End of a golden era
It is safe to predict that Monday, September 21, 1931, will become an historic date; the suspension of the gold standard in Great Britain on that day, after the six years of painful effort which followed this country’s return to gold in 1925, marks the definite end of an epoch in the world’s financial and economic development.
— The Economist, “The End of an Epoch,” Saturday, Sept. 26, 1931
For years before and after the crash of 1929, Britain’s inflexible gold-based monetary policy and overvalued currency (relative to other major economies) stood as roadblocks to recovery after the First World War. The country’s fragile economy presented an ongoing risk of gold outflow to stronger nations, and the United States’ raging bull market during the 1920s had offered an ideal target for these gold-denominated investments. Once the Roaring ’20s ended in America, there was little that Britain could do to adjust its policies or to replenish its coffers without further weakening its economy against others with stronger industrial bases. At the time of its abrogation of the gold standard, Britain held an estimated $36.2 billion in debt, compared to a GDP of roughly $19.4 billion.
Some of the sharpest minds of the financial world hailed the move. J.P. “Jack” Morgan Jr., known for avoiding the press at all costs, broke his long public silence to say that “this step seems to me to be the second necessary stage in the work of the national government, the first being the balancing of the budget.” However, some British politicians may have been a little too optimistic. Chancellor of the Exchequer Phillip Snowden proclaimed that “British nationals who are abroad will render community service by returning home and spending their money here.” Quickly, citizens! Come spend at once!
Britain’s move didn’t quite stop the worldwide slide of economies and financial markets, but it did wind up indicating that the crash was closer to its end than its beginning. The country’s new expansionary monetary policies also helped rehabilitate a wrecked housing sector. However, leaving gold had a muted impact on Britain’s international trade, as other nations followed the move, which Britain itself followed up with a patchwork set of protectionist policies. British economic legend John Maynard Keynes later argued strongly against any return to the gold standard, saying in a British newscast:
It is a wonderful thing for our businessmen and our manufacturers and our unemployed to taste hope again. But they must not allow anyone to put them back in the gold cage, where they have been pining out their hearts all these years.
The United States soldiered on beneath the weight of the gold standard for another year and a half, before President Franklin D. Roosevelt ended that system in the spring of 1933. One final effort was made to sustain an international gold standard following the conclusion of the Second World War, but the America-centric Bretton Woods system eventually proved too much to bear, and the world has effectively operated without a gold standard since President Richard Nixon terminated convertibility in 1971. If history is any guide, any future efforts to return to a gold standard will last no longer than a generation before falling apart.
