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Pay rises in the Gold Standard Era

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TheMotorcycleBoy
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Pay rises in the Gold Standard Era

#432898

Postby TheMotorcycleBoy » August 6th, 2021, 1:08 pm

Hi Folks

I'm currently reading Mervyn King's "The End of Alchemy" and I'm trying understand some of his words where he explains some of the problems in our economies when the Gold Standard (not Bretton Woods) was in use. He writes as follows:

In normal times, the problem with the gold standard was that, with gold in effectively fixed supply, economic growth meant upward pressure on the price of gold in terms of terms and services

By economic growth, is the implication, more production, therefore higher wages, meaning that people demand more "things", which obviously includes gold rings, and it's this that put the upward pressure on the metal? That is jewellers and gold sellers actually want to price the metal higher but can't, see below. Leading on he says:

Since the dollar (and sterling) price of gold was fixed, there was conversely, downward pressure on the dollar (and sterling) prices of goods and services. This deflationary pressure, pushed down activity and employment. The commitment to gold was seen as a battle between bankers and financial interests, on the one hand, and working people on the other hand.

So my silly question of the week, is really just this "did pay rises occur in the Gold Standard Era?". Since I imagine the answer is yes, then it was quite simply these rises, which directed the upward pressure on gold.

If my conjecture is correct, then it would seem to me, the Goldness of the gold standard itself, was not the fault, but rather the attempt to fix the supply of one's currency in times where the economy itself is growing. Furthermore the only way to manage an economy with a fixed supply of money, would be maintain of system of permanently varying, but both down and up, prices and wages. Even without international trade, such a system, would to many appear somewhat unfair, as the various sections of the population over time would perceive themselves as either financial winners or losers.

Matt

Dod101
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Re: Pay rises in the Gold Standard Era

#432903

Postby Dod101 » August 6th, 2021, 1:21 pm

Economic growth means that the fixed supply of gold was representing a bigger economy, ergo the value of the gold in the country's reserves would naturally increase, at least that is in general what I take from the comment. It has nothing to do with the increase in the value of gold held by jewellers etc. The increase there was a by product of the general increase in gold's value.

Let some economist prove me wrong because all I am doing is trying to apply common sense and could well be wrong.

Dod

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Re: Pay rises in the Gold Standard Era

#432915

Postby TheMotorcycleBoy » August 6th, 2021, 2:23 pm

Dod101 wrote:Economic growth means that the fixed supply of gold was representing a bigger economy, ergo the value of the gold in the country's reserves would naturally increase, at least that is in general what I take from the comment. It has nothing to do with the increase in the value of gold held by jewellers etc. The increase there was a by product of the general increase in gold's value.

Let some economist prove me wrong because all I am doing is trying to apply common sense and could well be wrong.

Dod

Sure. So how are we measuring economic growth itself? I assume that the growth is caused by higher productivity, meaning more products. I think I get it. If a country only builds cars, and has 1 ton of gold as it's currency backing reserves, then if it builds 1,000,000 cars one year, then each car is worth one gram of gold, but if in 5 years time, the same country builds 2,000,000 cars then each car then would assumed to be worth 0.5 gram of gold.

So if society in general "appreciates the value of a car" as the same in either period, then presumably the value of gold would have doubled in that time.

thanks Matt

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Re: Pay rises in the Gold Standard Era

#432975

Postby 1nvest » August 6th, 2021, 5:41 pm

The Pound that dates back to the mid 700's was originally a Saxon Pound weight of Silver, less than a imperial Pound, around 12 ounces IIRC. In 1717 THE Sir Isaac Newton, as Master of the Mint (now Chancellor of the Exchequer), pegged gold/money at £3 17s 10d where it remained for the next couple of centuries (until WW1 1914) excepting the Napoleonic wars 1797-1821. Inflation broadly averaged 0% but with considerable volatility along the way, more often where spikes of high inflation/deflation clustered. In the early 1930's both the UK and US ended the convertibility. The US even went as far as outlawing investment gold (but US citizens could still have opted to hold silver to similar overall effect as gold).

