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Desc:Out of the gold cage
Category:Business, News & Politics
Tags:macroeconomics, John Maynard Keyens, gold standard, golden fetters, Barry Eichengreen
Submitted:Sphinx
Date:10/10/11
Views:1998
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Comment count is 8
baleen
God, I wonder if the Barry Eichengreen tag will ever activate.
urbanelf
Good thing we did that. I bet gold lost all of its purchasing power.
Camino
These stars are for you.

Sphinx
Yeah, the gold standard wasn't about gold's purchasing power. The gold standard was about countries tying their currency to their gold reserves, resulting in having to getting balance of trade ledgers and money supplies consistent with how much gold was in a country's vaults. Essentially they let their currency float.

In the 30s periphery countries in Central and South America were the first to leave the gold standard and their balance of trade greatly improved. This eventually happened to all of the major trading partners by the mid-30s with France being the last to abandon it.



Camino
".. balance of trade greatly improved."

It's all smiles until some asshole realises that now they aren't tied to gold, they can fund any amount of wars, make ludicrous promises of social welfare, confiscate capital willy-nilly and in the end bankrupt *EVERYONE*.

Yay Keynesianism!

GravidWithHate
Economics is so weird. As a scientific dicipline it's about where physics was when Newton came up with his laws of motion. That is to say they have some equations, and if you squint and fudge the data a bit they can almost predict the behavior of some special cases in the real world. Yet it's driving policy.
Sphinx
It definitely can't be compared to other sciences like physics because unlike physics economics has to deal with understanding and trying to explain human behavior, hence why it's called a social science.

Early models assumed perfect flow of information between suppliers and consumers but of course that's not the case in the real world. Newer models attempt to account for this unequal flow of information by adding to previous models of Keynes, Friedman, and others.


MrBuddy
Spoiler Alert:

"There's no danger of the [stock] exchange falling too far. There's no danger of a serious rise in the cost of living."

Oops.
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