Winston Churchill’s Gold Standard Folly; The 1929 depression
Though he had his ups and downs, his failures as well as successes, he remains one of the most important and respected figures of the 20th Century.
No human is super-human. Everyone makes mistakes. Nobody knows everything. Sometimes even the best screw up.
I am personally a friend and advocate of the gold standard, but I believe that when Churchill attempted to restore the British pound’s connection to the yellow metal, he erred in a way that produced monumentally negative consequences for Britain and the world.
Britain suspended the pound’s convertibility into gold during the calamity of World War I. Doing so allowed the government to print a volume of paper money its gold reserves wouldn’t otherwise permit.
The value of the pound fell, and price inflation soared. In the early 1920s, a public debate began around whether Britain should return to the discipline of the gold standard.
He became Chancellor of the Exchequer (the equivalent of Treasury Secretary) in 1924
The problem with the Churchill plan was not restoring gold’s place in the monetary system; it was fixing it at the pre-war rate instead of a rate that reflected the paper pound’s deterioration
The late Austrian School economist Percy Greaves explained this flaw in his excellent book, Understanding the Dollar Crisis.
Understanding the Dollar Crisis | Mises Institute
When England went back on the gold standard in April 1925, with the pound valued at $4.86, she had raised the value of the pound about 10 percent
RE: RPT 10 procent, dollarn är långt mer övervärderad i dag.
above its average value of about $4.40 on the open market the previous year.
This seemingly minor price-fixing mistake cascaded into a series of destructive results. British export industries suffered hugely, especially coal, leading to strikes and slowdowns.
America’s Federal Reserve Bank depressed interest rates at home and deliberately weakened America’s currency. In other words, to help Britain pretend its pound was stronger than it was, America’s central bank acted to make the dollar weaker than it was.
We know the rest of the painful story.
Much of the currency and credit expansion—and the artificially cheap interest rates and Roaring 1920s boom that set us up for the Great Depression—was prompted by the Churchill blunder and the Fed’s efforts to paper it over.
(See Great Myths of the Great Depression for more on this sad saga of failed interventions.)
Great Myths of the Great Depression
The Economic Consequences of Mr. Churchill
Essays in Persuasion by John Maynard Keynes
https://www.economicsnetwork.ac.uk/archive/keynes_persuasion/
Hur det kom sig att England övergav guldmyntfoten 1931
Många föreställer sig gärna att Englands beslut att överge guldmyntfotens fasta växelkurs och låta pundet flyga var ett resultat av skarpsinniga överväganden hos ledningen för Bank of England, regeringen och finansdepartementet.
Men så var det inte. Så smarta var de inte.
Englands beslut att lämna guldmyntfoten framkallades av att det rådde myteri inom Royal Navy, ett myteri framkallat av de lönesänkningar som regeringen beslutat om.
https://englundmacro.blogspot.com/2023/12/historians-need-reality-check-on-great.html
Kindleberger’s work showed that tariffs were only part of the story and not even the most important.
The bust in stock markets was transmitted to commodities and trade through a collapse in credit and waves of bank failures as people everywhere rushed to get hold of gold, dollars and British pounds, the reserve currency before the Great War.
What turned all this into a full-blown global depression was the collapse of a small bank in Vienna in 1931
https://englundmacro.blogspot.com/2025/02/who-will-now-stabilise-world-economy.html
The 1929 depression
https://www.internetional.se/shares.htm#bbc16
Tillbaka till Rolfs länktips 29 april 2025
https://englundmacro.blogspot.com/2025/04/rolfs-lanktips-29-april-2025.html
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