I’ve linked before to Professor George Selgin’s masterful video on the Federal Reserve’s horrible track record, and I’ve done my own video on the origin of central banking.
These types of posts often generate questions about what reforms we should support, and a lot of people ask about the gold standard. I’m not a monetary economist, so I’m not in a position to give competent answers. Fortunately, Prof. Selgin has decided to provide a very useful analysis of the issue.
Writing for a British paper, he explains that a genuine gold standard worked very well before World War I, but it probably wouldn’t work today because governments are so untrustworthy.
Of all the reasons usually given for condemning the gold standard, perhaps the most common is the claim that it was to blame for the Great Depression. What responsible politician, gold’s critics ask rhetorically, wants to relive the 1930s? But the criticism misses its mark. Fans of the gold standard are no more anxious to repeat the 1930s than their critics are. Their nostalgia is instead for the interval of exceptional international monetary stability that prevailed from the mid-1870s until World War I. That was the era of the classical gold standard – a standard policed by the citizens of participating countries, all of whom were able to convert their nations’ paper money into gold. This classical gold standard can have played no part in the Great Depression for the simple reason that it vanished during World War I, when most participating central banks suspended gold payments. (The US, which entered the war late, settled for a temporary embargo on gold exports.) Having cut their gold anchors, the belligerent nations’ central banks proceeded to run away, so that by the war’s end money stocks and price levels had risen substantially, if not dramatically, throughout the old gold standard zone. …the gold standard that failed so catastrophically in the 1930s wasn’t the gold standard that some Republicans admire: it was the cut-rate gold standard that Great Britain managed to cobble together in the 20s – a gold standard designed not to follow the rules of the classical gold standard but to allow Great Britain to break the old rules and get away with it. …the collapse of the gold-exchange standard forever undermined the public’s confidence in governments’ monetary promises; and absent such confidence there can be no question of a credible, government-sponsored gold standard, classical or otherwise. Sometimes with monetary systems, as with life, you can’t go home again.
I’m also glad that he explains that the gold standard was not responsible for the Great Depression. If you want to know more about that issue, including the damaging impact of statist policies by Hoover and FDR, this video is an excellent introduction.
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Statist governments will never allow a gold standard. They will not be able to continue the greatest theft in history (stealing 97.5% of the value of all U.S. dollars in the world, since 1971). They LIKE free (to them) money. I don’t know why they even bother to collect income tax, unless it is to harass, ridicule and annoy their hated enemies, the private sector. They don’t need to borrow money either – just print a bunch more green ink on paper, and just like magic, there’s MONEY (or a rough approximation to it anyway). Actually the only real money left in the world is gold and silver (although an argument can be made that platinum qualifies too). Certainly NO fiat currency is real money anymore, and is NOT to be trusted.
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Great article by Professor Selgin. As he concludes, “Sometimes with monetary systems, as with life, you can’t go home again.” Hopefully the market can create an alternative to a governmental monetary system, maybe a free banking system on a BitCoin standard. We can build ourselves a new home.
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