Would the Real Gold Standard Please Stand Up?

The gold standard debate has seen a spike recently in different blogs (Bruce Bartlett, David Beckworth, David Glasner, Blake Johnson, Kurt Schuller, Scott Sumner, David Glasner, George Selgin, David Glasner and Kurt Schuller). Besides the informative replies of Schuller and Selgin, the criticisms of the gold standard suffer from a mixing of different aspects, leaving their objections unclear. For instance, it is unclear if the criticisms are of the classical gold standard, or on how a particular gold standard was practiced, or on a potential return to some form of gold standard regime (and in such case, to which type gold standard?). Arguments against one are used as a claim against the other. In all of this confusion two aspects seem to have gone lost:  What does “gold,” and what do the “rules of the game,” mean under a gold standard.

A confusing characteristic of some of the criticisms is that it is not clear to what gold standard the critic is referring. If the Great Depression is brought into the argument, then the object of criticism is the particular monetary institution that was in place at the time; this is the relevant type of gold standard. It is a non sequitur to conclude that if one type of gold standard fails, then all types of gold standards are problematic (and the fact that it even was the monetary regime that failed is also disputable). And this is because some critics do not find the “rules of the game” to be a clear term. In addition, as Schuller points out, under the same line of reasoning one should argue that, given the (current) Great Recession, all types of central banks should be discredited.

There can be different types of gold standards. I will mention three: (1) Free-banking with a gold standard (this means no central banks), (2) Classic gold standard (with central bank) and (3) gold exchange standard. These three vary fundamentally. One can imagine more variations, but these three will do to show how differences are important.

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