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Forward Guidance

Searching for Money’s New Standard

Five decades after the gold standard ended, history shows efforts to control money rarely last long.

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Volatility of markets is virtually a given. Putting a price on assets whose value is derived from the future will always require judgment calls, and masses of traders gathered together will always be prey to the herd psychology that leads to overshooting. And yet it’s also human nature to seek to control that volatility. The financial history of the past 50 years is in many ways the story of a series of attempts to find a different anchor to replace gold as the mechanism of control. Each new regime has been greeted with a change in the trend of the price of stocks in gold terms.

Global economic policymakers sought to address the chaotic competitive devaluations and runaway inflation that preceded World War II with a new financial order established during an international conference in 1944 in the New Hampshire resort of Bretton Woods. But that agreement, which tied the dollar’s value to gold, caused a growing number of problems as the capitalist world expanded over the ensuing decades.