The Gold Standard And Japan’s Economic Miracle


Dr. Simon Bytheway has made two major career mistakes in life: First, he teaches Japanese finance students an uncomfortable truth — that their country’s economic preeminence derives in large part from the influence of western culture. His second career mistake was to specialize in research pertaining to the gold standard, something which his Keynesian academic colleagues told him would consign him to the sidelines of the discipline.

It is to these career errors that we owe the existence of a brilliant treatise in economic history, Investing Japan (Harvard University Asia Center, 2014). This rigorously documented treatise demonstrates that the gold standard is behind the rapid rise from the feudal backwaters to a modern economic and military superpower in a matter of a decade or two.

How is this possible? How can something as simple as a stable monetary unit do for Japan what almost 1,200 years of the regime failed to do prior to that? It does it by creating the preconditions for the transfer of knowledge. Knowledge follows investment: foreign capital comes accompanied by foreign knowledge. But when a nation debases its currency, it sends a message to the world: keep your financial and your intellectual wealth away from here; you’ll lose it when the time comes to cash-out. The most a weak currency country can hope to pick-up is the short-term usage of some hot-money flows and its best and brightest young minds driven out of careers in technology and towards financial hedging. But a hard currency country implicitly sends out a different message: send your money; send your experts; build your factories here; teach us what you know, and the wealth you create here will come back to you multiplied and in a currency which holds its value.
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