When Germany suspended the gold standard to help fund the costs of WWI, they set in motion a series of economic dominoes that concluded with a grand finale: a system of global monetary rules and standards.
While hindsight is always 20/20, it is helpful to look back at the causes for Germany’s dire economic situation in the 1910s to see how one catastrophic mistake lead to another. The result, the end of the gold standard and a monetary system built on predatory lending has only deepened our persistent economic malaise.
The German Situation in the 1910s
The German economy in the 1910s was, in some ways, optimized for war. Realizing they needed to match the British by spending more, the German government decided to fund the war by borrowing money rather than implement an income tax. It would prove to be a catastrophic mistake.
Price Manipulation and What It Meant
The German parliament decided to suspend the gold standard (the convertibility of the Deutsche mark to a stable gold price), to increase borrowing potential.
Unfettered by the rigid gold price standards, the Deutsche mark began to lose value to the US dollar. Of course, the government was not worried about currency devaluation because they planned to win the war and make back all of their debt through heavy taxation of the Allies.
The Global Impact of Price Manipulation
Germany was not the only country to suspend the gold standard to fund government spending. However, the timing of the decision contributed to a global distrust of the gold standard and the emergence of inflationary pressure across the board. The British decided to impose strict exchange controls on gold — and price levels doubled. In France, price levels tripled. In Italy, they quadrupled. In America, although relatively disconnected from the inflationary pressures in Europe, price levels doubled in the years following WW1.
The War and Its Aftermath
As we know, the Germans lost the war. In the Treaty of Versailles, they were forced to pay substantial reparation bills to cover the cost of war for the Allies. Combined with soaring domestic debt and a shift away from the gold standard, the Deutsche mark slowly became more and more worthless. Hyperinflation set in, and the conditions were set for a radical ideology like Adolf Hitler to captivate the hearts and minds of a desperate population.
The unfortunate truth is that the horrors of the Holocaust, WWII, and the implementation of a global monetary system were all triggered by the German political decision to go off the gold standard. Germany effectively borrowed money from other countries and repaid their debts with their valueless Deutsche Mark. By some calculations Germany actually made money from war reparations of WWI. It is no wonder the American and English governments were not going to allow that to happen again after WWII.
The Necessity for Global Monetary Rules
Germany instigated a global migration away from the gold standard in the 1910s. One by one, the strength of domestic currencies across Europe began to weaken, and inflation started to creep in. The widespread economic instability of the 1920s and 30s produced the Great Depression and a collection of vicious dictators in Europe who brought human evil to a whole new low.
In an effort to never allow the rise of these vicious dictators again, an international monetary system was put in place at Bretton Woods. The formation of the IMF and the World Bank might seem virtuous, but the main purpose was to prevent the rise of powerful dictatorships like Nazi Germany. Currencies were pegged to the dollar. Third world countries were given loans in dollars that had to be repaid in dollars. These rules economically paralyzed third world countries with American dollar debt. And to this day, third world countries remain oppressed by the Bretton Woods agreement, the IMF and the World Bank. Behind the logic is fear of another Nazi Germany rising from the ashes like the events that unfolded after WWI.
Conclusion
Given this backdrop, it was inevitable that economic leaders would create a set of monetary policies to oversee global fiscal control. The IMF and World Bank are not the only impediments to growth but their purpose is not as virtuous as one might think after all they were created to establish global economic domination. However, it is a shame that they continuously plunge countries into further debt with strict conditionality and unrealistic policies. You would think global leaders would have learned from the mistakes of the first half of the 20th century and created a more functional world economic order, right? It’s high time for a new vision, a novel set of policies, a fresh outlook on fiscal policy.
Read More about global oppression and the new world order here.