The Bitcoin Standard PDF - Gold Standard & Monetary Nationalism

Here is the transcription of the document/image you sent, formatted using markdown: ### Table 2. Depreciation of National Currency Against the Swiss Franc During World War I | Nation | WWI Currency Depreciation | | ----------- | ----------- | | USA | 3.44% | | UK | 6.63% | | FRA | 9.04% | | ITA |...

Here is the transcription of the document/image you sent, formatted using markdown: ### Table 2. Depreciation of National Currency Against the Swiss Franc During World War I | Nation | WWI Currency Depreciation | | ----------- | ----------- | | USA | 3.44% | | UK | 6.63% | | FRA | 9.04% | | ITA | 22.3% | | GER | 48.9% | | AUS | 68.9% | Their average currency value in November 1918 drop to 51% and 31% of their value in 1913. Italy's currency witnessed a drop to 77% of its original value while France's dropped only to 91%, the U.K.'s to 93%, and the U.S. currency only to 96% of its original value. (See Table 2.4) The geographic changes brought about by the war were hardly worth the carnage, as most nations gained or lost marginal lands and no victor could claim to have captured large territories worth the sacrifice. The Austro-Hungarian Empire was broken up into smaller nations, but these remained ruled by their own people, and not the winners of the war. The major adjustment of the war was the removal of many European monarchies and their replacement with republican regimes. Whether such a transition was for the better pales in comparison to the destruction and devastation that the war had inflicted on the citizens of these countries. With redemption of gold from central banks, and movement of gold internationally suspended or severely restricted in the major economies, governments could maintain the façade of the currency's value remaining at its prewar peg to gold, even as prices were rising. As the war ended, the international monetary system revolving around the gold standard was no longer functional. All countries had gone off gold and had to face the major dilemma of whether they should get back onto a gold standard, and if so, how to revalue their currencies compared to gold. A fair market valuation of their existing stock of currency to their stock of gold would be a hugely unpopular admission of the depreciation that the currency underwent. A return to the old rates of exchange would cause citizens to demand holding gold rather than the ubiquitous paper receipts, and lead to the flight of gold outside the country to where it was fairly valued. This dilemma took money away from the market and turned it into a politically controlled economic decision. Instead of market participants freely choosing the most salable good as a medium of exchange, the value, supply, and interest rate for money now became centrally planned by national governments, a monetary system which Hayek named Monetary Nationalism, in a brilliant short book of the same name: > By Monetary Nationalism I mean the doctrine that a county's share in the world's supply of money should not be left to be determined by the same principles and the same mechanism as those which determine the relative amounts of money in its different regions or localities. A truly International Monetary System would be one where the whole world possessed a homogeneous currency such as obtains within separate countries and where its flow between regions was left to be determined by the results of the action of all individuals. Never again would gold return to being the world's homogeneous currency, with central banks' monopoly position and restrictions on gold ownership forcing people to use national government moneys. The introduction of Bitcoin, as a currency native to the Internet superseding national borders and outside the realm of governmental control, offers an intriguing possibility for the emergence of a new international monetary system, to be analyzed in Chapter 9. ### The interwar Era Whereas under the international gold standard money flowed freely between nations in return for goods, and the exchange rate between different currencies was merely the conversion between different weights of gold, under monetary nationalism the money supply of each country, and the exchange rate between them, was to be determined in international agreements and meetings. Germany suffered from hyper-inflation after the Treaty of Versailles had imposed large reparations on it and it sought to repay them using inflation. Britain had major problems with the flow of gold from its shores to France and the United States as it attempted to maintain a gold standard but with a rate that overvalued the British pound and undervalued gold. The first major treaty of the century of monetary nationalism was the 1922 Treaty of Genoa. Under the terms of this treaty, the U.S dollar and the British pound were to be considered reserve currencies similar to gold in their position in other countries' reserves. With this move, the U.K. had hoped to alleviate its problems with the overvalued sterling by having other countries purchase large quantities of it to place in their reserves. The world's major powers signaled their departure from the solidity of the gold standard toward inflationism as a solution to economic problems. The insanity of this arrangement was that these governments wanted to inflate while also maintaining the price of their currency stable in terms of gold at prewar levels. Safety was sought in numbers: if everyone devalued their currencies, there would be nowhere for capital to hide. But this did not and could not work and gold continued to flow out of Britain to the United States and France. The drain of gold from Britain is a little-known story with enormous consequences. Liaquat Ahamed's *Lords of Finance* focuses on this episode, and does a good job of discussing the individuals involved and the drama taking place, but adopts the reigning Keynesian understanding of the issue, putting the blame for the entire episode on the gold standard. In spite of his extensive research, Ahamed fails to comprehend that the problem was not the gold standard, but that post-World War I governments had wanted to return to the gold standard at the pre-World War I rates. Had they admitted to their people the magnitude of the devaluation that took place to fight the war, and re-pegged their currencies to gold at new rates, there would have probably been a recessionary crash, after which the economy would have recovered on a sound monetary basis. A better treatment of this episode, and its horrific aftermath, can be found in Murray Rothbard's *America's Great Depression*. As Britain's gold reserves were leaving its shores to places where they were better valued, the chief of the Bank of England, Sir Montagu Norman, leaned heavily on his French, German, and American counterparts to increase the money supply in their countries, devaluing their paper currencies in the hope that it would stem the flow of gold away from England. While the French and German bankers were not cooperative, Benjamin Strong, chairman of the New York