{"id":7568,"date":"2013-04-26T05:51:17","date_gmt":"2013-04-26T09:51:17","guid":{"rendered":"http:\/\/goldstocksforex.com\/?p=7568"},"modified":"2013-04-26T05:51:17","modified_gmt":"2013-04-26T09:51:17","slug":"what-europe-could-learn-from-scandinavia-in-the-1920s","status":"publish","type":"post","link":"https:\/\/thepatientinvestor.com\/index.php\/2013\/04\/26\/what-europe-could-learn-from-scandinavia-in-the-1920s\/","title":{"rendered":"What Europe could learn from Scandinavia in the 1920s | Lars Christensen"},"content":{"rendered":"

Danish and Norwegian monetary policy failure in 1920s \u2013 lessons for today<\/h1>\n

Reproduced with kind permission from Lars Christensen at The Market Monetarist:<\/a><\/em><\/p>\n

History is fully of examples of massive monetary policy failure and today\u2019s policy makers can learn a lot from studying these events and no one is better to learn from than Swedish monetary guru Gustav Cassel. In the 1920s Cassel tried \u2013 unfortunately without luck \u2013 to advise Danish and Norwegian policy makers from making a massive monetary policy mistake.<\/p>\n

After the First World War policy makers across Europe wanted to return to the gold standard and in many countries it became official policy to return to the pre-war gold parity despite massive inflation during the war. This was also the case in Denmark and Norway where policy makers decided to return the Norwegian and the Danish krone to the pre-war parity.<\/p>\n

The decision to bring back the currencies to the pre-war gold-parity brought massive economic and social hardship to Denmark and Norway in the 1920s and probably also killed of the traditionally strong support for laissez faire capitalism in the two countries. Paradoxically one can say that government failure opened the door for a massive expansion of the role of government in both countries\u2019 economies. No one understood the political dangers of monetary policy failure better than Gustav Cassel.<\/p>\n

Here you see the impact of the Price Level (Index 1924=100) of the deflation policies in Denmark and Norway. Sweden did not go back to pre-war gold-parity.<\/p>\n

\"\"<\/a><\/p>\n

While most of the world was enjoying relatively high growth in the second half of the 1920s the Danish and the Norwegian authorities brought hardship to their nations through a deliberate policy of deflation. As a result both nations saw a sharp rise in unemployment and a steep decline in economic activity. So when anybody tells you about how a country can go through \u201cinternal devaluation\u201d please remind them of the Denmark and Norway in the 1920s. The polices were hardly successful, but despite the clear negative consequences policy makers and many economists in the Denmark and Norway insisted that it was the right policy to return to the pre-war gold-parity.<\/p>\n

Here is what happened to unemployment (%).<\/p>\n

\"\"<\/a><\/p>\n

Nobody listened to Cassel. As a result both the Danish and the Norwegian economies went into depression in the second half of the 1920s and unemployment skyrocketed. At the same time Finland and Sweden \u2013 which did not return to the pre-war gold-partiy \u2013 enjoyed strong post-war growth and low unemployment.<\/p>\n

Gustav Cassel strongly warned against this policy as he today would have warned against the calls for \u201cinternal devaluation\u201d in the euro zone. In 1924 Cassel at a speech in the Student Union in Copenhagen strongly advocated a devaluation of the Danish krone. The Danish central bank was not exactly pleased with Cassel\u2019s message. However, the Danish central bank really had little to fear. Cassel\u2019s message was overshadowed by the popular demand for what was called \u201cOur old, honest krone\u201d<\/em>.<\/p>\n

To force the policy of revaluation and return to the old gold-parity the Danish central bank tightened monetary policy dramatically and the bank\u2019s discount rate was hiked to 7% (this is more or less today\u2019s level for Spanish bond yields). From 1924 to 1924 to 1927 both the Norwegian and the Danish krone were basically doubled in value against gold by deliberate actions of the two Scandinavian nation\u2019s central bank.<\/p>\n

The gold-insanity was as widespread in Norway as in Denmark and also here Cassel was a lone voice of sanity. In a speech in Christiania (today\u2019s Oslo) Cassel in November 1923 warned against the foolish idea of returning the Norwegian krone to the pre-war parity. The speech deeply upset Norwegian central bank governor Nicolai Rygg who was present at Cassel\u2019s speech.<\/p>\n

After Cassel\u2019s speech Rygg rose and told the audience that the Norwegian krone had been brought back to parity a 100 years before and that it could and should be done again. He said: \u201cWe must and we will go back and we will not give up\u201d<\/em>. Next day the Norwegian Prime Minister Abraham Berge in an public interview gave his full support to Rygg\u2019s statement. It was clear the Norwegian central bank and the Norwegian government were determined to return to the pre-war gold-parity.<\/p>\n

