of currency in circulation, was the issuance of "scrip."

History is full of examples of successful local initiatives aimed at providing exchange media, but the Great Depression of the 1930's saw this done on an unprecedented scale. There were literally hundreds of scrip issues that were put into circulation by a variety of agencies, including state governments, municipalities, school districts, clearing house associations, manufacturers, merchants, chambers of commerce, business associations, local relief committees, cooperatives, and even individuals. These issues went by different names, depending on who issued them and the circumstances of their issuance. Common scrip types were certificates of indebtedness, tax anticipation notes, payroll warrants, trade scrip, clearing house certificates, credit vouchers, moratorium certificates, and merchandise bonds.

...
Larkin Merchandise Bonds

Another example, which was fairly typical of Depression scrip was one offered in 1933 by Larkin and Company of Buffalo, New York. Larkin was a large company with diverse operations including wholesale merchandising, a chain of retail stores and a chain of gasoline stations. When President Roosevelt declared his famous "bank holiday," the Larkin company issued $36,000 worth of "merchandise bonds" which it used to pay its employees.

As shown in Figures 8.3 and 8.4, these "bonds" consisted of certificates which bore the image of the company's founder and a guarantee that they would be accepted in payment for services or merchandise at any Larkin outlet in the U.S. The "bonds" were endorsed on reverse side and spent into circulation by the company. They were subsequently accepted by many Larkin customers and even other businesses. As the dearth of official currency eased, Larkin gradually retired the bonds. Company accountants estimated however, that while the bonds circulated, the original $36,000 issue had turned over enough times to allow the sale of $250,000 worth of merchandise, providing a significant boost to its business.(37)


http://www.depressionscrip.com/what.html

So there could be a Gold Standard, but there would also have to be a semi-official fiat currency as well
 
The first fruit of the retention of the gold standard would be the absence of inflation. Indeed, at a time when the progress of technology reduced the costs inherent in making, moving, and selling goods, we would see a steady reduction in the prices of many things.

The experience of this pattern of price adjustment, which would teach people that a penny saved would grow in purchasing power, would tend to make people more thrifty than they would otherwise be. This would have the effect of increasing the amount of capital available for investment, which, all other things being equal, would have the effect of increasing the rate at which useful devices of various sorts were invented, produced, and put to work.

The benefits that the absence of inflation provided to savers would also increase the number of people who possessed sufficient means to devote their lives to productive leisure. Thus, we would see an increase in self-directed literary output, scholarship, scientific inquiry, and philanthropy. While a proportion of the people freed to do this work would be cranks, the freedom from institutional pressures enjoyed by such people would do much to enhance its quality.

FFS. Nothing gets put to work here. It's far more cost-effective for rich people to simply hoard their money, than actually do anything with it, while you have just killed Consumer Demand (why buy something today when it'll be cheaper tomorrow... at which point the economy collapses).
 
To answer the question, you basically have to prevent the First World War, and keep the geopolitical status quo. Britain needs to maintain the ability to stabilise the Gold Standard at the international level.
 
How about asteroid mining

with current launch and recovery costs, if pure Gold nuggets were just floating around at HEO, you would lose money bringing it back, even if all you had to do was to scoop them up with a net.

Now add in the the costs of getting your mining ship out from the Earth's Gravity well, and then doing mining and refining in zero G, then bring it back from the asteroid belt. Thats a huge Delta-V budget to get close to something like Ceres.
 

Anawrahta

Banned
with current launch and recovery costs, if pure Gold nuggets were just floating around at HEO, you would lose money bringing it back, even if all you had to do was to scoop them up with a net.

Now add in the the costs of getting your mining ship out from the Earth's Gravity well, and then doing mining and refining in zero G, then bring it back from the asteroid belt. Thats a huge Delta-V budget to get close to something like Ceres.
Not necessarily asteroid belt, Near-earths could do just fine. Current launch cost as you said are too exorbitant, but perhaps with more successful development of the X-33 and VentureStar may set the stage for cheap launches. Current and near-future tech are simply too unfeasible for this to work.
 
To answer the question, you basically have to prevent the First World War, and keep the geopolitical status quo. Britain needs to maintain the ability to stabilise the Gold Standard at the international level.
More than preventing the First World War, to keep the Classical Gold Standard you would have to deflect demands for nominal wages higher than the classical gold standard allowed by Europe’s working classes – who supported fiat paper currency long before World War One.

I have long imagined that but for climatic deterioration in Australia and Africa after 1895, the Classical Gold Standard could have collapsed in the late 1890s or the 1900s without any major war. Gold outflows from resource-poor Northern Hemisphere nations like Japan and the United Kingdom were problematic before that climatic deterioration (“Federation Drought”) and with the advances in lithophile metallurgy in the 1920s and 1930s they would likely have even without a war stretched class conflict in Europe and East Asia to breaking point.

Maybe if the old monarchies had not been removed, they would in some parts of Europe and East Asia have in the 1920s and 1930s been able to eliminate democracy and return to more traditionalist absolute monarchies, who would have been strongly supportive of keeping the classical gold standard in its entirety. The trouble is that with the above-mentioned improvements in metallurgical technology, gold outflows to natural-resource-rich arid zone countries would under “retraditionalising” regimes in Europe have put further downward pressure on nominal wages – and of course nominal wages are notoriously “sticky” downwards even should falling money supplies increase real wages.

Nevertheless, I do see potential benefits if a “retraditionalising” 1920s and 1930s Europe and Japan could allow for theoretically necessary reductions in prices and wages to match their resource poverty. Most especially, they would be less specialised in skill- and education-intensive goods and services, dependence upon which has contributed to lowest-low fertility and long-term declines in global power for these nations. At the same time, the resource-rich nations of the lower latitudes might under a gold standard gain higher real prices for their resources due to the absence of wage floors in natural-resource-impoverished high latitude nations. This might mean better development and living standards in Africa and tropical South America, and I am not sure that the resource-surfeited desert nations of Australia, Southern Africa and the GCC would gain more power – in actual history these nations undersell their resource wealth and gain enhanced profits from doing so.
 
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The first fruit of the retention of the gold standard would be the absence of inflation. Indeed, at a time when the progress of technology reduced the costs inherent in making, moving, and selling goods, we would see a steady reduction in the prices of many things.

The experience of this pattern of price adjustment, which would teach people that a penny saved would grow in purchasing power, would tend to make people more thrifty than they would otherwise be. This would have the effect of increasing the amount of capital available for investment, which, all other things being equal, would have the effect of increasing the rate at which useful devices of various sorts were invented, produced, and put to work.

The benefits that the absence of inflation provided to savers would also increase the number of people who possessed sufficient means to devote their lives to productive leisure. Thus, we would see an increase in self-directed literary output, scholarship, scientific inquiry, and philanthropy. While a proportion of the people freed to do this work would be cranks, the freedom from institutional pressures enjoyed by such people would do much to enhance its quality.

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