Why is it said that democracy ruined the gold standard?

Mondell, the father of the euro, and French politician and banker Lister said that it was the democratic system that killed the gold standard. I extrapolate their brilliant insights and say that democracy kills economic growth.

After World War II, the Western democratic system had three pillars: full employment became the highest goal of the government, minimum wages and high welfare became the legal system, and labor unions and pressure groups emerged and became the mainstream and powerful class in society. The policy debate in Western economics is turbulent and lively. In the final analysis, it is nothing more than how to achieve full employment and economic growth.

If we think about it for a moment, we will find that the three pillars or three goals are completely contradictory. The simplest analysis of the price mechanism of supply and demand can tell us: minimum wage, high welfare, labor unions and pressure groups are themselves a great distortion of the price mechanism or the demise of the price mechanism. How can it be possible to achieve full employment at the same time? In the 1960s and 1970s, the entire Western macroeconomics revolved entirely around the so-called Phillips Curve, which has generally become a joke now. As the institutional arrangements and price mechanisms at the micro level in developed countries become increasingly rigid, they begin to expand their currencies aggressively, hoping to use inflation to achieve full employment. Not long ago, Blanchard, chief economist of the IMF, suggested that the United States and developed countries raise their inflation control targets to 4. Mr. Li Yining and Mr. Wu Jinglian of China also made similar calls recently. The theory behind it still seems to be inseparable from the Phillips Curve. 's ghost.

Since the 1970s, the United States first destroyed the Bretton Woods system, and then continued to issue more money and pursue an inflationary policy. Asset price bubbles grew one after another, and financial crises broke out frequently. It should be noted that since the 1970s, the global base currency or international reserve currency has surged from US$38 billion to nearly US$9 trillion, a growth rate of more than 200 times, while the real economic growth is only 5 times. Had it not been for the fact that after the 1980s, developing countries led by China had joined the world competition and provided cheap products to the world, the inflation in developed Western countries would have been at least several times what it is today. Even so, Mundell, Lucas, Mckinron, and even Greenspan and Bernanke all admitted that since the 1970s, the average inflation in the Western world and the world has exceeded that of all previous centuries combined. The proliferation of money leads to the proliferation of credit, and the proliferation of credit leads to the proliferation of highly leveraged operations. Currency bubbles, credit bubbles, and asset price bubbles blow bigger and bigger, becoming unstoppable and eventually leading to a global financial tsunami and economic recession. Sadly, Western developed countries led by the United States still hope to use currency bubbles again to stimulate real economic recovery.

The macroeconomic policies of Western countries generally fall into three dilemmas. The first dilemma is the fiscal policy dilemma. The fiscal deficit and government debt are so high. On the one hand, we must reduce the deficit and reduce the scale of debt. On the other hand, we must rely on deficit spending and additional debt issuance to stimulate the economy. How can we get the best of both worlds? It seems that no way out has been found yet. The U.S. government’s own forecast shows that by 2020, the size of public debt will definitely exceed GDP100. Many countries in Europe and Japan have already exceeded 100. From the private sector to the government, everyone is highly leveraged, highly indebted, and struggling to make ends meet. How can such an economic system be maintained for a long time?

The second basic dilemma is the monetary policy dilemma. There are already so many currencies in the world. The excess reserves of the U.S. banking system have long exceeded 1 trillion US dollars. Commodity and asset prices have long returned to the levels before the financial crisis. Inflation in developing countries has been quite serious, but developed countries will continue to have long-term inflation. To maintain low interest rates, we must also engage in quantitative easing monetary policy. Is the basic quantity theory of money really all wrong? Do we really want to do what Bernanke declared at the meeting of European Central Bank Presidents: Central banks can boldly innovate at all costs?

The third basic dilemma is the dilemma of exchange rate policy. "Exchange rate wars" and "currency wars" are rampant, exchange rate manipulation is intensifying, and exchange rate trends are completely divorced from economic fundamentals.

