Oddbean

The myth of the gold standard. IMO people get it wrong when they praise the gold standard. It was introduced in many countries in the 1870s. It was probably a reaction to a long period with monetary freedom in the US (from1783) and Argentina (from 1816.) Which of course the banking sector and the political class hated. It sucked capital and people out of the central-bank controlled European countries, as if the Americas, with its monetary freedom, was a giant magnet. The outflow of people and capital most likely made it extremely difficult for the finance sector and the governments to extract wealth from the people in Europe, both from taxation and inflation. The gold standard made it easier for the countries to inflate their money supply and coordinate monetary policy otherwise. And inflate they did. Annual average M2 growth in the US from 1880 to 1995 was about the same as from 2008 to 2023. When WWI broke out in 1914, people lined up outside the banks and wanted to redeem their paper bank notes for gold. The alarm bells went off, as the banks didn't have nearly enough gold in their vaults, because they had issued far too many bank notes.. So they asked their friends in the governments, to kindly introduce "emergency measures." The corrupt politicians happily played along, and under the pretext that it would safeguard gold from flowing out of the country, they "suspended the banks' obligation to redeem specie." And then they gave even more gas and inflated like hell during WWI, enabling the war to extend in time and space. Even the government, central bank and banks in my country, Norway, did this, although we stayed out of the war. So - the gold standard was a tool, a weapon pointed against the people all over the world - a promise to inflate the money supply at high speed in a coordinated way. It's IMO the power vacuum caused by monetary freedom in the US and Argentina that was the main wealth booster of the 19th century. The growth that happened from 1880-1914 was created in spite of, not because of the gold standard. I hope people soon stop praising the old original gold standard as well as the quasi versions we had after WWI and WWII.