The Gold Standard and Financial Globalization: Global Economy - Case Study Example

Many economists played important in helping people to realize the importance of free trade for countries taking part in it. Such ideas have been powerful, elegant, and stated with logical precision. However, the influence of such economists varies across different countries and times. According to Rodrik, “depending on where a country a country stands in the world economy and how trade policies align with its social and political cleavages, free trade can be a progressive or regressive force” (Rodrik 49). Countries such as Britain which are the industrial powerhouse with liberal trade policies have favored its manufacturing interests.

Those countries that use slaves in their industries have a cost advantage of these slaves in their plantations. However, free trade policies tend to benefit repressive, agrarian interests. One sure thing is that free trade and politics do not always go together. There is a paradoxical aspect from all the past liberal economic stories as a result of an increase in protection. For those countries that put up trade barriers, not only do they increase their trade volume, but also their incomes. Such experiences, like the United States in Civil War, lead to more doubts about the relationship between free trade policies and economic growth.

In countries like Britain, the protectionist slippery slope has been subjected to a lot of resistance despite pressure from “fair traders” who want to retaliate against high tariffs on British exports. Protectionism has become a derogatory term that is used by countries to browbeat their trade opponents. Policies used by countries in their strong trade positions in manufacturing rendered tariffs have been terms as pointless and redundant policies.

On the other hand, liberalization has performed poorly in the domestic economies of major economies in the world. Some countries such as the United States have never espoused free trade policies, while European continental powers have reverted to higher levels of protection after several decades (Rodrik 52). The gold standard and financial globalization The gold standard was a financial and monetary regime that the government traded in the 19th century. Discipline enforced through imperialist practices was again crucial to uphold free capital flows. The gold standard was based on a few simple rules. Rodrik states that “each national currency had its gold parity, whose value was entirely based on gold” (Rodrik 53). For instance, the British sterling pound was equivalent to 113 grains of pure gold, and the U.S. dollar to 23.22 grains. The central banks of each nation exchanged currencies based on these parties. The limits of economic globalization According to Hirst and Thompson, “the globalization of economic activity and the governance issues it raises are often thought to have appeared only after World War II, particularly during the 1960s” (Hirst & Thompson 342). After the 1960s era, there was the emergence of MNC activity which came at the same time with the rapid growth of international trade.

Subsequently, after the collapse of Bretton Woods’s exchange rate regime between the periods of 1971 to 1973, there was an earnest expansion of bank lending and international securities investment. The expansion started as capital, especially money markets, rapidly became internationalized. It, therefore, led to the addition of complexity of international economic relations and heralding what many people thought to be the genuine globalization of an independent and integrated world economy. From the primary issue of globalization, it is difficult to measure the degree of integration in financial markets, empirically and theoretically.

The economic analysis in this area is mostly driven by the idea of efficient financial market theory. It, therefore, means that capital markets compete to allocate international savings to equalize returns on capital (Thompson and Hirst). The global transformations leader This book gives an analysis of the vigorous public debate about the global economy. At the center of this public debate, there are conflicting claims about the form, extent, and consequences of globalization. In this book, some globalists argue that the world is irreversibly and fundamentally being transformed by globalization.

In contrast, some skeptics believe that the claim of globalists is exaggerated and poorly substantiated. The same skeptics are contesting the same idea of globalization. They tend to argue that nationalism, national governments, and geopolitics have remained to be the determining factor of today’s generation (Held & McGrew).