Read Online Currency Wars: The Making of the Next Global Crisis by James Rickards - Free Book Online Page B
Authors: James Rickards
Tags: Business & Economics
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standard of 1870 to 1914 has a unique place in the history of gold as money. It was a period of almost no inflation—in fact, a benign deflation prevailed in the more advanced economies as the result of technological innovation that increased productivity and raised living standards without increasing unemployment. This period is best understood as the first age of globalization, and it shares many characteristics with the more recent, second age of globalization that started in 1989 with the end of the Cold War.
The first age of globalization was characterized by technological improvements in communication and transportation, so that bankers in New York could speak on the phone to their partners in London and travel time between the two financial hubs could be as short as seven days. These improvements may not have been widespread, but they did facilitate global commerce and banking. Bonds issued in Argentina, underwritten in London and purchased in New York created a dense web of interconnected assets and debts of a kind quite familiar to bankers today. Behind this international growth and commerce was gold.
The classical gold standard was not devised at an international conference like its twentieth-century successors, nor was it imposed top-down by a multilateral organization. It was more like a club that member nations joined voluntarily. Once in the club, those members behaved according to well-understood rules of the game, although there was no written rulebook. Not every major nation joined, but many did, and among those who joined, capital accounts were open, free market forces prevailed, government interventions were minimal and currency exchange rates were stable against one another.
Some nations had been on a gold standard since well before 1870, including England in 1717 and the Netherlands in 1818, but it was in the period after 1870 that a flood of nations rushed to join them and the gold club took on its distinctive character. These new members included Germany and Japan in 1871, France and Spain in 1876, Austria in 1879, Argentina in 1881, Russia in 1893 and India in 1898. While the United States had been on a de facto gold standard since 1832, when it began minting one-troy-ounce gold coins worth about twenty dollars at the time, it did not legally adopt a gold standard for the conversion of paper money until the Gold Standard Act of 1900, making the United States one of the last major nations to join the classical gold system.
Economists are nearly unanimous in pointing out the beneficial economic results of this period. Giulio M. Gallarotti, the leading theorist and economic historian of the classical gold standard period, summarizes this neatly in The Anatomy of an International Monetary Regime:
Among that group of nations that eventually gravitated to gold standards in the latter third of the 19th century (i.e., the gold club), abnormal capital movements (i.e., hot money flows) were uncommon, competitive manipulation of exchange rates was rare, international trade showed record growth rates, balance-of-payments problems were few, capital mobility was high (as was mobility of factors and people), few nations that ever adopted gold standards ever suspended convertibility (and of those that did, the most important returned), exchange rates stayed within their respective gold points (i.e., were extremely stable), there were few policy conflicts among nations, speculation was stabilizing (i.e., investment behavior tended to bring currencies back to equilibrium after being displaced), adjustment was quick, liquidity was abundant, public and private confidence in the international monetary system remained high, nations experienced long-term price stability (predictability) at low levels of inflation, long-term trends in industrial production and income growth were favorable and unemployment remained fairly low.
This highly positive assessment by Gallarotti is echoed by a study published by the
The first age of globalization was characterized by technological improvements in communication and transportation, so that bankers in New York could speak on the phone to their partners in London and travel time between the two financial hubs could be as short as seven days. These improvements may not have been widespread, but they did facilitate global commerce and banking. Bonds issued in Argentina, underwritten in London and purchased in New York created a dense web of interconnected assets and debts of a kind quite familiar to bankers today. Behind this international growth and commerce was gold.
The classical gold standard was not devised at an international conference like its twentieth-century successors, nor was it imposed top-down by a multilateral organization. It was more like a club that member nations joined voluntarily. Once in the club, those members behaved according to well-understood rules of the game, although there was no written rulebook. Not every major nation joined, but many did, and among those who joined, capital accounts were open, free market forces prevailed, government interventions were minimal and currency exchange rates were stable against one another.
Some nations had been on a gold standard since well before 1870, including England in 1717 and the Netherlands in 1818, but it was in the period after 1870 that a flood of nations rushed to join them and the gold club took on its distinctive character. These new members included Germany and Japan in 1871, France and Spain in 1876, Austria in 1879, Argentina in 1881, Russia in 1893 and India in 1898. While the United States had been on a de facto gold standard since 1832, when it began minting one-troy-ounce gold coins worth about twenty dollars at the time, it did not legally adopt a gold standard for the conversion of paper money until the Gold Standard Act of 1900, making the United States one of the last major nations to join the classical gold system.
Economists are nearly unanimous in pointing out the beneficial economic results of this period. Giulio M. Gallarotti, the leading theorist and economic historian of the classical gold standard period, summarizes this neatly in The Anatomy of an International Monetary Regime:
Among that group of nations that eventually gravitated to gold standards in the latter third of the 19th century (i.e., the gold club), abnormal capital movements (i.e., hot money flows) were uncommon, competitive manipulation of exchange rates was rare, international trade showed record growth rates, balance-of-payments problems were few, capital mobility was high (as was mobility of factors and people), few nations that ever adopted gold standards ever suspended convertibility (and of those that did, the most important returned), exchange rates stayed within their respective gold points (i.e., were extremely stable), there were few policy conflicts among nations, speculation was stabilizing (i.e., investment behavior tended to bring currencies back to equilibrium after being displaced), adjustment was quick, liquidity was abundant, public and private confidence in the international monetary system remained high, nations experienced long-term price stability (predictability) at low levels of inflation, long-term trends in industrial production and income growth were favorable and unemployment remained fairly low.
This highly positive assessment by Gallarotti is echoed by a study published by the
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