Population expansion sees less weight of gold per individual. A island of 10 with 10 ounces of gold when expanded to 100 people has each with 0.1 ounces of gold if equally shared out, ten times more productivity feeding 10 times more people, but where in terms of gold available per individual it buys the same, island of 100 sees 1 loaf cost 0.1 ounces of gold instead of 1 ounce of gold on the island of 10. A baker on a island of 10 producing 10 loaves/day with productivity enhancements provided by population expansion to produce 100 loaves isn't producing any more than 1 loaf/day per person. If on the island of 10 a baker has to earn 1 ounce of gold to cover their 1 ounce/day of spending, whilst on the island of 100 the baker has to earn 0.1 ounces/day to cover their daily spending, they're both equal other than the island of 100 via economies of scale is more productive in quantity. In terms of ounces of gold however the island of 10 is richer in earning 1 ounce/day, but equally has higher costs - spends 1 ounce/day.

If/when the two islands started trading however, then the island of 10 would be relatively rich, but relatively soon be levelled down. Globalisation and/or EU membership is great for the poorer party, not good for the richer party. Consecutive UK governments have sought to expand GDP via population expansion, open the migration floodgates, whilst that generates more taxes etc. it only makes the existing individuals poorer. Better is GDP/capita expansion, where individuals are better off. When pushed to extremes opening migration floodgates leads to declines, such as via congestion or over-supply of human resources seeing many idle and a burden upon the rest.

Swap out gold for a 'currency' such as steel coin with the leaders head stamped upon it as enforced legal and only tender and the tendency is for the value of each coin to decline over time, currency devaluation. All currencies endure such sooner or later. A 2% inflation rate target (BoE remit) is in effect a 2% taxation rate. Investors have to invest to avoid otherwise seeing their money devalued, and as part of that enforced investing 'gains' and/or 'income' are also taxed, even though those gains/interest might solely just be offsetting inflationary erosion of the purchase power. There's also the perpetual battle between bankers and workers. The government that the people appoint once elected more often favour the bankers for the vested interests that provides, so we see such situations of bankers betting and winning to keep the rewards, or losing and having the people bail them out. Or opening up the economy/market so bankers can for instance import low paid workers from Poland/wherever into the UK, make more profits to be filtered off to wherever at the expense of a idle Brit having to be supported in remaining at home because they cannot raise their family on the wage being paid to the Pole, who after some weeks/months might return home relatively rich to be replaced by another.

On or off the gold standard is the same, a battle between bankers and workers. But where we're in a era where MP's only have to get voted by the people on a single day, and once appointed can then serve bankers (and themselves/family) for the remainder of their 5 year term. Don't like that, tough, vote for another if you like come the next GE but it will still remain the same outcome.

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Re: Pay rises in the Gold Standard Era

#432985

Postby GrahamPlatt » August 6th, 2021, 6:25 pm

Gold standard = Bitcoin standard. Equivalent no? Both of fixed (ish) supply. So if the gold standard had to fall...

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Re: Pay rises in the Gold Standard Era

#443216

Postby 1nvest » September 18th, 2021, 1:40 am

GrahamPlatt wrote:Gold standard = Bitcoin standard. Equivalent no? Both of fixed (ish) supply. So if the gold standard had to fall...

No. Gold is physically rare, bit coins are virtually rare, a algorithm, that at any time could be revised/hacked to create less rarity. Or simply vanish after a decade/two/whatever.

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Re: Pay rises in the Gold Standard Era

#467952

Postby Albert90 » December 22nd, 2021, 5:55 am

In the Gold Standard Era, pay rises were determined largely by the level of inflation. If prices were rising rapidly, then wages tended to go up as well in order to maintain the same standard of living. If prices were stable or falling, then wage increases would be modest or even non-existent. This ensured that wages rose in line with overall prices and helped to maintain price stability.

However, while wage increases generally tracked inflation rates in the Gold Standard Era, there were some exceptions. For example, during periods of high unemployment, employers may have been willing to offer workers larger pay rises in order to attract and retain staff. Similarly, when demand for goods and services was high, workers could expect to receive higher wage increases as businesses sought to attract and retain the best employees.

Overall, though, wage increases in the Gold Standard Era were typically modest and tended to follow overall price movements. This helped to keep inflation under control and maintain price stability.


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