WEBVTT NOTE 57. The Gold-Exchange Standard in Operation: 1926-1929 1 00:00:00.000 --> 00:00:07.840 The Gold Exchange Standard in Operation, 1926-1929 2 00:00:07.840 --> 00:00:13.720 By the end of 1925, Montague Norman and the British establishment were seemingly monarch 3 00:00:13.720 --> 00:00:16.000 of all they surveyed. 4 00:00:16.000 --> 00:00:21.080 Backed by Strong and the Morgans, the British had had everything their way. 5 00:00:21.080 --> 00:00:26.160 They had saddled the world with a new form of pseudo-gold standard, with other nations 6 00:00:26.160 --> 00:00:32.080 was pyramiding money and credits on top of British sterling, while the United States, 7 00:00:32.080 --> 00:00:37.000 though still on a gold coin standard, was ready to help Britain avoid suffering the 8 00:00:37.000 --> 00:00:42.560 consequences of abandoning the discipline of the classical gold standard. 9 00:00:42.560 --> 00:00:46.440 But it took little time for things to go very wrong. 10 00:00:46.440 --> 00:00:52.320 The crucial British export industries chronically whipsawed between an overvalued pound and 11 00:00:52.320 --> 00:00:58.040 The rigidly high wage rates kept up by strong, militant unions and widespread unemployment 12 00:00:58.040 --> 00:01:05.900 insurance kept slumping during an era when worldwide trade and exports were prospering. 13 00:01:05.900 --> 00:01:08.060 Unemployment remained chronically high. 14 00:01:08.060 --> 00:01:14.200 The unemployment rate had hovered around 3% from 1851 to 1914. 15 00:01:14.200 --> 00:01:20.980 From 1921 through 1926, it had averaged 12% and unemployment did little better after the 16 00:01:20.980 --> 00:01:27.260 The Return to Gold In April 1925, when Britain returned to gold, 17 00:01:27.260 --> 00:01:30.980 the unemployment rate stood at 10.9%. 18 00:01:30.980 --> 00:01:36.740 After the return, it fluctuated sharply, but always at historically very high levels. 19 00:01:36.740 --> 00:01:44.980 Thus, in the year after return, unemployment climbed above 12%, fell back to 9% and jumped 20 00:01:44.980 --> 00:01:50.180 to over 14% during most of 1926. 21 00:01:50.180 --> 00:01:56.900 Unemployment fell back to 9% by the summer of 1927, but hovered around 10-11% for the 22 00:01:56.900 --> 00:01:59.060 next two years. 23 00:01:59.060 --> 00:02:05.780 In other words, unemployment in Britain during the entire 1920s lingered around severe recession 24 00:02:05.780 --> 00:02:07.300 levels. 25 00:02:07.300 --> 00:02:12.700 The unemployment was concentrated in the older, previously dominant and heavily unionized 26 00:02:12.700 --> 00:02:15.460 industries in the north of England. 27 00:02:15.460 --> 00:02:20.900 The pattern of the slump in British exports may be seen by some comparative data. 28 00:02:20.900 --> 00:02:29.680 If 1924 is set equal to 100, world exports had risen to 132 by 1929, while Western European 29 00:02:29.680 --> 00:02:33.440 exports had similarly risen to 134. 30 00:02:33.440 --> 00:02:36.860 United States exports had also risen to 130. 31 00:02:36.860 --> 00:02:43.000 Yet, amid this worldwide prosperity, Great Britain lagged far behind, exports rising 32 00:02:43.000 --> 00:02:45.200 only to 109. 33 00:02:45.200 --> 00:02:51.320 On the other hand, British imports rose to 113 in the same period. 34 00:02:51.320 --> 00:03:00.240 After the 1929 crash until 1931, all exports fell considerably, world exports to 113, Western 35 00:03:00.240 --> 00:03:08.840 European to 107, and the United States, which had taken the brunt of the 1929 crash to 91. 36 00:03:08.840 --> 00:03:17.240 And yet, while British imports rose slightly from 1929 to 1931 to 114, its exports drastically 37 00:03:17.240 --> 00:03:19.520 fell to 68. 38 00:03:19.520 --> 00:03:25.360 In this way, the overvalued pounds combined with rigid downward wage rates to work their 39 00:03:25.360 --> 00:03:29.280 dire effects in both boom and recession. 