Gold Standard Madness Engulfs the GOP

27 08 2012

So, the Republican Party has endorsed the idea of the United States returning, unilaterally, to the gold standard. Wow! Has the right-wing fringe really taken over the GOP? The answer to this question is basically no. The chances of Mitt Romney or any other Republican President returning the US to the gold standard are basically zero. Ronald Reagan spoke about the possibility of studying a return to the gold standard when he running for the Republican nomination in 1980. After he became President, he essentially dropped the idea.

A recent poll of economists found that they were unanimous in regarding a return to the gold standard as a bad idea. The economists polled included people with divergent views on other issues.

GOP’s endorsement of the gold standard has occasioned an outburst of scorn and condemnation by commentators similar in proportion to that meted out Todd Akin for his reprehensible comments about rape. The good thing about this stream of abuse is that it has helped to educate the public a bit more about economic history. In attacking the gold standard in a newspaper column, you have to explain what it was, when it is existed (in its classical form, late 19th century/early 20th century), and why it was a bad idea (the golden fetters created by the gold standard exacerbated the Great Depression of the early 1930s).  Lots of great graphs and tables about the gold standard have been published in recent days.

Here are a few of my favourites.

Gold standard advocates like to argue that the gold-standard era was characterized by price stability. Matthew O’Brien of the Atlantic brought us this graph in the course of showing that this wasn’t the case at all.

Gold-standard advocates often assume that the value of gold is fairly stable. Paul Krugman reminds us that it is actually pretty volatile, much like the price of any commodity.

Barry Eichengreen’s essay on the lunacy of a return to the gold standard is essential reading for all concerned.

P.S. Eric Rauchway has published a great post on the GOP’s call for a return to the gold standard.  So why on earth is deflation so hot with the GOP set, whose core constituencies are the same as the Bryanites of the 1890s who opposed the gold standard as the instrument of those who crucified Our LordRauchway is making a good point– the regions and social groups that voted for the Democrats and against the gold standard in 1896 are  precisely those regions and groups that are now the base of the Republican Party (white Southerners, evangelical Protestants, farmers on the Great Plains). The blue states that now vote Democrat are the urban, secular, industrial, and cosmopolitan areas of the country that voted for McKinley and the gold standard in 1896.

British Banks, U.S. Politicians, and the Return of Anglophobia

17 08 2012

Canary Wharf at Night

British banks have been the subject of a wave of criticism by U.S. politicians in recent months. The Libor Scandal and the money laundering charges against HSBC’s Mexican operations grabbed headlines earlier this summer. Last week, the New York Department of Financial Services accused Standard Chartered, a London-based bank, of violating the U.S. sanctions on Iran. Some British observers have argued that these accusations are motivated by simple protectionism and a desire to ruin London’s reputation as a financial centre and thus drive business back to New York. Many Britons remember that in the aftermath of the 2010 Deep Water Horizon oil spill in the Gulf of Mexico, American politicians stressed that “British Petroleum” was a foreign entity.

The attacks on British corporations in the United States appear to have involved a certain amount of grandstanding by Congressmen and ambitious prosecutors. However, the frequency and virulence of these attacks may also be a sign of decreasing American self-confidence in an age of perceived relative decline. We have seen the revival of the sort of anti-British sentiment that was last popular in the United States in the nineteenth century, when Britain was still the world’s most powerful nation.

Pulling Down the Statue of King George III, N.Y.C. A romanticized depiction of the Sons of Liberty destroying the statue after the Declaration was read by George Washington to citizens and his troops in New York City on July 9, 1776.

Pulling Down the Statue of King George III, N.Y.C. A romanticized depiction of the Sons of Liberty destroying the statue after the Declaration was read by George Washington to citizens and his troops in New York City on July 9, 1776.

Prior to the First World War, Britain was the primary target of U.S. economic nationalism.  Most Americans welcomed British investment in the American economy but they also feared it might undermine their political independence.  Memories of the American Revolution and the War of 1812 were still fresh.  During Andrew Jackson’s war with the Second Bank of the United States in the 1830s, critics of the bank noted that some of its shareholders were British. Britain’s perceived support for the cotton-producing South in the Civil War intensified Anglophobia in the northern states.

After 1865, both of the major political parties engaged in selective Brit-bashing. The Republicans, the protectionist party, focused on the need to keep the tariff high so as to include foreign manufactured goods, a policy that clearly harmed Britain, which was then the workshop of the world. Somewhat ironically, most Republicans were ardent supporters of the gold standard, which was essentially a British invention: in the nineteenth century, countries from Portugal to Japan adopted the gold standard so as to link their currencies to those of the world’s foremost power. Democrats typically favoured lower tariffs, a policy that was popular in the western and southern states and which would have helped British manufacturers. However, many Democrats were hostile to the gold standard. The 1896 Presidential election, which pitted Democrat William Jennings Bryan against Republican William McKinley, became a de facto referendum on whether the United States should remain on the gold standard. Republicans charged that departing from the gold standard would destroy the confidence of European, largely British investors and would, in effect, be an act of confiscation. Gold, they declared, was the currency of Western civilization, since only backward nations such as China still based their currencies on silver. The Republicans, along with their friends on Wall Street and in the City of London, predicted apocalyptic consequences should Bryan be elected.

