Gold Standard And Its Collapse

Question 1

Para 1 Point:

Answer 1

It worked at first because Britain led and everyone played the rules of the game.

Question 2

Para 1 Facts:

Answer 2

• pre 1914 Britain was the clear leader.
• The BOE adjusted interest rates to manage fold flows and global liquidity, and other countries followed.
• gold was easily transferable and capital could flow freely across borders, allowing the system to self correct
• rules of the game: defend gold parity, allow automatic adjustment through prices and wages, no capital controls and use monetary policy to maintain convertibility.
• after WW1 countries tried to restore the gold standard but it could not uphold as the rules were not followed.

Question 3

Para 1 historian:

Answer 3

Embedded Orthodoxy, describes this period where policy makers accepted recessions or wage cuts at the price of monetary stability, with shared expectations.

Question 4

Para 2 Point:

Answer 4

War left huge debts, uneven gold holdings and mis-set exchange rates.

Question 5

Para 2 Facts:

Answer 5

• After WW1 countries tried to restore the gold standard but the rules were not followed.
• for example France used an undervalued rate making their exports cheap leading to a trade surplus and instead of expanding the money supply they kept interest rates high.
• this withdrew liquidity from the global system, amplifying deflationary pressures.
• whilst countries such as Germany were determined to defend gold.
• the US had huge debts and imbalanced gold
• as gold flowed into the US, Europe was drained, leading to 37% fall in industrial output.
• countries that left early like Britain recovered faster
• GS lacked flexibility worsening economic downturn.

Question 6

Para 3 point:

Answer 6

Trade unions meant voters care more about jobs than fixed exchange rates

Question 7

Para 3 Facts:

Answer 7

• the final blow came from political transformation
• universal suffrage, mass trade unions and rising worker expectations made it impossible to sacrifice domestic employment for gold
• voters now demanded jobs, wages and social spending.
• in Germany austerity to defend gold included 10% wage cuts and massive social spending cuts, with rising unemplyment.
• this led to political instability as the Nazi vote surged.

Question 8

Para 3 Historian:

Answer 8

Temin, supports the idea that political rigidity deepened the crisis and was a contribution to the Great Depression.

Question 9

Para 3 Evalution:

Answer 9

Lucas, believes that markets would self correct.

However, he downplays the role of political constraints and how they evolve.