Because of the discussions on this I am going to pull a few comments out up front, for responses.
Paris' Financial World Capital Plan
France naturally carved it's own path on this one. The Franc had a rough route to the gold standard and it took two years from Paris picking a level to the Franc being properly on the Gold Standard (well gold Bullion standard). This was because the French were clever and picked an artificially low value for the Franc, this meant they were piling up reserves 'defending' that low value. In 1928, when they finally went on Gold, they had half the worlds currency reserves. From this developed the plan to rotate that into Gold and so become a 'solid' financial centre while others wilted.
This seems a bit backwards to be honest, London was the leading financial centre in part because so many other people used Sterling and the best place to trade or deal in Sterling was London. Modern example is China, there are vast foreign currency reserves in the People's Bank of China, but no-one uses the Yuan and Shanghai is at best a regional financial centre. Paris soon hit this problem, all the reserves in the world just mean you spend more trying to fight against the inevitable when you don't have the economy and the connections to really be the leading financial centre.
Gold Standard/Fiat Currency
My starting point is I believe the Impossible Trinity/Trilema concept (this is economics, believe is definitely the right word
). So you can have (at best) two of;
- Free Capital Flows
- Sovereign Monetary Policy
- Fixed exchange rate
If you are going for a fixed rate (which the Gold Standard demands) you can only have one of the others. Unless you are a hard core Austrian "Liquidationist" economist you will want monetary policy control so you can lower interest rates in recessions, etc. So thus you have to have capital controls. If this looks familiar it's because it's Bretton Woods. Which for all it's pros- and cons- was an anathema to the pre-WW2 City of London. They depended upon free capital flows for all the investments and trading income in and around the Empire, Sterling Area and wider globe. Post-Munich when Sterling was under massive pressure the British response was anything but capital controls for precisely that reason. Post-war of course all those investments had been liquidated at fire sale, or worse, prices to pay for the war, and the US called the shots, so it happened. But it's not something Britain would voluntarily go for.
Of course the entire Impossible Trinity was only described in the 1960s so no-one knew it was impossible. However my feeling is that if pushed a non-broke Britain would rather let Sterling float than give up either of the other two factors and I mostly agree with them.
Oof. The US economy is smacked once again when it's down. Pretty sure El Pip would not only be penalised but banned from the sport by now.
Kennedy Senior was very much not the man to expend a lot of US effort on China, so this is just natural consequence not a deliberate smacking. US interests in China remain, but the White House is less keen on listening to them.
Good grief, that's an absurd amount of influence and pressure on the bank of England there.
Being the leading financial centre is incredibly 'sticky' as they say, once something is established you need a good reason to shift. There was a reason the US pushed so damn hard for 'convertibilty' post-war, they had to cripple Sterling and London to give New York a chance.
That gold instead, presumably, is joining the Spanish stuff in British vaults? That and maybe Canada's and Australia's? Cos where else are people going to put it?
To an extent, Imperial gold (including the shed loads coming out of South Africa) will indeed flow to London. Private (non-government) Gold also ends up there, even as late as 1939 ~75% of private gold was in London, though in part that's because no-one wanted to risk it in New York in case FDR nationalised it all. Again.
In Butterfly it's a bit more complicated as we will see next time we look at the Gold Bloc in *mumble* updates time.
On the contrary, I find this level of economic jargon to be most welcome thing in the AAR land, and in Alt-History as a whole. as people tend to forget the sheer power Banks have.
Excellent. I am delighted this update has found an audience.
To be honest, Italy is such a weird land when it comes to economy and industry around this era, so it really can go either way in "does this cause problems or not"... it probably will though. but We'll see. (I dare you to study about Italian Economy in 1930ies, the bloody mess is almost ran by Artisan workshops rather than by any kind of factories.)
The Italian economy is indeed a barking mad mix of ultra modern and utterly backwards. The Fiat Lingotto Plant was a modern plant, but as you say there were also vast swathes of sheds and workshops.
With the Nationalists presumably strengthened I wonder what Mao is up to?
An excellent question. Recovering from the Long March into the mountains and rebuilding his strength in Shanxi province. Probably quite annoyed at the running dogs of Imperialism propping up the Nationalists.
To elaborate on this:
What I was trying to get across. Is that... this AAR feels alive. This world feels alive. With many other AARs I feel like I'm listening to someone recount a video game. Which is exactly what is happening mind. Even when they a have more character focused style. With characters that seem alive. It doesn't feel like the World is alive. More like the characters exist on top of the game. Or perhaps that one specific part of the world feels alive. But I always have this sense that I could turn to the side and find a bunch of literary stagehands holding up props. That if I just walked in the next room or to the next street that the ruse would be revealed. It often doesn't feel that there is anything beyond the characters and what they can see and hear around them. Many other AARs fail even to conjure up this limited immersion. Though they are admittedly much more immersive and engaging than many of the history books I read about actual history in school.
But not Butterfly
Butterfly feels alive
With this AAR I can believe that this world exists. I can believe I won't just see a green-screen if I lean too far to either side. Even when this AAR focuses on one area of the world it still feels like the rest of the planet is still turning. That other, unseen actors are at work elsewhere. Often times I feel. That AARs feel too much like a game. That they focus too much on troop counts and divisions and occasionally sparing some attention on factory counts.
