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Gold Standard .pdf



Original filename: Gold Standard.pdf
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Gold standard refers to a monetary system in which specific amount of gold is used as
the unit of account or as medium of exchange. Trust my Paper service will tell you a little
about gold standard here.
In the early 1930’s the monetary system was gold standard, this was the era in which the
greatest catastrophe to ever occur in the economic history was experienced. Many economics
have tried to offer explanations on what led to the catastrophe which is popularly known as
the great depression. Many scholars have postulated that the gold monetary systems largely
contributed to the 1930’s economic crisis.
Gold standard had been outlined as outstanding monetary system that would
guarantee stable prices and minimum government intervention. As international financial
system it provided stability of exchange rate throughout the world. The stability offered by
the monetary system encouraged foreign investment thus making countries such as France
and Britain to invest much of their resources abroad thus leading to the expansion of the
international economy. The advantage of the gold standard was that government could not
manipulate currencies through devaluation so as to encourage exportation. In addition they
could not stimulate the domestic demand since the countries adopting the gold standard
lacked the capability of expanding the money supply. Therefore, the only way was to cost of
production through reduction of wages.

Gold was viewed as civilized since the government was able to control amount of
gold in circulation, through selling and buying gold at fixed price. This act by the government
created discipline in the market, thus promoting economic stability.
Until today the great depression has remained a riddle to many economic and history
scholars they have regard the 1930, as greatest unresolved mystery, since economist fail to
provide a logical explanation on the mystery of great depression. Some scholars argue that,

when states were formulating policies and procedures so as to adapt the gold standard system
in the late 1920’s, their actions led to economic distress later in the 1930’s. During this era
this was both political and social pressure discouraging the abandonment of this monetary
system but this policies and procedures did not match the requirements of the economies.
The rigidity of these policies and procedures and institutions created in the adoption
period constrained the central banks and government to adopt measures that could resolve the
adversity experienced. Any efforts by the central banks or the government only worsened the
situations, thus in bid stabilize the economy; the government undertook discretionary
measure to deflate the economy. The central bank adopted measures that would restrict credit
in an effort to lower the domestic cost and prices. This was triggered by increasing gold
losses and deficits in the balance of payments. In addition there was a proposition to reduce
the wages in the labour market so as to decreases the disposable income and thus achieve
international equilibrium.
The gold standard suffered a blow due to the inflexibility of the wages thus causing
the labour cost to lack fluidity. This had been heightened by the increasing unionization and
emergences internal labor markets. The gold monetary system had inadequate mechanism to
correct this market imperfection, therefore, this resulted an economic recession.
Gold convertibility was in question and this made the working class together with
some elites in the society that to oppose the gold standard policies and ideologies at the early
1930’s. This highly contributed to the great depression since the pressure mounted by this
group over boiled in the 1930’s.
The deflationary ideology was associated with the gold standard this ideology were
destructive to the economy since they increased unemployment the economy. Gold standard
advocated for deflation of the economy thus lowering cost of labor, this resulted to increase

in the level of unemployment in the economy, thus creating the army of unemployed. In
addition to these, the gold standard led to abolishment or rather discouraging workers from
joining trade unions. This led to creating a docile workforce, thus making the workers to
become dissatisfied. When the world arose the already established army of unemployed had
nothing to lose since the standards of living were already deteriorating. Therefore, they joined
the war in an effort to challenge the current status quo.
The Great War brought a lot of transformation on the policies that were in operation
when proponents of gold standard employed. Therefore, all anti gold standard united to
overthrow the proponents of the gold standard, thus bring the gold era standard to an end.
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