Replying to Avatar Eric FJ 🪬⚡️

I don’t understand how the second point addresses the gold divergence from other commodities during that time frame. If non-monetary commodities around the world are not rising in proportion to gold, then is the position that fiat was preventing *deflation* from happening? This wasn’t just an American problem.

I don’t think this absolves the US of the issue- it adds another layer: everyone was printing money (yes- especially the US), but everyone was also expecting the US to honor a price of gold that didn’t make sense anymore. Makes the depegging make a lot more sense from the US perspective- you quit the illusion and allow the free market fiat value of gold to float for everyone.

Not saying it’s a good thing, just learned additional context.
Avatar
Sooly⚡️سولي 🇱🇧🇧🇪🇦🇪🇦🇴 10mo ago

The gold-commodity divergence wasn't about preventing deflation - it was gold reasserting its unique monetary role while other commodities remained industrial in nature. When people lose faith in fiat, they flee first to historical money (gold), driving its price higher than regular commodities.

You're right this wasn't just a US problem - the entire Bretton Woods system created global inflation as foreign central banks accumulated dollars rather than demanding gold.

While ending the artificial $35 peg was inevitable, an Austrian alternative would have been redefining the dollar at a higher gold price reflecting market reality, then maintaining convertibility at that new rate. This would have acknowledged past inflation while preserving future monetary discipline.

The divergence wasn't evidence the gold standard failed - it was evidence it was working correctly as a warning system. The failure was abandoning gold's discipline rather than heeding its warning.

Reply to this note

Please Login to reply.

Discussion

Avatar
Eric FJ 🪬⚡️ 10mo ago

I think we’re largely in agreement here.

However the Austrian alternative to depegging completely merely would have kicked the can down the road. The overextending / Eurodollar part of the problem still exists at a practical level. Gold, because of its physical properties, just wasn’t fast enough as settlement for modern times. Sure, the US definitely took advantage of it- but literally anyone could have (and many did as well).

So yes, Bretton Woods doomed to fail from the beginning. But likely not in the ways even the US foresaw at the time of the agreement.