But not Butterfly
Butterfly includes (even if they are merely mentioned) all the little things. All the things which others forget. And even when Butterfly does talk about the military and upcoming war. It still manages to blow me away and immerse me in the world. What other AAR talks about the politics of defense procurement? Of the intricacies of inter-service rivalries? Except to mention that they exist? To not merely mention but also dive headfirst into the politics and factions within the military. And why they think as they do?
And that is merely when Butterfly discusses the well-known topics of the martial. Let alone when it dives into other topics. Bureaucratic mischief, economic intricacies, International agreements, (besides those treaties which would directly influence gameplay, such as the naval treaties or Molotov-Ribbentrop) what other AAR has such detail. There may be another. I am not the most well traveled through the old PDX AARs. But I have yet to find it. Butterfly gives me this fantastic feeling I have never gotten from any other piece of fiction. This feeling that whole world is living and breathing and moving. But not all in the same direction, that would be boring wouldn't it? For that it will always hold a special place in my heart.
(Forgive me or the rambley post. I intended for this to only be about three or four lines, but my thoughts kept coming, and my fingers kept moving. It seemed a shame to stop.
Absolutely nothing to forgive, I am humbled at the praise.
Something I know now, that 2006 Pip didn't really appreciate, is that almost everything has multiple causes and that to understand anything you have to at least be aware of the wider world. I've tried to include this bigger picture even as I do dive into detail and it is wonderful to see that this is appreciated.
I don't know much about gold based (or really anything based) currency compared to floating it and the alternatives. Stability seems to be more common with the former but metal prices (or whatever you hold against the value of the money) will still lead to fluctuation, occasionally or perhaps frequently quite often. And especially going into the latter half of the 20th c. And into the 21st, precious metals suddenly become useful for technology rather than simple placeholders of value. Can't really have gold backing up everything when you need gold for stuff? You need an otherwise useless thing that everyone for some reason thinks is valuable rather than a very useful thing that not only has practical value but also holds up the economy. Or that's how it seems to me.
Total gold production is 3,500 to 4,000 tonnes. Tech uses about 300 tonnes. In comparison the Indian wedding gold market alone imports ~750 tonnes a year. The Gold price is supported by Jewellery and gold bugs buying bars and coins (another 1,000 tonnes a year). Take that away and the price will end up somewhere near the Silver price (i.e. 100x lower).
Hard to stay convinced about the magic financial properties of Gold once you've worked in a Gold Mine.
the whole thing with Keynesian economics + fiat currency + Petrodollar backed by literally nothing + US Federal reserve, that is probably the single most disgusting and gross economic institutes/scams in the history. is that it has no stability at all. and as it lacks stability, it leads to stuff like banks being kept alive with phantom money and various economic sectors being little more than bubbles about to burst in a strong wind
...Also keep in mind that I am in a no way an economist so I may be talking out of my rear end here if any economist decides to pop out.
South Sea Bubble, Dutch Tulip Mania and the US Long Depression of the 1870s/90s all happened on the Gold Standard, so it is no panacea for bubbles or crises.
As for stability, I believe the literature shows long run price stability at the cost of catastrophic reactions to change or crises. The Gold Standard is arguably what turned a US stock market crash into a Great Depression (My favourite argument is that this was caused by Ferdinand Porsche's crap engineering, but I fear that theory doesn't withstand close scrutiny. Might explain it one day if there is interest.)
So, all in all in a fascinating update - I think you're right that the interwar financial consensus was that, well, there wasn't one. Like or loathe Bretton Woods (I'm a fan of the concept, but not the execution) you're right that everyone had a different take, from Gold Standard possessives, free market floaters, the Mexicans and their mad plan for a Silver Standard to petrodollars and more besides. For those interested, I cannot commend Ed Conway's book on Bretton Woods enough - although Pippy's 3500 puts him to shame!
I can see the attraction of a Bretton Woods type arrangement, I think it produces superior results than the other fixed-currency option (the Eurozone solution of giving up monetary policy and just hoping everyone somehow converges). But as you say the execution wasn't great and I am unconvinced it could have been done much better given the politics and practicalities.
Ah, but the gold standard artificially limits the amount of currency in the world, and makes it hard to manage the value of money.
This is broadly my position. With economic growth hinging on how much gold there is the economy is held back until there is a suitably sized gold rush. I have seen it argued that the Long Depression of the 1870s-90s was caused by the lack of a Gold Rush - California was 1840s and then that wore out and it was only the Witwatersrand and Klondike Rushes in the 1890s that pulled the world back up to growth.
And, if I had to give up naval pron... monetary policy pron is a great substitute!
Possibly the first time that has ever been said.
There’s a bit of dead space in this aar, so I’m almost done, but jeez man you certainly weren’t lying when you said this project was of terrifying detail. There is so much stuff, and you haven’t even hit ww2! it's so perfect. I love it to death
That is a wonderful comment, very much appreciated and you are encouraged to keep making them.
