Ranging from medieval times when gold was the only currency, to modern times until the currency was pegged against the gold standard, how good/bad was the economy?
Was there any inflation? If so, how did it occur without artificial manipulation of the economy.
In: 79
>how good/bad was the economy?
Not really answerable. There were good periods and bad periods, just like today. The economy was more volatile, but that can’t be directly tied to the gold standard entirely.
>Was there any inflation?
Yes. Inflation happens in every economy, regardless of what monetary system it uses.
>If so, how did it occur without artificial manipulation of the economy.
Inflation is a natural thing in expanding economies. If demand for a good or service increases faster than the supply of that good or service can increase (as typically happens when populations grow) prices will rise as a result. This is known as demand-pull inflation.
The economy was a lot more volatile. Some other country hoarding gold could cause a depression. A new gold strike could cause inflation. Recessions were harder to get out of. Inflation was much less over long periods of time due to alternating periods of inflation and deflation.
Just to address a misconception in what you said, gold was absolutely not the only currency or even the majority currency in the middle ages. It was far more common for commodities themselves to be used as currencies. Grain in particular works very well because it lasts a long time and is quite portable.
But like others have said, back in those days economies were far more likely to suffer crashes. Largely because precious metals are not as stable as people like to believe. And this was especially true right after the new world was discovered and we started importing a hell of a lot of gold and silver.
In fact, there was a period in which the price of silver was so unstable that European countries were backing their silver currency with a far more stable commodity: tulip bulbs. And then suddenly tulip bulbs collapsed in price an all of the silver currency did with them.
When you leave a free market system alone your economy will expand naturally as productivity gains compound. evil actors may appear, like governments (kings) trying to steal private property.
Gold and silver works best as money because of its rarity and malleability.
As others have clarified, it didn’t. The gold standard was formalized in the 1870s and was generally discontinued after the 1920s.
You mention inflation, but the gold standard actually has the opposite problem: deflation. With the gold standard, the currency in an economy is tied to an amount of gold. This is to give people participating in the economy assurance that the currency is backed by something stable and valuable. However, gold is finite and as more people participate in the economy, individual units of currency backed by this gold become scarcer and more valuable. Money becoming more valuable over time is a big problem.
If I buy something for $1 and then sell it at the same *value* a year later (which is now equal to only $0.75, let’s say), I’ve lost money. Holding onto the dollar, not spending it, would’ve been the most prudent course of action. Meaning that, at a high level, the economy stagnates as no one wants to spend money when it could be worth more in the future. It’s sort of like building the effects of a recession into your economy permanently.
Edit: ELI5ed it a little more.
The history of pre-modern economies were generally terrible. Until the 1800s, an “economy” was basically agriculture with more than 90% of the people being employed either directly or one step away from agriculture. Economies were therefore “what ever the weather allowed you to grow that year/month/season”. Boom and bust – hunger and malnutrition were common outcomes.
This is, in no small part, why colonialization and imperial conquests were common. A country’s economy was pretty much how much land and how fertile that land was that it could control.
Gold, silver and barter trade were how exchanges were made. But currencies were not the driving force of the economy as it is today. And gold wasn’t even the biggest nor most standard form of currency.
Today, we hear of these nostalgic longings for some kind of gold standard or commodity based currency. It is wishful, romantic thinking far from any sort of historic reality. The golden period of human civilization is today. Anything before 1900 would be periods of malnutrition, high infant mortality (about 20x higher), short average life times (about half of today’s), diseases.
economy was very bad at that time.
United Kingdom: The United Kingdom suspended the gold standard during World War I in 1914 and fully abandoned it in 1931 due to economic difficulties and the need for monetary flexibility.
United States: The United States effectively abandoned the gold standard during the Great Depression. President Franklin D. Roosevelt signed the Emergency Banking Act in 1933, which made the ownership of gold by individuals illegal and effectively ended the gold standard for the U.S. dollar.
Germany: Germany dropped the gold standard during World War I in 1914 to finance its war efforts. It was later reintroduced briefly in the 1920s but was abandoned again due to economic challenges and the Great Depression.
France: France left the gold standard in 1936 due to concerns about the stability of the currency and economic difficulties.
Japan: Japan left the gold standard in 1931 as a response to the global economic crisis and the challenges it posed for maintaining the fixed exchange rate.
Canada: Canada left the gold standard in 1931 during the Great Depression.
Australia: Australia also left the gold standard in 1931 due to economic pressures.
Italy: Italy abandoned the gold standard in 1935 as part of its efforts to devalue the lira and improve its export competitiveness.
The global economy was basically really bad until the 19th century.
European economists and monarchies believed that the world had a limited number of resources and therefore we shouldn’t just give them up for free. Monarchs were happy to give away crops because well, they make those every single year. But metals were precious and often hoarded. Stockpiles of steel and iron could be used for war, so you wouldn’t want to trade that with your neighbors. And you wouldn’t want to give them any gold either because they could use that to finance a war.
There has been currency since the time of Mesopotamia. When the gold standard was first introduced the idea was that each coin would get a small amount of gold put in it that would give it an inherent value. In the middle ages Venice grew as the global currency and made Venice the centre of trade. Because Venice was friends with everyone, everyone was happy to trade with them.
Was there inflation? Yes. Monarchs would typically try and hoard as much of that precious gold for themselves. But when the economy started lacking a lot of things the monarchs would open their vaults to buy things with the state’s treasury. There was also war. Once a war happened it had this giant influx of gold into the economy to prepare for that war (and then pay the troops after). The ending result was prices would skyrocket and basically you couldn’t get ahead by volunteering.
Spain discovering America had a drastic impact on the European economy. The Spanish came home with shiploads of gold and suddenly the balance of power in all of Europe collapsed. It’s kind of like in Waterworld where the mutant arrives at a civilization and [buys all of their food and all of their supplies with dirt that he has gotten from the bottom of the ocean](https://www.youtube.com/watch?v=Fv9_YOL38MM). And just like that the Spanish could now afford to buy everything. This actually triggered a number of famines in Italy.
Latest Answers