*cracks knuckles*
The short version is some form of post-Keynesianism.
Let's understand how we got where we are today. In the primordial age of economics, trade was principally carried out via metallic currencies. This isn't because gold and silver are metaphysically superior money or anything like that. It's due to the properties of gold and silver. Even in ancient times, they had very good methods to test the purity of metallic coins. On top of that were cultural reasons. China doesn't have much natural silver, but had lots of desire for silver. Since China was the world's biggest trading partner since time immemorial, this meant every trader knew it had intrinsic value in global trade.
While large nations could verify the purity and standardize metals, small time traders couldn't. So at various times, different countries became trusted for the consistency of their coinage. Spanish dollars, Dutch guilders, Florentine florins, British pounds. The specifics don't matter, what matters is that when a country has more influence over trade when it controls the currency.
So why does this matter for national economies? Simple, in practice it's because people rarely traded actual metal coins. This will trigger gold bugs, but it's plain as day in the record going back to Roman times. People didn't really walk around with sacks of coins very often. In typical commerce, people would trade in IOUs for metals instead of the actual metal. It made sense to keep your metals with a trusted friend who could keep them safe, and simply give someone else a slip of paper that allowed them to take the gold out in your stead.
Bankers quickly figured out that they could have more IOU slips out in circulation than they had coins in their vaults. If they loaned their reserves out, they could make a small profit on it, and that is their payment for defending the deposits. Thus humanity invented fractional reserve banking, and we've been suffering the consequences ever since (just kidding, but only a little bit).
Fractional reserve banking is actually a good way to generate some growth. The bank can loan money to someone who has an idea to make some money, which is better than that money sitting under the mattress of the person who deposited it. This is great, and the economy will be better, so long as there is no run on the bank. With more IOU slips than reserves, if too many people request their metals, then the whole scheme collapses. It's a financial crisis.
I bring up fractional reserve banking and international trade because they are intimately related. When everything I've just said is accepted practice, then there is one economic policy idea that becomes very rational. Because you see, while e.g. most French people would be fine holding French slips and never taking out deposits from French banks, an English trader doesn't feel the same way. To an English guy with a boatload of coal in a French port, the French paper IOU is worthless. He can't use it to buy anything in Britain. He'll take them, but he'll run to the French bank as soon as possible and convert it into metals, which he can actually take back to England and have value. International trade tends to shift reserve currencies from one country to another.
If metals are constantly flowing out of a country, but never in, it weakens that country's entire banking system. Eventually economic activity will have to slow because banks can't keep lending against shrinking reserves. The economy itself will soon follow. What happens is that, since loans can't be taken from banks and since capital is relatively fixed, the only place for businesses to cut back is: workers. Workers bare the brunt. Layoffs, pay cuts, etc. Eventually, the economy will be so damaged and labor will be so much cheaper, that the country will have an easier time exporting stuff for cheap. Then the metal flows reverse and go back into the country, the banking system strengthens, and the economy grows rapidly again.
This is why when you see charts of inflation, they look like this:
![[https://i.imgur.com/WhIpN46.png]](https://i.imgur.com/WhIpN46.png "https://i.imgur.com/WhIpN46.png")
Those big blue and green areas prior to the 20th century aren't because countries were minting and buying back currency every few years, they were natural and extreme fluctuations in the banking system due to international trade. And it's very disruptive and terrible for the people living through it. And this was defended as 'good and natural' by the first wave of liberal economists. It was a major sticking point of 19th century liberal economists that they couldn't convince 'stupid laborers' that they should just accept pay cuts. The liberals believed the economy would reset faster, and the workers would do better overall, if they just accept less pay.
Living in this international trade scenario leads countries to one obvious policy outcome: you do *not* want a trade deficit. At all costs, you want to make sure that metal flows into your country and not out. If you do this successfully, it means less suffering for your people, it means fewer economic crises. It's a literal 'golden age' for your nation. But this is a policy idea known as 'mercantilism', and it's a 'beggary thy neighbor' policy. By ensuring metals only flow into a country, it means by definition there have to be other countries where metals are flowing out.
This means that international trade, banking, and now
war all go together. You'll notice the currencies I listed above, Spain, Florence, Britain, and the Netherlands, all have something in common. They all were, in their heyday, military hegemons. Privateering of other nations was encouraged, and privateering of one's own merchant fleet was suppressed. Colonial nations were formed for the express purpose of limiting trade, and thus limiting gold flow, to rival nations. This also meant government budgets had to be kept in check, as outstanding debts were a way for countries to take big chunks out of each other's reserve piles.
And these struggles play a large part of nearly all modern European wars. The Napoleonic wars were fought in large part over whether France or Britain was going to be the trade hegemon of the continent. WWI was fought primarily because Germany was trying to elbow its way into long-established English and French colonial trade routes. WWII was very directly caused by a wave of protectionist policies implemented in the 1930s in response to the great depression. What really happened though is conditions got so bad for people, that politics the world over destabilized and we say a rise in the worst authoritarian governments the world has ever seen.
Enter Keynes, stage left. Keynes whet his teeth initially on managing some part of Britain's India colony, but he really got famous for his work for the British treasury in WWI. Keynes learned alot during this: one, how government can just 'make things happen' in the economy regardless of payments. Two, that beggar-thy-neighbor policies were the ultimate cause of that horrific war. And three, he learned himself how to do some very clever beggaring of other nations to keep the British balance sheet black during the war.
