The Wall Street Waltz: 90 Visual Perspectives, Illustrated Lessons From Financial Cycles and Trends, Revised and Updated Edition

Chart 47

The Source of England's Stiff Upper Lip

Whenever anyone suggests that interest rates are volatile, always will be, and have to be, I suggest they consider the English experience. It may also motivate you to favor a gold standard. The briefest glance at this chart of 240 years of English interest rates shows why gold bugs are bug-eyed. For more than 200 years, England maintained stable long-term interest rates through a rigid gold standard. Long-term rates never got above 6 percent and never fell below 3 percent, and in most years wiggled hardly a jiggle. And England suffered little of the inflation that periodically racked other countries. And they did all this throughout the course of famines, pestilences, numerous major wars (Napoleonic Wars, World Wars I and II, etc.) and the greatest upheaval of modern times, the Industrial Revolution.

Compare this with the volatile 19th-century American experience (see Chart 45). Now you know why gold fans hope that replacing the current U.S. monetary system with a gold-based system would generate similar results. In England, gold was rock-steady.

It is quite clear from this chart that an economy can operate without wild interest-rate gyrations. What is needed? The prime requisite is a supreme confidence in the value of money. Before World War II, England played much the same role for 200 years that the United States does today. They were the center of the world's economy, and other countries tended to peg their economic fortunes ...