Finally, I finished listening to Lords of Finance: The Bankers Who Broke the World. (Longer book than I was expecting). This book came recommended by a friend who I find has immense knowledge on economics – not only world related events, but personal strategies as well.
The suggestion came after having talking about the gold standard in the U.S.. You might have come across comments on social media how some people point at the end of the gold standard as the start of many ailments in the U.S. – in particular the national debt.
At a high-level, leaving the gold standard seems to coincide with national debt. Perhaps it is the reason. However, this book shows how this stubbornness to abide to the gold standard basically created a cascade of crisis that resulted in the 1930’s Great Depression.
This gold standard concept also illustrated a important concept: a static currency combined with growth is not good.
It’s so weird. We all heard the analogy to illustrate inflation: if we have a society with $10 and 10 apples, then $1 would get you 1 apples. If we double the amount of money, say to $20. Then, $1 is no longer enough, [math] \frac {10 apples} {20 dollars} [/math] means 1 dollar = 0.5 apple. You need 2 dollars for 1 apple. INFLATION!
OK, how about we take the same logic and say, what happens if we live in an growing country were we learn to innovate, produce more apples with the same amount of money in the economy. We can now produce 20 apples with $10. [math] \frac {20 apples} {10 dollars} [/math] means 1 dollar = 2 apples.
Yay! Now there is abundance!
But wait… Now we have deflation. There is a surplus of apples and people don’t eat that many apples, so producers start cutting prices to be able to sell and recover the investment. Layoffs follow because earnings are down. One apple store cannot survive and it shuts down. Now you have rising unemployment. In other industries the progress turns to waste. It’s CHAOS!
Of course, I’m exaggerating with the example above. The point the book and my economist friend is that the gold standard is not a good idea. It worked because of the coincidence that gold mining was enough to match productivity. It reality, having a fixed-economy (static amount of money), is incompatible with our addiction for growth.
Apparently a fixed-economy would work if we focused on things like longevity and quality of products, well being, and a suggested model – some say the only compatible one – for a world with finite resources like ours. But, that seems to be a whole area of macro-economics studies. And it also involves restructuring of society, something I hope it happens but not while I’m around.
In Conclusion
The book’s content is good. I’m not going to sugar coat it, it’s sometimes a bit slow or thick to follow, but I would recommend to anyone who likes history and economics.
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