Keynes set out to solve these issues. Most of his major works were between WWI and WWII, where he tried to solve these issues. He lambasted liberal economists for their stupidity regarding worker wages (it's a simple game theory question.. even if the economy is overall smaller, surrendering your pay still gives you a smaller percentage slice of the GDP cake). He noted that governments can 'do first and pay later', because he witnessed how wartime economies produced more rapid and permanent growth than decades of liberal economies. And he sought to solve beggar-thy-neighbor policies, via a financial innovation he called the bancor.
His bancor proposal was honestly kind of genius, and it's a tragedy that that's not how Bretton Woods went. The idea was that, instead of metals being the reserve for international trade, that international trade should be carried out with an international fiat currency. This currency couldn't be printed by just one country (sorry, both Germany and the US, you failed to live up to Keynes's ideal). Instead, there would be a body of nation states that had to vote to approve printing to address banking crises, and nation states who tried to beggar their neighbors via protectionism could be punished via the same institution. On the other side of this, international finance would be strictly constrained via capital controls. For the most part, if an American made a dollar anywhere in the world, in Keynes's world they would have to spend or invest that dollar somewhere in America.
Post WWII, the allied nations began organizing a system at Bretton Woods. The DNA of Keynes's plan is all there. This is where the World Bank and the IMF were founded, to serve as reserve currency holders that could support developing nations. However, there was one key part that was left out. And that was the bancor, the fiat currency that was supposed to take the role of metals. Instead, US-printed dollars were to fulfill that role, backed by gold. It's important to note that by the end of WWII, the US controlled an extreme amount of the world's gold reserves, as basically every country was either defeated by the US or paid all of its gold to the US to support its war effort. Basically, WWII turned the US dollar into the indisputed world currency. No other currency in history has ever been as complete and dominant in world trade as mid-late 20th century American dollars. Not even metals.
And this is what led to the post-WWII economic miracle. People in the US, even the lower and middle classes, were so obscenely wealthy post WWII. That was that the US was the center of the most valuable currency ever in world history, that currency couldn't easily go to other countries, and so it
had to be spent investing in the US. This gave American workers very strong negotiating power, which is why unions were so strong and why labor was paid so much. Trade was free, though, this isn't a protectionist policy with tariffs. It was a policy to contain finance only, not trade, so nations could all build their own competitive industries and ultimately employ more of the populaces with higher wages and keep conditions far more equal.
Come the 1970s, and this system runs into problems. For one, France primarily but a few countries want to end dollar hegemony, so they try to return paper dollars for gold reserves and start another gold-backed currency. Nixon, not wanting to defend its stockpile of nearly all the world's gold, decided it was easier to just not pay out the gold for dollars anymore, and since 1971 dollars are the world reserve currency without any metals at all involved. The world achieved a true fiat reserve currency, but instead of having it controlled by a democratic union of nations, it is instead controlled solely by one, which subjects the rest of the world to its crazy antics.
So what else happened in the 1970s was necromancy of the corpse of liberalism. Because American labor was paid so highly, it became increasingly difficult for American companies to sustain productivity. It took more expensive and complex investments to cancel out the increases in labor costs and stay profitable. Companies started losing money, but unions were still all-powerful. So, through a series of policy choices completely void of any kind of democracy, capital controls were lifted. This meant that people who earned dollars in America no longer had to pay American workers
And why would you? American workers are being paid in dollars, which are practically gold in the post-1971 world, while the rest of the world gladly accepts scraps of **** paper that are worth much less than the extremely valuable reserve currency dollars. Of course, this transition didn't happen overnight, but 50 years in the effects are clear. American labor is increasingly unwanted and companies do their best to avoid paying gold for labor instead of worthless **** currencies.
This situation is irreversible. The US is stuck in a bind, it cannot give up reserve currency status as it is the 'exorbitant privilege', it grants the US license to do almost
anything it wants. However, this same status makes it extremely hard to keep the economy working, because those dollars want to rush out of the US like fresh water to salt.
China is the country doing the most to fight the US dollar. The renminbi is pegged to the dollar, meaning it's permanently trading lower than it should for dollars. In other words, Chinese labor is artifically made cheaper to any country that deals heavily in dollars. This comes at the expense of Chinese workers, who have far less they can spend their money on, but strategically their strategy of beggaring the US financial system is working. The problem is, just like modern European fighting perpetual wars over trade deficits, this is tending the world towards war. Russia claims it's fighting Ukraine over NATO membership, but anyone who knows their history knows that Russia wanted to keep Ukraine relatively integrated economically (look up the Commonwealth of Independent States), but Ukraine drifted towards the EU and eventually began to deny the legitimacy of the CIS. Russia wants to beggar its neighbor, all of the talk about LGBT NATO instructors is just a bull**** cover.
And as anyone can see, the world has a corresponding rise in extremism, populism, and fascist-adjacent ideologies that threaten to drag the world into WWIII.
The solution? Just do everything Keynes said. End US dollar hegemony, recharter the world bank, create the bancor, and reimplement capital controls. Countries like Germany could be properly punished for their bad behavior, inequality would be sharply reduced, the US would not be able to inflict itself on other countries so easily but would still be a powerful hegemon.
The problem is, the people who profit off this system most have most of the power in our societies and would rather ride the atomic bomb into hell than make changes that don't immediately benefit them. So unless people start getting real politically active and start really taking down and transforming governments, we're on track to get a WWIII.
