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Comment by sph | Hacker News Reader

> Gold standard fell apart because it was a bad way to manage currency in a modern industrialized society

Source? From what I understand, the gold standard felt apart in WW1. Some also indicate WW1 being the first worldwide conflict because the war machine was no longer restricted by what's in the government's coffers, so you can go all in and basically have future generations pay for it (with massive inflation if you lose, but if you win you have the spoils to repay the cost of the war, and then some)

And leaving the gold standard is also viral: if your enemies can print money and pay for enormous amounts of soldiers and ammo in the short term, either you adopt it to stay apace or you get overwhelmed.

AFAIR Germany was the first to abandon the gold standard, and all European nations followed immediately thereafter. Then losing the war explains all the events leading up to the rise of Hitler.

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There were plenty of examples of countries devaluing their currency before World War I. No one was ever really on the gold standard, that was just what the governments were willing to exchange it for at times. The government could always alter the exchange rate or simply stop exchanging it for gold even if they were "on the gold standard." (Look at the Confederate dollar for an example). Also, the only reason World War I is the first World War is because we called it that. There were plenty of wars which involved multiple continents before that. For example, the Napoleonic Wars involved every continent but Antarctica.

> There were plenty of examples of countries devaluing their currency before World War I.

And it's not like the gold standard stabilized prices either:

* https://www.theatlantic.com/business/archive/2012/08/why-the...

* https://archive.li/FWKcL

Example such as? Because the big players like Europe and USA all did during WW1, then got back to the gold standard just after the war for a few years until John Maynard Keynes convinced everyone that it was a bad idea, and we're still debating whether that's the case to this day.

I don't recall the specifics but only the USA was in a weird fiat-gold hybrid until the 70s as before that they guaranteed they would buy gold at a specific price in $

> From what I understand, the gold standard felt apart in WW1.

Formal gold standards were only introduced in the 1870s. No matter where exactly you put the end date, it only existed for a shockingly short time frame, and has very little relation to whatever you want to call "traditional" monetary systems.

> Some also indicate WW1 being the first worldwide conflict because the war machine was no longer restricted by what's in the government's coffers, so you can go all in and basically have future generations pay for it (by massive inflation if you lose, but if you win you have the spoils to repay the cost of the war, and then some)

I can see why this line of thinking appeals to some people with rather creative interpretations of fiscal policy… but no, this is how wars have always been financed in heavily monetized societies. You always had the option of re-minting your 100% silver coins (or gold coins, for that matter, but gold rarely ever had the special status "gold standard extremists" ascribe to it) into 99% silver coins… or 90%.

Or 25%.

Or even less than 10%.

You bet that future generations were regularly crippled by this kind of ridiculously massive inflationary shocks. The Ottoman and Western Roman empires never recovered from debasing their currencies so hard.

And while the British and French Empire also didn't survive their takes on currency debasement for long (Germany didn't have much wealth left to turn into war spoils, and the other central powers didn't even exist anymore – they had abolished the gold standards before Britain/France, from what I can tell, by a month or two), the US did fabulously well after both WW1 and WW2, and that's without trying to plunder anyone.

> Source? From what I understand, the gold standard felt apart in WW1.

Yes, and everyone went back to it in the 1920s:

* https://www.theatlantic.com/magazine/archive/1922/07/shall-w...

And then started abandoning it in the 1930s during the Great Depression. And the sooner a country (re-)abandoned it the sooner it started to recover in the 1930s. France was the last country to leave it:

> In the end, recovery from the Great Depression does not begin until countries give up on the combination of the Bagehot Rule and of commitment to sound gold-standard finance. Those countries that have central banks willing to print up enough money so that people are willing to spend it--it is when you adopt such policies that your economy begins to recover. If you don’t, you become France, which sticks to the gold standard all the way up to 1937, and never gets a recovery. When World War II begins, Nazi Germany’s production--equal to France's in 1933--had doubled between 1933 and 1939. French production had fallen by 15%.

* https://delong.typepad.com/delong_long_form/2013/10/the-grea...

But of course. Economy is a zero-sum game. You can't get massive amounts of money on "loan" by abandoning it, and expect that the economy keeps chugging along if you readopt it. The war has to be paid somehow, and abandoning the standard was the only way of each country giving themselves a loan to participate in WW1.

This is exactly what we are seeing today: we pulled money out of thin air to pay for the COVID disruption to the economy, and now we have massive inflation. And you can't blame the gold standard for it this time.

I have yet to hear someone argue why the fiat system is preferable to the gold standard without parroting Keynes or using history as proof of the validity of the choice. Macroeconomy is complex but also very simple: either you can pay for something with money you have today, or you create debt, which you will eventually have to pay, somehow.

> This is exactly what we are seeing today: we pulled money out of thin air to pay for the COVID disruption to the economy, and now we have massive inflation. And you can't blame the gold standard for it this time.

There was deflation in 2020 for a while (due to the pandemic). The 'high inflation' in 2021 was because of base effects:

* https://en.wikipedia.org/wiki/Base_effect

Inflation went high in 2022 partly because of energy costs, specifically fossil fuel energy (thanks Russia), at least according to Canadian CPI data (where I live):

* https://twitter.com/trevortombe/status/1559524236745576448

* https://twitter.com/trevortombe/status/1555662571021029376

High food prices (esp. grain/wheat) could also be traced to geopolitics (thanks Russia).

Then there's supply chain issues:

* https://www.frbsf.org/economic-research/publications/economi...

> I have yet to hear someone argue why the fiat system is preferable to the gold standard without parroting Keynes or using history as proof of the validity of the choice.

Because the gold standard does nothing to produce stable prices:

* https://www.theatlantic.com/business/archive/2012/08/why-the...

* https://archive.li/FWKcL

> The price of milk is way more stable over the last 18 years [up to 2012] when priced in dollars. In gold, we'd have gone from major inflation in the 90s, to deflation throughout the 2000s.

> So gold doesn't work for global purposes, and it doesn't even make the economy more stable.

* https://www.businessinsider.com/why-the-gold-standard-is-the...

While reducing flexibility to deal with economic cycles:

* https://delong.typepad.com/delong_long_form/2013/10/the-grea...

And why shouldn't people "parrot" Keynes? He was right after all. And why shouldn't the historical record be used as proof / evidence? It shows various economic policy experiments and what works (stimulus spending) and what doesn't (expansionary austerity; cutting taxes pays for itself, cf. "Kansas experiment").

Would you complain about people "parroting" Einstein and his General Theory?

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