After World War I, the English were caught on a cleft stick of their own making.
They were caught on a bind of their own making.
They wanted to go back to the gold standard.
Of course, they had inflated.
They were all going off the gold standard in World War I, II in order to increase their money supply.
They wanted to go back to the gold standard.
However, they wanted to go back a very overvalued pound, especially in Britain, overvalued pound.
They wanted to go back to good old days when the pound was $4.86 approximately.
It was really by that time, by 1921, say it was about $3.20.
They wanted to reflate upward because the pound had always been 486 and how could London
resume its place as this rightful, divinely appointed place as the financial center of
the world if they had an appreciated pound and blah, blah, blah, and so they decided
to go back to gold at a wildly overinflated pound in order to make that viable, assuming
they make that crazy decision, which nobody really opposed at the time except a couple
of people wanted paper money.
As far as I know, there were no economists in the early 20s who said, go back to gold
at the current rate, like 320, a viable rate.
And so they went back to gold at over-inflated pound.
This meant that in order to make their English goods competitive in the world market, remember
of course England lives and dies by exports, in order to make their exports competitive
they would have to have a tremendous deflation to offset the over-valued pound.
They weren't prepared to deflate, in the old days they could have deflated, now however
they had a welfare state in England, they had strong unions, they had an unemployment
The insurance system, which made sure that anybody who got unemployed gets almost 100% of their income almost forever, and so they couldn't, politically they felt they couldn't deflate, they weren't prepared to break the union system or repeal unemployment insurance nationally, that's the wave of the future, can't do that.
So they had a situation, they wanted to keep inflating, they wanted a cheap pound, they wanted cheap money, inflation, and yet go back to gold at over a value of a pound. How can they do it? It's an inner contradiction, so to speak.
So the way they did it, given these crazy assumptions, they did it brilliantly, it lasted for about five years before the whole thing collapsed and we had a great depression.
First of all, they twisted the arms of the European countries. Britain ran the financial committee of the League of Nations.
So they took the defeated countries or the small countries that were just created by Versailles and they forced them, almost literally, to go back to the gold at a gold exchange standard where they keep their reserves not in gold but in pounds.
And they were encouraged never to redeem in pounds either, so if the Hungarian, whatever the Hungarian unit is, let's say the Forent, I think.
If you have Forents piling up, if England inflates, and they owe Forents to Hungary, never take your Forents out.
Leave it piled up in England, and then pyramid on top of it, and it was inflated on top of pounds.
And so you had a wildly inflationary kind of setup, with everybody pyramid-ing on top of a pound,
In the United States had a gold standard, a real gold standard. Britain had a fake, semi-fake gold standard. Only others were permitting on top of pounds.