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Comment by greenavocado | Hacker News Reader

The gold standard didn't cause stagflation. Government overreach did. Germany conquered inflation in 1923 by re-pegging to land (the Rentenmark) then gold (the Reichsmark) a few months later. The rchitects of this system KNEW what they were doing. Treasury Secretary Connally's infamous quipped to European ministers: "The dollar is our currency, but your problem." This wasn't economic theory, it was a declaration of financial imperialism. They didn't solve stagflation but instead they exported inflation globally while buying time with an explosion of debt that future taxpayers (that's us) would inherit. The 1971 decision didn't solve stagflation it just kicked the can down the road while turning America from the world's greatest creditor to its largest debtor. Now we're living in the endgame: a debt-to-GDP ratio over 120%, a hollowed-out industrial base, and a generation that can't afford homes while wall Street racks up record bonuses.

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Hyperinflation in Germany was deliberate. And Germany didn't just decide on its own to return to the gold standard. European countries drifted away from gold during WWI, and then they all slowly returned to it in the early 1920s. In the case of Germany, its return to the gold standard was required by the Dawes Plan, a plan by the US to ease the effect of reparations on Germany so they'd cease the hyperinflation shenanigans.

Once Europe returned to the gold standard, it saw widespread deflation and consequent unemployment, particularly in the UK and Germany. The effects of deflation caused by a return to the gold standard, and related issues in the US and France which accumulated much of world gold reserves, is widely considered a major cause of both the Great Depression and the rise of fascism. Notably, deflation contributed to a rapid trade deficit increase in Germany.

Some light reading:

https://www.cato.org/blog/world-war-i-gold-great-depression

https://cepr.org/voxeu/columns/did-france-cause-great-depres...

https://www.brookings.edu/articles/germanys-trade-surplus-is...

https://eml.berkeley.edu/~eichengr/fetters_gold_paper.pdf

> The 1971 decision didn't solve stagflation it just kicked the can down the road

It kicked the can down the road for half a century. It bought a lot of time. This approach, of betting on a miraculous solution in the future, is deeply ingrained in policy making; it’s not unique to the neoliberal reform. In fact, the next solution could just be figuring out how to kick the can again.

The next phase looks like it will entail gov intervention, by issuing loan guarantees, or by mandating the investment of national savings into specific industries, like manufacturing and energy. Capital misallocation and the return of stagflation will lead to another crisis, but in a few decades from now.

Pegging to gold by itself doesn’t really solve anything, if the overarching system remains based on relentless exploitation by selfish interests. Sooner or later, overdraft facilities will emerge for gold that doesn’t exist; so, the traumatic cycles of boom and crash will be repeated. Not to mention the deflationary dynamic, which will overwhelmingly favour those who already own gold. In general, you can’t de-politicise monetary policy (by fixing its supply), without inevitably amplifying the overarching system.

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