I have a queston regarding Britain's return to the gold standard in 1925. I understand that to return to the 4.87 "prewar" price that Britain's money supply and prices would have to deflate however I don't understand how Britain essentially lost gold to the US when they went back the that price without the deflation, as Rothabrd points out. Can anyone explain this to me? I'm not an economics student but have been trying to educate myself and any help is greatly appreciated
Thanks
Matt
People could use the inflated pounds to exchange for gold, which was worth more than what the pounds said. And the UK lost a lot of gold because there were so many pounds coming in to exchange vs what they actually had. The fed was actually trying to bail out the UK central bank, which helped cause the GD.
So essentially people were protecting themselves by exchanging the inflated pounds for gold which holds it's value better?
How did inflation of the American money prevent Britain from losing more gold to the US? BTW , thank you very much for the quick reply!
Matthew Toth:So essentially people were protecting themselves by exchanging the inflated pounds for gold which holds it's value better?
As to your second question: the fed created a bubble by inflating the currency, thus lowering our purchase power. I think there were also loans to the UK.
Ok so I think I understand why Britain was losing gold. Can you explain the relationship between the prices in Britain and returning to gold at the higher value? and how did the fact the Britain inflated their money supply offset the loss of gold?
Matthew Toth: Ok so I think I understand why Britain was losing gold. Can you explain the relationship between the prices in Britain and returning to gold at the higher value? and how did the fact the Britain inflated their money supply offset the loss of gold?
Do you mean the fact that US inflated their money supply?