From Crisis to Crisis: Theory and History of Capitalist Crises
There is no shortage today of reactionary romanticism about the gold standard. Especially in the US, where Ben Bernanke has opened the floodgates with multiple waves of quantitative easing, those on the libertarian right are openly longing back for the stable days of old, when a dollar was a dollar, and it could still be redeemed in gold. But would a return to the gold standard really be such a good idea? The answer is no — at least not for the 99 percent.
As Barry Eichengreen, an economist at UC Berkeley and one of the foremost experts on the Great Depression, has pointed out, the gold standard greatly contributed to the severity of the depression. Stuck inside a monetary straitjacket, governments found themselves depleting their reserves in order to maintain their fixed exchange rates, leaving them incapable of mobilizing the fiscal firepower to nationalize the banking system and engage in stimulus spending. Thus, while it was designed (as Susan Strange pointed out in Casino Capitalism), to provide global monetary stability by minimizing the exchange rate risks for financiers and exporters, the gold standard actually ended up being a noose around the neck of central banks and policymakers alike.
Ultimately, governments were left with only one policy option in response to the crisis: internal devaluation — beautiful economic doublespeak for wage repression. This appears to have been a major contributing factor to both the severity of the slump and the escalation of human suffering. The question that arises, then, if we look at the ongoing European debt crisis, is stark: is the euro not today’s version of the gold standard? Are Europe’s peripheral economies not locked inside a similar straitjacket today? The EMU’s fixed exchange rate regime has left countries like Greece incapable of devaluing their currencies or monetizing their way out of debt.
In the end, it has left peripheral governments with only one possible policy response: draconian austerity measures. The days of the gold standard may be long past, but the brutality of fixed exchange rates lingers — from Argentina to East-Asia and on to Europe. As the economists Carmen Reinhardt and Kenneth Rogoff correctly pointed out in their latest book, This Time Is Different, this time might actually not be so different after all…
Source URL — https://roarmag.org/essays/crisis-euro-gold-standard-eichengreen-rogoff/