McKinley stands on a gold coin, a very subtle reminder to voter that he supported the gold standard

For his part, Bryan replied that his Republican opponents were the henchmen of the great financial interests of New York and, above all, London. Bryan invoked the Declaration of Independence in his famous “Cross of Gold Speech” to the Democratic National Convention in Chicago. Taking issue with the Republican argument that the United States needed to be on the gold standard as long as Britain was on it, Bryan declared that “it is the issue of 1776 over again. Our ancestors, when but three million in number, had the courage to declare their political independence of every other nation; shall we, their descendants, when we have grown to seventy millions, declare that we are less independent than our forefathers?”[1]

To twenty-first century ears, Bryan’s rhetoric is remarkably similar to that sometimes used by leftist leaders in the Third World whenever they seize the assets of a Western company. In the 1890s, they were as American as apple pie.

The 1880 and 1890s also witnessed a political campaign in the United States against foreign, especially British investment. As historian Mira Wilkins has shown, the flood of British capital into the United States after 1865 contributed enormously to U.S. economic development: British investors financed everything from transcontinental railroads to ranches to factories. She also shows that there was a political reaction against British control.  British investors were demonized in some newspapers and laws limiting foreign investment were passed by some western states.[2]

In 1887, Congress prohibited land ownership by foreign citizens in the western territories in response to complaints from small ranchers that rich British cattle companies were engrossing grazing land.  This statute influenced state politicians: laws banning land ownership by non-citizens were passed in Illinois, Kansas, and Texas.[3]  The Glasgow Herald dubbed this trend the “Monroe Doctrine” applied to capital.[4] The attacks in the American press on William Scully, an Irish landlord who had acquired vast numbers of tenanted farms in the mid-west, intensified so much so that he decided to take the precaution of acquiring American citizenship in 1895.

Hostility towards British investment dissipated largely because of the growing power and self-confidence of the United States after 1914. The First World War dramatically changed the position of the United States in the world economy. Within the space of a few short years, it replaced Britain as the world’s largest creditor nation. In this new context, it was anachronistic to worry that British investment as somehow going to undermine American sovereignty. By 1945, the transition from British to American global hegemony was essentially complete: the City of London was just a shadow of its former self: Wall Street was now the undisputed financial capital of the world and the British economy was dependent on Marshall Plan aid. Few if any American politicians in the 1940s or 1950s worried about the extent of British economic power in the United States. In fact, they were more likely to complain about Britain being a charity case.

In recent years, we have heard much about America’s relative decline. Books with titles such as “The Post-American World” have become best-sellers. Those who speak about American relative decline usually focus on the rising fortunes of the BRIC countries, not Britain, which is itself suffering from the problems in the Eurozone. However, the fact a great deal of business migrated from Wall Street to London after the passage of SarbOx is a datapoint that has been used to support the overall narrative of American decline.

The sapping of American self-confidence and the resurgence of U.S. economic nationalism has serious implications for European companies, especially British ones. Britons may like to think that their close cultural ties and military alliance with the United States will protect their companies from U.S. economic nationalism. It may be that the social memory of the American Revolution will be a greater influence on U.S. thinking about British companies.  A certain degree of anti-British sentiment is still present in U.S. culture. Every U.S. schoolchild learns about the revolutionary struggle against British rule.  Even seemingly apolitical films have a whiff of Anglophobia: in the 1977 film Star Wars, the soldiers on the nefarious Death Star were played by actors with British accents.

All of this means that grandstanding U.S. politicians have a rich cultural legacy to tap into when targeting British firms.

[1] Speech by William Jennings Bryan in Official Proceedings of the Democratic National Convention Held in Chicago, Illinois, July 7, 8, 9, 10, and 11, 1896, (Logansport, Indiana, 1896), 226–234.

[2] Mira Wilkins, The History of Foreign Investment in the United States to 1914 (Cambridge, Mass: Harvard University Press, 1989), 566.

[3] New York Times, “Alien Land Law” 24 December 1891,  New York Times, “Irish Landlords in America” 20 March 1886.

[4] Glasgow Herald, leading article, 26 September 1891, 6.

 [ADS1]Citation needed

Martin Wolf on the Gold Standard

8 11 2010

The inimitable Martin Wolf has published a great blog post assessing the recent proposals that have been made for a return to the gold standard.

In short, we cannot and will not go back to the gold standard. As L.P. Hartley wrote, “The past is a foreign country: they do things differently there.” We cannot live in the 19th century. It is foolish to pretend that we can.
See here.