More on the Gold Standard, with Regret

I regret taxing readers’ patience with another post on the gold standard. As I and other bloggers here have made clear, a free banking system need not be a gold standard system. If people want the standard to be gold, that’s what free banks will offer to attract their business. But if people want the standard to be silver, copper, a commodity basket, seashells, or cellphone minutes, that’s what free banks will offer. Or if they want several standards side by side, the way that multiple computer operating systems exist side by side, appealing to different niches, that’s what free banks will offer. A pure free banking system would also give people the opportunity to change standards at any time. Historically, though, many free banking systems have used the gold standard, and it is quite possible that gold would re-emerge against other competitors as the generally preferred standard.

It is therefore distressing to see economists who should know better failing to distinguish among different kinds of gold standard. Recently, Bruce Bartlett, David Glasner, and, implicitly, David Beckworth have dumped on the gold standard by citing the Great Depression as decisive evidence against it.

The gold standard of the time transmitted the Great Depression from the United States to the rest of the world. One piece of evidence is that countries off gold generally suffered less than those on gold. That is only the first step in the inquiry, though. If the Great Depression was mainly a result of monetary mistakes, as I, Glasner, Beckworth, and probably Bartlettt would all agree, why did those mistakes not occur until 1929, even though in one form or another the gold standard and its twin the silver standard were many centuries old?

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