40 00:03:29.280 --> 00:03:36.440 Overall, whereas in 1931, Western European and world exports were considerably higher 41 00:03:36.440 --> 00:03:47.120 Within categories of British exports, there was a sharp and illuminating separation between 42 00:03:47.120 --> 00:03:53.480 two sets of industries, the old unionized export staples in the north of England and 43 00:03:53.480 --> 00:03:58.760 the newer, relatively non-union, lower wage industries in the south. 44 00:03:58.760 --> 00:04:03.300 These newer industries were able to flourish and provide plentiful employment because they 45 00:04:03.300 --> 00:04:15.300 Some of these industries, such as public utilities, flourished because they were not dependent on exports. 46 00:04:15.300 --> 00:04:22.300 But even the exports from these new, relatively non-unionized industries did very well during this period. 47 00:04:22.300 --> 00:04:31.300 Thus, from 1924 to 1928-29, the volume of automobile exports rose by 95%. 48 00:04:31.300 --> 00:04:46.840 During the 1929 to 1931 recession, exports of these new industries did relatively better 49 00:04:46.840 --> 00:04:55.120 than the old, machinery and electrical exports falling to 28% and 22% respectively below 50 00:04:55.120 --> 00:05:18.120 In 1931, at fully 26% above 1924, the traditional mainstays of British prosperity fared very 51 00:05:18.120 --> 00:05:22.480 badly in both these periods of boom and recession. 52 00:05:22.480 --> 00:05:31.700 The non-ferrous metal industry rose only slightly by 14% by 1928–29 and then fell to 55% 53 00:05:31.700 --> 00:05:35.780 of 1924 in the next two years. 54 00:05:35.780 --> 00:05:41.640 In even worse shape were the once mighty cotton and woolen textile industries, the bellwethers 55 00:05:41.640 --> 00:05:44.800 of the Industrial Revolution in England. 56 00:05:44.800 --> 00:05:53.340 From 1924 to 1929, cotton exports fell by 10% and woolens by 20% and then, in the two 57 00:05:53.340 --> 00:06:03.960 years to 1931, they plummeted phenomenally, cottons to 50% of 1924 and woolens to 46%. 58 00:06:03.960 --> 00:06:09.620 Remarkably, cotton and woolen exports were at this point their lowest in volume since 59 00:06:09.620 --> 00:06:11.760 the 1870s. 60 00:06:11.760 --> 00:06:17.280 Perhaps the worst problem was in the traditionally prominent exports, coal. 61 00:06:17.280 --> 00:06:26.220 Coal exports had declined to 69% of 1924 volume in 1931, but perhaps more ominously they had 62 00:06:26.220 --> 00:06:36.040 fallen to 88% in 1928-29, slumping, like textiles, in the midst of worldwide prosperity. 63 00:06:36.040 --> 00:06:41.280 So high were British price levels compared to other countries in both of these periods 64 00:06:41.280 --> 00:06:47.840 that Britain's imports, remarkably, rose in every category during boom and recession. 65 00:06:47.840 --> 00:06:58.120 Thus, imports of manufactured goods into Britain rose by 32.5% from 1924 to 1928-29 and then 66 00:06:58.120 --> 00:07:02.320 rose another 5% until 1931. 67 00:07:02.320 --> 00:07:09.560 So costly, too, was the once proud British iron and steel industry that, after 1925, 68 00:07:09.560 --> 00:07:16.480 The British, for the first time in their history, became net importers of iron and steel. 69 00:07:16.480 --> 00:07:22.500 The relative rigidity of wage costs in Britain may be seen by comparing their unit wage costs 70 00:07:22.500 --> 00:07:29.260 with the US, setting 1925 in each country equal to 100. 71 00:07:29.260 --> 00:07:34.860 In the United States, as prices fell about 10% in response to increased productivity 72 00:07:34.860 --> 00:07:44.300 Wage rates also declined, falling to 93 in 1928 and to 90 in 1929. 73 00:07:44.300 --> 00:07:49.620 Swedish wages were even more flexible in those years, enabling Sweden to surmount without 74 00:07:49.620 --> 00:07:54.200 export depression and return to gold at the pre-war par. 75 00:07:54.200 --> 00:08:03.340 Swedish wage rates fell to 88 in 1928, 80 in 1929, and 70 in 1931. 76 00:08:03.340 --> 00:08:08.420 In Great Britain, on the other hand, wage rates remain stubbornly high in the face of 77 00:08:08.420 --> 00:08:15.780 of Fallen Prices, being 97 in 1928, 95 the following year, and down to only $1.5 million.