This is the impact on the real GDP level of the gold-insanity in Denmark and Norway. Sweden did not suffer from gold-insanity and grew nicely in the 1920s.<\/p>\n

The lack of reason among Danish and Norwegian central bankers in the 1920s is a reminder what happens once the \u201cproject\u201d \u2013 whether the euro or the gold standard \u2013 becomes more important than economic reason and it shows that countries will suffer dire economic, social and political consequences when they are forced through \u201cinternal devaluation\u201d. In both Denmark and Norway the deflation of the 1920s strengthened the Socialists parties and both the Norwegian and the Danish economies as a consequence moved away from the otherwise successful  laissez faire model. That should be a reminder to any free market oriented commentators, policy makers and economists that a deliberate attempt of forcing countries through internal devaluation is likely to bring more socialism and less free markets. Gustav Cassel<\/a> knew that \u2013 as do the Market Monetarists today.<\/p>\n

\u2014-<\/p>\n

My account of these events is based on Richard Lester\u2019s paper \u201cGold-Parity Depression in Denmark and Norway, 1925-1928\u2033 <\/a>(Journal of Political Economy, August 1937)<\/p>\n","protected":false},"excerpt":{"rendered":"

Danish and Norwegian monetary policy failure in 1920s \u2013 lessons for today Reproduced with kind permission from Lars Christensen at The Market Monetarist: History is fully of examples of massive monetary policy failure and today\u2019s policy makers can learn a lot from studying these events and no one is better to learn from than Swedish … <\/p>\n