3. Any institutional arrangement must go to its opposite

If we observe the evolution history of human economic systems and other systems from a large historical perspective and a global perspective, we will see that A very important and even shocking phenomenon: any institutional arrangement will eventually go to its opposite. Many great politicians and scholars paid great attention to this important fact and hoped to find an institutional arrangement that could ensure long-term peace and stability in the country, but they never found it.

Let me give you two examples.

The first one is "The History of the Decline and Fall of the Roman Empire". It is one of the most famous works in the Western world that studies the rise and fall of national civilizations and systems. Author Edward. Gibbon (1737-1793) once described the motivation and inspiration for writing his masterpiece: "I set foot on the ruins of the Roman Forum and walked through every memorable place - where Romolo stood and Cicero gave a speech. , Caesar fell. These scenes came to me in an instant, October 15, 1764, while I was sitting in meditation among the ruins of the Capitol Hill, the barefooted dervish was in the Temple of Jupiter. While singing the Vespers, the idea of ??writing a history of the decline of this city came to my mind for the first time. "On another occasion, Gibbon sighed deeply while facing the ruins of the ancient Roman city, echoing the past glory of the Roman Empire. : "Good times never last long. 1 Why don't good times always last? Why are good institutional arrangements always short-lived?

The second example is the famous dialogue between Mao Zedong and Huang Yanpei. They discussed the national The mystery of the rise and fall cycle. On the afternoon of July 4, 1945, Mao Zedong specially invited Huang Yanpei and others to visit him for a whole afternoon. Mao Zedong asked Huang Yanpei how many days he had visited Yan'an. What do you think? Huang Yanpei said frankly: "I have been alive for more than 60 years. I have not heard about it, but I have seen it with my own eyes. It is true that 'it flourishes but also dies suddenly'. A person, a family, a group, a place or even a country, many units have failed to escape the dominance of this cyclical rate. In the beginning, everyone concentrated on everything, and there was nothing he did not care about, and no one did not work hard. Maybe it was difficult and difficult at that time, and he could only find a life out of ten thousand deaths. Then the environment gradually improved and my spirit gradually relaxed. Some of them naturally develop inertia over a long period of time, evolving from a few to a majority, and then to the development of a trend that cannot be reversed and irreparable despite great efforts. It is also because the area has expanded step by step. Some of its expansion is due to natural development; some are driven by the desire for success and insist on development. When the cadres and talents are gradually exhausted and it is difficult to cope with it, the environment becomes more and more complex. , the control is inevitably weak. In a history, there are some cases where "politics were neglected and officials succeeded", there are also cases where "people died and the government ceased to exist", and there were also cases where "people sought glory and humiliation". In short, there is no way to escape this cycle rate. From the past to the present, what I have a brief understanding of is that you hope to find a new way to escape from the dominance of this cyclical rate. ".

Mao Zedong said: "We have found a new way, and we can break out of this cyclical rate. This new path is democracy. Only when the people are allowed to supervise the government will the government not dare to relax; only when everyone takes responsibility will the government not cease to exist. "Of course, Mao Zedong was vague about the new path to democracy in his mind. His own subsequent exploration was not so much a success as a complete failure.

Of course, in Chinese history, dynasty changes or There is another famous law of system transformation, which is the "Huang Zongxi's Law" summarized by the historian Huang Zongxi: a very benign institutional arrangement at the beginning will eventually completely destroy itself as time goes by!

4. Research on institutional economics requires new thinking

Perhaps this is a confusing or discouraging subject. Perhaps friends think that the above issues are beyond the scope of economics or institutional economics. However, I do. One of the most basic lessons learned from years of studying the history of the evolution of international monetary systems is that it is impossible to understand the evolution of a system without adopting the thinking of general equilibrium and dynamic evolution.

The general equilibrium and dynamic evolutionary thinking I am talking about here are to examine the transformation of the system. We must include many factors such as culture, thought, religion, values, beliefs, spirit, necessity and contingency, challenges and opportunities, etc. We must also admit that We may not be able to speculate on the evolution of institutions at all, at least not comprehensively. In fact, this is the thinking that Zhang Wuchang has always advocated, because he defined transaction costs as institutional costs, and its connotation is much more profound than what is usually called transaction costs.