Federal Reverse, was, and he engaged in inflationary monetary policy throughout the 1920s. This may have succeeded in reducing the outflow of gold from Britain up to a pont, but the most important implication of it was that it created a longer bubble in the housing and stock markers in the United States. the U.S Fed's inflationary policy ended by the end of 1928, at which point then U.S. economy was ripe for the inevitable collapse that follows from the suspension of inflationism, What followed was the 1929 stock market crash, and the reaction of the U.S. government turned that into the longest depression in modern recorded history. The common story about the Great Depression posits that president Hoover chose to remain inactive in the face of the downturn, due to a misplaced faith in the ability of free markets to bring about recovery, and adherence to the gold standard. Only when he was replaced by Franklin Delano Roosevelt, who moved to an activist governmental role and suspended the gold standard, did the U.S. recovery ensue. This, to put it mildly, is nonsense. Hoover not only increased government spending on public work projects to fight the Depression, but he also leaned on the Federal Reserve to expand credit, and made the focus of his policy the insane quest to keep wages high in the face of declining wage rates. Further, price controls were instituted to keep prices of products, particularly agricultural, at high levels, similar to what was viewed as the fair and correct state that preceded the depression. The United States and all major global economies began to implement protective trade policies that made matter far worse across the world economy. It is a little-known fact, carefully airbrushed from the history books, that in the 1932 U.S general election, Hoover ran on a highly interventionist platform while Franklin Delano Roosevelt ran on a platform of fiscal and monetary responsibility. Americans had actually voted against Hoover's policies, but when FDR got into power, he found it more convenient to play along with the interests that had influenced Hoover, and as a result, the interventionist policies of Hoover were amplified into what came to be known as the New Deal. It's important to realize there was nothing unique or new about the New Deal. It was a magnification of the heavily interventionist policies which Hoover had instituted. A precursory understanding of economics will make it clear that price controls are always counterproductive, resulting in surpluses and shortages. The problems faced by the American economy in the 1930s were inextricably linked to the fixing of wages and prices. Wages were set too high, resulting in a very high unemployment rate, reaching 25% at certain points, while price controls had created shortages and surpluses of various goods. Some agricultural products were even burned in order to maintain their high prices, leading to the insane situation where people were going hungry, desperate for work, while producers couldn't hire them as they couldn't afford as they wages, and the producers who could produce some crops had to burn some of them to keep the price high. All of this was done to maintain prices at the pre-1929 boom levels while holding onto the delusion that the dollar has still maintained its value compared to gold. The inflation of the 1920s has caused large asset bubbles to form in the housing and markets, causing an artificial rise in wages prices. After the bubble burst, market prices sought readjustment via and drop in the value of the dollar compared to gold, and a drop in real wages and prices.The pigheadedness of deluded central planners who wanted to prevent all three from taking place paralyzed the economy: the dollar, wages, and prices were overvalued, leading to people seeking to drop their dollars for gold, as well as massive unemployment and failure of production. None of this, of course, would be possible with sound money and only through inflating the money supply did these problems occur. And even after the inflation, the effects would have been far less disastrous had they revalued the dollar to gold at a market-determined price and let wages and prices adjust freely. Instead of learning that lesson, the government economists of the era decided that the fault was not in inflationism, but rather, in the gold standard which restricted government's inflationism. In order to remove the golden fetters to inflationism, President Roosevelt issued an executive order banning the private ownership of gold, forcing Americans to sell their gold to the U.S. Treasury at a rate of $20.67 per ounce. With the population deprived of sound money, and forced to deal with dollars, Roosevelt then revalued the dollar on the international market from $20.67 per ounce to $35 per ounce, a 41% devaluation of the dollar in real terms (gold). This was the inevitable reality of years of inflationism which started in 1914 with the creation of the Federal Reserve and the financing of America's entry into World War II. It was the abandonment of sound money and its replacement with government-issued fiat which turned the world's leading economies into centrally planned and government-direct failures. As governments controlled money, they controlled most economic, political, cultural, and educational activity. Having never studied economics or researched it professionally, Keynes captured the zeitgeist of omnipotent government to come up with the definitive track that cave governments what they wanted to hear. Gone were all the foundations of economic knowledge acquired over centuries of scholarship around the world, to be replaced with the new the ever-so-conventient conclusions that suited high time-preference politicians and tallitarrian governments: the state of the ecomony is determined by the level of aggregate spending, and any rise in unemployment or slowdown in production nad no underlayed causes in the structure of productions or in the distortion of markers by central planners ; rather it was all a shortage it spending , and the remedy is the debauching of the currency and the government saving reduces spending and became spendeng is all that matters government must do all it can to deter its citizen from saving imports driver workers auy of work so spending increases must go government and this message and known that translated to German at to the introduction to german Keynes wrote. Quoted in Henry Hazlitt, *The Failure of New Economics*, p. 277. Here is a summary of the main points: * The Great Depression was caused by government control and socialization of the economy and it deepened by the abandonment of the gold standard. * Keynesian economics are the primary culprit in causing the depression. * The new deal was just a magnification of Hoover's policies. Hoover ran on a very interventionist platform. * There was global consensus post-World War 2, that the depression was not caused by inflationism. * There was no trade off in politics between different groups. I hope this transcription is helpful! Let me know if you need any further assistance.