How good was gold? (compared with Bretton Woods and the float)

But is the argument fair though, that the growth we see in Latin America, parts of Africa, China, India etc, couldn’t have occurred under Bretton Woods? (Or should I read the article? Also not sure what the CA is in the charts..could be China?)

Part of the problem here (and indeed with econometrics generally) is that the ceteris is so very far from paribus. It’s very hard to know how much of the differential in growth rates to put down to the monetary regime, and how much to put down to other factors.

Indeed. I’d nearly go so far as to say that summary statistics like this are all but useless. All else equal, growth would be higher for 1946-1970 than 1975-1990 just because of Solow convergence. And that’s before we get into things like taxes, trade, and education levels.

Great charts. I assume they are mostly directed at me, so I’ll start by admitting that I overstated the case in the other thread: it wasn’t just white male American labor that benefited from BW. Mostly-white male labor in already-industrialized societies did well too. I’ve read Bordo (and Eigengreen) on this and I have no quibbles with their work. And you might have no disagreement with what follows, but I see a lot of folks wishing for the glory days without really understanding what entailed, so here’s a full fleshed-out take of my view:

What’s not clear (to Bordo/Eigengreen, or me) is how much of BW’s success was due to re-industrialization following the war, and how much to the institutions themselves. Standard macro would suggest a lot of the latter, as under-utilized productive capacity was put to productive use and agglomeration effects took hold. What is clear is that BW was exclusionary: pre/quasi-industrial economies had a very difficult time modernizing under that system. Hence ISI, NIEO, Singer-Prebisch, Wallerstein, etc. The legacy of that exclusion has been severe and long-lasting in many of these places, as were many of its effects at the time. It’s significant (to me anyway) that the internationalist left — as opposed to domestic labor movements in industrialized countries — was strongly opposed to BW at the time.

It’s also clear, or at least likely, that BW wasn’t going to last given the configuration of domestic political institutions in the principal BW countries. Remember that European convertibility wasn’t re-established until 1958, and the two-tier gold structure began in 1968. So we’re really only talking about 10 years where “BW” was actually BW. The eurozone did well for a decade too… doesn’t mean it was built on a solid foundation. Growth was strong from 1945-1958 — as strong or stronger in most places than it was from 1959-1968 — which indicates (to me) that re-industrialization was playing a big role in the positive growth experience. I do think BW policy commitments had a positive impact on domestic distribution in the countries which experienced growth, but global inequality spiked during this period.

Capital controls may have been good at preventing crises in the Core, but it also meant little investment in the periphery. It meant that export-oriented industrialization, perhaps the biggest development success in human history (albeit with some real downsides), was not viable as a global development strategy. As I said in the other thread, dependency theory works pretty well during the BW period; much less well after.

From 1945-1970, the US went from 50% of the world’s manufactures production to 20-25%, where it has mostly stayed ever since. That 25-30% was distributed among Western Europe and Japan… good for them, not good for labor in the South. The overall pie got bigger… good for US labor. But it was based on a contradiction that the US could somehow simultaneously provide a growing world economy with sufficient liquidity and keep parity with gold. Keynes knew this was a lie. Something had to break, so it did.

So if we could get BW back, that would (in practice) mean preventing EOI countries from manipulating the balance of payments to boost domestic employment. This would probably good for Western labor, true, and it would probably be bad for Western capital, true, and it might help mitigate certain types of financial crises, true, but the cost would be pretty high. And, given that there is little re-industrialization to capture, the growth experience would almost certainly be worse than it was from 1959-1968.

KW:
I do think BW policy commitments had a positive impact on domestic distribution in the countries which experienced growth, but global inequality spiked during this period.
But doesn’t one have to trace the North-South divergence in growth rates back to the 19th c., which is when the divergence really opened up? (I know, a fair amt of the global South was colonies well into the 20th c., but the general point stands, I think.)

What is clear is that BW was exclusionary: pre/quasi-industrial economies had a very difficult time modernizing under that system. Hence ISI, NIEO, Singer-Prebisch….
One of Prebisch’s main arguments iirc had to do w declining terms of trade for primary commodity exports vs. manufactured exports. I mostly forget the causal story he gave, but did it have all that much to do w fixed exchange rates and the dollar-gold connection? That isn’t my (admittedly rather vague) recollection. Yes, I could look it up, I suppose…

Somewhat OT in that it relates only to the U.S., but speaking of charts, this one (I forget where I first saw it mentioned, prob. on a thread here) is rather striking:
http://www.dissentmagazine.org/blog/the-arc-of-inequality

The long run inflation figures are interesting, but I’d be at least as interested in the mean (absolute value of the) year-over-year change in the price level. If it is going up and down by 5%/year, that can be as disruptive and make planning at least as hard as a steady 5% increase each year, but it will not show up in the long run figures.

