The term “The Gold Standard” embodies a fallacy, one of the
most expensive fallacies which has deluded the world. It is the
fallacy that there is one particular gold standard, and one only. The
assumption that the widely divergent standards of currency
masquerading under the name of the gold standard are identical
has recently brought the world to the verge of ruin.
(Sir Charles Morgan-Webb, The Rise and Fall of the Gold Standard)
In the previous chapter we saw how the prewar gold standard was supported by a particular set of economic and political circumstances specific to that time and place. Interwar experience makes the same point by counterexample. Sterling, which had provided a focal point for the harmonization of policies, no longer enjoyed a favored position in the world economy. Britain's industrial and commercial preeminence was past, the nation having been forced to sell off many of its foreign assets during World War I. Complementarities between British foreign investment and exports of capital goods no longer prevailed to the extent that they had before 1913. Countries like Germany that had been international creditors were reduced to debtor status and became dependent on capital imports from the United States for the maintenance of external balance.
With the spread of unionism and the bureaucratization of labor markets, wages no longer responded to disturbances with their traditional speed.1 Negative disturbances gave rise to unemployment, intensifying the pressure on governments to react in ways that might jeopardize the monetary standard.2
1By the “bureaucratization” of labor markets, a term that follows the title of Sanford Jaco-
by's 1985 book, I mean the rise of personnel departments and other formal structures to manage
labor relations in large enterprises.
2 Using data from a sample of six industrial countries, Tamim Bayoumi and I (1996) found
that there was a flattening of the average slope of the aggregate supply curve, consistent with the