Commentary on Political Economy

Thursday 11 August 2011

Gold Standard Nostalgia and the Merry-Go-Round

You know that someone is very old when they begin speaking nostalgically about the Gold Standard. Of course, the "theoretical" version of "the old barbarous relic" never existed: if it had, it could never have "functioned", for the simple reason that what happens when a country's economy goes into recession is not that gold "flows into" that country - in fact, it is quite the opposite for two reasons. First of all, when an economy is in recession, capitalists tend "to bail out", not (!) to come in and invest! And second, domestic capitalists tend to hoard gold or its liquid equivalent (in currency) - not (!) reinvest it!!!!

The outcome is that the Gold Standard would never had worked - if it had been tried!! What we had instead, between the years 1870 and 1914, was a Gold Sterling Exchange Standard that worked as follows. The City of London kept high interest rates to attract foreign capital (even "gold" in specie) - and when the British economy needed lower interest rates due to loss of competitivity, instead of "lowering" those rates to encourage domestic investment.... it simply raped and robbed the Commonwealth Dominions (!!) like India and Australia and South Africa, which had a trade surplus due to cotton (India) and wool and gold (Australia) with the rest of the world, by forcing them to absorb uncompetitive British exports and by literally "sequestering" their gold bullion!!!!!!!!

That (!!) is how the "Gold Standard"...... "worked"! But Samuel Brittan is too old to remember even that! Nostalgia or no nostalgia! (You can visit us at for real politico-economic analysis, instead of pure polyunsaturated garbage!)

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