Continue reading “What Europe could learn from Scandinavia in the 1920s | Lars Christensen”<\/span><\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mo_disable_npp":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[5,33],"tags":[990,999,1860,2346,2502,3311],"class_list":["post-7568","post","type-post","status-publish","format-standard","hentry","category-economy","category-uk-europe-countries-regions","tag-deflation","tag-denmark","tag-internal-devaluation","tag-monetary-policy","tag-norway","tag-sweden"],"yoast_head":"\nWhat Europe could learn from Scandinavia in the 1920s | Lars Christensen - the patient investor<\/title>\n<meta name=\"robots\" content=\"noindex, follow\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"What Europe could learn from Scandinavia in the 1920s | Lars Christensen - the patient investor\" \/>\n<meta property=\"og:description\" content=\"Danish and Norwegian monetary policy failure in 1920s \u2013 lessons for today Reproduced with kind permission from Lars Christensen at The Market Monetarist: History is fully of examples of massive monetary policy failure and today\u2019s policy makers can learn a lot from studying these events and no one is better to learn from than Swedish … Continue reading "What Europe could learn from Scandinavia in the 1920s | Lars Christensen"\" \/>\n<meta property=\"og:url\" content=\"https:\/\/thepatientinvestor.com\/index.php\/2013\/04\/26\/what-europe-could-learn-from-scandinavia-in-the-1920s\/\" \/>\n<meta property=\"og:site_name\" content=\"the patient investor\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/profile.php?id=61572934660810\" \/>\n<meta property=\"article:published_time\" content=\"2013-04-26T09:51:17+00:00\" \/>\n<meta property=\"og:image\" content=\"http:\/\/marketmonetarist.files.wordpress.com\/2012\/06\/pricenosedk.jpg?w=600\" \/>\n<meta name=\"author\" content=\"ColinTwiggs\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"ColinTwiggs\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"5 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/index.php\\\/2013\\\/04\\\/26\\\/what-europe-could-learn-from-scandinavia-in-the-1920s\\\/#article\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/index.php\\\/2013\\\/04\\\/26\\\/what-europe-could-learn-from-scandinavia-in-the-1920s\\\/\"},\"author\":{\"name\":\"ColinTwiggs\",\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/#\\\/schema\\\/person\\\/cb072791ac83e8bae585007c133d54a5\"},\"headline\":\"What Europe could learn from Scandinavia in the 1920s | Lars Christensen\",\"datePublished\":\"2013-04-26T09:51:17+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/index.php\\\/2013\\\/04\\\/26\\\/what-europe-could-learn-from-scandinavia-in-the-1920s\\\/\"},\"wordCount\":911,\"commentCount\":2,\"publisher\":{\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/#organization\"},\"image\":{\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/index.php\\\/2013\\\/04\\\/26\\\/what-europe-could-learn-from-scandinavia-in-the-1920s\\\/#primaryimage\"},\"thumbnailUrl\":\"http:\\\/\\\/marketmonetarist.files.wordpress.com\\\/2012\\\/06\\\/pricenosedk.jpg?w=600\",\"keywords\":[\"deflation\",\"Denmark\",\"internal devaluation\",\"Monetary Policy\",\"Norway\",\"Sweden\"],\"articleSection\":[\"Economy\",\"UK & Europe\"],\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\\\/\\\/thepatientinvestor.com\\\/index.php\\\/2013\\\/04\\\/26\\\/what-europe-could-learn-from-scandinavia-in-the-1920s\\\/#respond\"]}]},{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/index.php\\\/2013\\\/04\\\/26\\\/what-europe-could-learn-from-scandinavia-in-the-1920s\\\/\",\"url\":\"https:\\\/\\\/thepatientinvestor.com\\\/index.php\\\/2013\\\/04\\\/26\\\/what-europe-could-learn-from-scandinavia-in-the-1920s\\\/\",\"name\":\"What Europe could learn from Scandinavia in the 1920s | Lars Christensen - 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Scott does a great job showing that policy failure \u2013 both in the terms of monetary policy and labour market regulation \u2013 caused and prolonged the Great Depression.\u2026","rel":"","context":"In "Economic Theory"","block_context":{"text":"Economic Theory","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/economic-theory\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":15248,"url":"https:\/\/thepatientinvestor.com\/index.php\/2017\/05\/07\/oil-price-fall-is-caused-by-tighter-monetary-conditions-lars-christensen\/","url_meta":{"origin":7568,"position":1},"title":"Oil price fall is caused by tighter monetary conditions | Lars Christensen","author":"ColinTwiggs","date":"May 7, 2017","format":false,"excerpt":"https:\/\/youtu.be\/XCv7-uVDupg Lars Christensen is one of the founding members of the Market Monetarism school of economic thought, having coined the term himself. Market Monetarists advocate that central banks target nominal GDP, instead of inflation, in order to achieve more responsive monetary policy and more stable economic growth.","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/img.youtube.com\/vi\/XCv7-uVDupg\/0.jpg?resize=350%2C200","width":350,"height":200},"classes":[]},{"id":14117,"url":"https:\/\/thepatientinvestor.com\/index.php\/2016\/09\/13\/credit-bubbles-and-gdp-targeting\/","url_meta":{"origin":7568,"position":2},"title":"Credit bubbles and GDP targeting","author":"ColinTwiggs","date":"September 13, 2016","format":false,"excerpt":"In 2010 Scott Sumner first proposed that the Fed use GDP targeting rather than targeting inflation, which is prone to measurement error. Since then support for this approach has grown, with Lars Christensen, an economist with the Danish central bank, coining the term Market Monetarism. Sumner holds that inflation is\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":7732,"url":"https:\/\/thepatientinvestor.com\/index.php\/2013\/05\/12\/the-monetary-policy-revolution\/","url_meta":{"origin":7568,"position":3},"title":"The monetary policy revolution","author":"ColinTwiggs","date":"May 12, 2013","format":false,"excerpt":"James Alexander, head of Equity Research at UK-based M&G Equities, sums up the evolution of central bank thinking. He describes the traditional problem of inadequate response by central banks to market shocks like the collapse of Lehman Brothers: Although wages hold steady when nominal income falls, unemployment tends to rise\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":7076,"url":"https:\/\/thepatientinvestor.com\/index.php\/2013\/03\/19\/fed-ngdp-targeting-would-greatly-increase-global-financial-stability-the-market-monetarist\/","url_meta":{"origin":7568,"position":4},"title":"Fed NGDP targeting would greatly increase global financial stability | Market Monetarist","author":"Colin Twiggs","date":"March 19, 2013","format":false,"excerpt":"Lars Christensen describes how NGDP targeting would help the global economy withstand shocks like another eurozone crisis: Lets look at two different hypothetical US monetary policy settings. First what we could call an \u2018adaptive\u2019 monetary policy rule and second on a strict NGDP targeting rule. \u2018Adaptive\u2019 monetary policy \u2013 a\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":1194,"url":"https:\/\/thepatientinvestor.com\/index.php\/2011\/10\/06\/americas-debt-crisis-why-europe-is-right-and-obama-is-wrong-spiegel-online\/","url_meta":{"origin":7568,"position":5},"title":"America’s Debt Crisis: Why Europe Is Right and Obama Is Wrong – SPIEGEL ONLINE","author":"ColinTwiggs","date":"October 6, 2011","format":false,"excerpt":"American economists, central bankers and fiscal policy makers have reinterpreted British economist John Maynard Keynes's clever idea that government spending is the best way to counteract a serious economic downturn -- and have turned it into a permanent prescription. In their version of the Keynesian theory, declining growth or tumbling\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]}],"_links":{"self":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/7568","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/comments?post=7568"}],"version-history":[{"count":0,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/7568\/revisions"}],"wp:attachment":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/media?parent=7568"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/categories?post=7568"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/tags?post=7568"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}