Bumps, Dips, Bubbles, and Storms
The Return To Gold
Throughout the 1920s most of the world returned to gold because the Classical Gold Standard had worked so marvelously well before WWI. It was the greatest period of international trade and stability the world had ever seen and the world longed for the good old days. But the standard they chose wasn’t the classical gold standard of the prewar period. It was a pseudo gold standard called the Gold-Exchange Standard.
“The classical gold standard of the prewar period functioned reasonably smoothly and without a major convertibility crisis for more than thirty years.” – “…the prewar gold standards was a hegemonic system, with Great Britain the unquestioned center. In contrast, in the interwar period the relative decline of Britain, the inexperience and insularity of the new potential hegemon (the United States), and ineffective cooperation among central banks left no one able to take responsibility for the system as a whole.”
Ben S. Bernanke