Hey Judy Shelton: Enough already with the Gold Standard
Judy "one note" Shelton again graces the opinion page of the WSJ with an ode to the long defunct Bretton Woods system. Here is one freaky passage out of many:
"At the bottom of the world financial crisis is international monetary disorder. Ever since the post-World War II Bretton Woods system -- anchored by a gold-convertible dollar -- ended in August 1971, the cause of free trade has been compromised by sovereign monetary-policy indulgence."
Wow, people. Where to begin to parse this mess? Sentence #1 is completely false. At the bottom of the world financial crisis is a housing bubble and inadequate allowance for risk. Sentence #2 is misleading at best. Trade has exploded since 1971. Of course she could be arguing that it would have grown even faster, but that case is not being made. Further, internal politics in poor countries and rich country lobbies have compromised "the cause of free trade" by several orders of magnitude more than have any monetary shenanigans.
People, the Bretton Woods system never really worked. In the late 40s and early 50s there were massive devaluations undertaken without IMF permission. Throughout the 50s the US allowed Europe to discriminate against US goods. Full currency convertibility for trade didn't occur until the mid 60s, so the system as designed really started then, lasted well less than a decade, and was pretty much perpetually in crisis.
A world wide system of fixed exchange rates just won't work in a world of free capital flows, unless domestic government forsake all internal considerations and dedicate their monetary policies 100% to the peg. We have seen that no modern societies, whether democratic or autocratic are will to do this.
So Judy, repeat after me: (1) floating exchange rates have almost nothing to do with the current financial crisis. (2) The Bretton Woods system never worked as designed for any reasonable period of time. (3) Advocating a return to a pseudo gold standard is equivalent to howling at the moon given the political realities of our modern world.
People, a great book on all this stuff is Barry Eichengreen's "Globalizing Capital". Easily readable by non-economists and incredible informative and well written.