The period chosen to present inflation for the classic gold standard (1881-1913) is almost cherry picked for price level stability. In the US, and I believe internationally, prices fell from the 1870s through about 1896 (esp. rapidly from about 1892-1896), following the Civil War inflation, and then began climbing again from about 1896 through about 1921, when the Fed instigated its first ever (I believe) recession to purge the system of the WW1 inflation.

Thus the long term inflation of the 2nd half of that period balanced out the long term deflation of the first.

I used to know this bit of history quite well (c. 25-30 years ago), and have not looked it up for this post, so perhaps my middle-age memory is playing tricks on me, but this is my story, and I’m sticking to it (until someone shows me I’m wrong)!

The first chart tracks fairly closely international discovery of major oil fields.

Kindred @19
I wrote a longish reply and then hit the wrong keys and it vanished. Short version: I basically follow what you are saying here; am wondering whether this is — esp. w/ reference to the main pt re the distributional and other effects of the ‘end’ of BW — the standard consensus IPE view, or something more particular to you? (I assume the former but am not absolutely sure.)

@LFC

I’m not sure there’s a “standard IPE” view on this, insofar as mainstream IPE is concerned mostly with comparative statics rather than dynamics. E.g., I don’t see many IPE folks tying increased US inequality (or the rise of neoliberalism) from 1970-now to the collapse of BW. And I think the standard IPE view of dependency theory is that it is just plain wrong, not that it was more-or-less right under BW but then stopped being right when BW stopped existing. (In fact, I heard Milner say something like that at ISA just last week.)

Also, IPE tends to be eurocentric so they/we spend a lot more time parsing the experience of the West — like the charts in the OP — than parsing what was going on in the “Rest”. As I’m sure you know, I think this is a fool’s game: the experience of the West is contingent upon the experience of the Rest (and vice versa).

That said, if I told this story to most IPE folks I doubt they’d see much that was objectionable in it. I’m just not sure a lot of them would construct it on their own without a decent amount of prodding. I could be wrong about that.

But most IPE folks aren’t surprised by the eurozone crisis (unlike the subprime crisis); Oatley called it before the euro even came into being (in his dissertation, later published by U of Mich Press). One of the most well-known IPE books is Simmons’ *Who Adjusts?* which describes the politics surrounding the end of the interwar gold standard. The same general framework could fairly easily be applied to BW, and maybe it has. But I’m not aware of a general treatise on it.

Steven Vickers @5
“Given that the top-four performing economies by GDP growth in the 1946-1970 period were, in order, Japan, Italy, Germany, and France, would the main takeaway from the graph be that after you are recovering from a devastating war taking place on your territory, your GDP tends to grow relatively rapidly?”

So what about the interwar period then?

Reason in #24: “So what about the interwar period then?” WWI damaged the industrial base locally in Northern France. Battlefields elsewhere (Veneto, Galicia, East Prussia) were not SFIK in industrial areas. The two cataclysms were very different. WWI killed a high proportion of young men, so could lend itself to a Schumpeterian explanation of interwar stagnation in Europe as a result of reduced youthful dynamism. Unfortunately that clashes with the comparatively worse performance of the USA, with proportionately lower casualties.

Why do Economist always turn arguments about the economy into economics ?
far as i can see, gold std is probably a lot less important the FDIC, good medical care, etc.

The fact is, technological progress is a lot more important then things like the gold std; the clearest current example is the (very scary) projected cost of healthcare.

This is absolutely NOT an economic problem; it is a technological one;

I mean, why does it cost more then about 1,000 dollars for open heart surgery ?
Once you start asking “unreasonable” questions like that (another great example is , since google is so bad, why are they so popular) you see that the answer is technology.

Billikin,
“After WWII, how can we lump the defeated Axis powers with everybody else? The same goes for Germany after WWI.”
We didn’t – they are graphed seperately. I agree that a timeline (5 y moving averages for instance) would have been more informative.

But not enough to extend the floating exchange rate regime data down to the present; that’s actual work.

Challenge accepted: Updated version of your charts here.

In brief: Inflation in “Floating” regime period falls, as does GDP (although to a notably lesser extent).

Billikin,
“After WWII, how can we lump the defeated Axis powers with everybody else? The same goes for Germany after WWI.”
Reason: “We didn’t – they are graphed seperately. I agree that a timeline (5 y moving averages for instance) would have been more informative.”

But the reader has to be aware of the differing conditions that make them different. They are presented as though the differences are random.

Grant @32
What is interesting is how the period of floating exchange rates has equalised long term per capita growth rates compared to any previous experience. In fact to a truly amazing extent. One suspects that this is not really about the exchange rate regime, but about the disappearance of capital controls.