tag:blogger.com,1999:blog-6704573462403312459.post1478706774355350450..comments2024-03-29T02:53:03.321-04:00Comments on Moneyness: Was Bretton Woods a real gold standard?JP Koninghttp://www.blogger.com/profile/02559687323828006535noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-6704573462403312459.post-40840559140165045422016-01-07T22:32:20.009-05:002016-01-07T22:32:20.009-05:00In your (and David's) definition of "a go...In your (and David's) definition of "a gold standard ... the monetary unit, the dollar, is tied to a set amount of gold." You infer that "This linkage ensures that there can never be an excess quantity of monetary liabilities in circulation—unwanted notes will simply reflux back to the issuer in return for gold"<br /><br />It's far from clear that the gold standard as we knew it up to 1914 actually operated in this way at all. Convertibility ensured that an excess circulation would face a forced reduction in a relatively short time period (i.e. counted in months). The Bank of England's commitment to convertibility ensured that it was not rational for a speculator to challenge the peg, even when there were some divergences in prices -- the only outcome would be to speed the pace of the forced reduction that was coming anyhow. The claim that the gold standard implies that "there can never be an excess quantity of monetary liabilities in circulation" is entirely contradicted by the facts as we know them. One of the main effects of 19th century crises was the readjustment of the quantity of "monetary liabilities in circulation," which as you frame the issue could never have been necessary.<br /><br />The Bank of England had learned in the crises of 1847 and 1858 that it was indeed possible for an excess of monetary liabilities (i.e. bills of exchange) to circulate and that the forced reduction when it came tended to be ugly. Thus, it was obsessed during the gold standard period with the control of monetary liabilities by controlling the quality of bills that could circulate (and later of the advances that banks issued). This focus on the quality of bank credit lines was designed to support the gold standard by ensuring that the money supply was growing together with GDP and that the money supply was not allowed to grow too fast and generate inflation, which in short order would be forced by the gold standard to be reversed and almost inevitably to cause a crisis.<br /><br />I'm not sure how the view that the 19th century gold standard could operate without a central bank actively monitoring the growth of the money supply arose, but it is not at all supported by the behavior of the Bank of England during this period. (I have a paper coming out in the Financial History Review that discusses this in some detail.)Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-26495522009932424682015-12-26T13:00:44.038-05:002015-12-26T13:00:44.038-05:00Thanks Nick.
I think that's right. The Londo...Thanks Nick. <br /><br />I think that's right. The London gold pool enforced the U.S. dollar peg, and every other nation pegged to the dollar. JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-33609792051491406422015-12-26T10:08:46.987-05:002015-12-26T10:08:46.987-05:00Excellent post.
Could I say the London Gold Pool ...Excellent post.<br /><br />Could I say the London Gold Pool was operating as the world's central bank?Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-54283843366987100032015-12-25T21:44:14.387-05:002015-12-25T21:44:14.387-05:00In a gold standard with token coinage, a country c...In a gold standard with token coinage, a country can simply devalue their currency relative to gold. <br /><br />In a gold (and or silver) coin standard, kings re-rated the coinage all the time. Some of the more famous inflations occurred on metallic coin standards.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-3133980380309300412015-12-25T18:08:36.975-05:002015-12-25T18:08:36.975-05:00Bretton Woods was not a gold standard, thank God, ...Bretton Woods was not a gold standard, thank God, because there was relatively un-traumatic way for countries to adjust the internal and external value of their currencies. Not as good as floating rates, but better than a "gold standard." Too bad the Eurozone countries gave up this advantage. Unknownhttps://www.blogger.com/profile/04661459590343267145noreply@blogger.com