James Hamilton has written the definitive take-down of the supposed benefits of pegging one's currency on a gold standard. Brad Delong says it shorter: "If your government doesn't have monetary-policy credibility, attempting to establish that credibility by going on the Gold Standard is a recipe for disaster. If your government does have monetary-policy credibility, going on the Gold Standard doesn't gain you anything."
I was surprised by her characterization of Hamilton's piece as a "definitive take-down" of the benefits of the gold standard -- I found it singularly unimpressive. Hamilton and DeLong attack the same old strawmen about the gold standard that the Austrians have repeatedly refuted.
For examples, see Joseph Salerno, "Money and Freedom":
Those who implicate the gold standard as the main culprit in precipitating the events of the 1930’s generally fall into one of two groups. One group argues that it was an inherent flaw in the gold standard itself that led to a collapse of the financial system, which in turn dragged the real economy down into depression. Writers in the second group maintain that governments, for social and political reasons, stopped adhering to the so-called "rules of the gold standard," and that this initiated the downward spiral into the abyss of the Great Depression.
From either perspective, however, it is clear that the gold standard can never again be trusted to serve as the basis of the world’s monetary system. On the one hand, if it is true that the gold standard is fundamentally flawed, that in itself is a crushing practical argument against the principle of monetary freedom. On the other hand, if the gold standard is in fact a creature of rules contrived by governments, and it is politically impossible for them to follow those rules, then monetary freedom is simply irrelevant from the outset.
The first argument is the Keynesian argument and the second the monetarist argument against the gold standard.
In the face of the historical evidence they adduce, can any defense be mounted in favor of the gold standard? The answer is a resounding "yes," and the defense is as simple as it is impregnable. As I have tried to indicate above, the case against the gold standard is from beginning to end a case of mistaken identity. The genuine gold standard did not fail in the 1920’s, because it had already been destroyed by government policies after 1914.
The monetary system that sowed the seeds of the Great Depression in the 1920’s was a central bank manipulated and inflationary pseudo-gold standard. It was central banking that failed in the 1920’s and stands discredited to this day as the cause of the Great Depression.
And Lew Rockwell, "Our Money Madness":
Should our monetary system be reformed so that it is based on a pure gold coin standard? Yes it should. This would be the single best reform we could make for the cause of freedom. Its commercial benefits include stability, predictability, and honesty in finance. Its moral benefits include a financial system that does not reward living beyond one's means. From the point of view of government, a gold standard would tie the hands of the state. They could wish and long for wars, welfare, foreign aid, bailouts, subsidies, and graft, but unless they could raise the money by taxing, all their talk would be pointless. That is a country I want to live in.
For years I've heard people suggest that the Mises Institute come up with a detailed plan for how the conversion would work. In fact, there are many models to choose from, from Joseph Salerno's to Murray Rothbard's to George Reisman's to Ron Paul's own legislation, which has been before the House for some two decades. What is lacking is not a plan. It is the political will. It would require that the government recognize the error of its own ways, agree to limit its power and influence, abolish the Fed, and return the control over economic structures back to the people. And you wonder why the movement for a gold standard struggles!
Finally, if the gold standard were the Force, Murray N. Rothbard would be its Yoda. For goodies too numerous for snippage in this space, see the following from Rothbard:
- "The Case for a Genuine Gold Dollar"
- "America's Great Depression" (free e-book downloadable in pdf format; 409 pp)
- "What Has Government Done to Our Money?/The Case for the 100 Percent Gold Dollar" (hardcover edition; 191 pp; $17)
***NOTE: Honestly, I have no intention of starting an econ wonk slapfight. I admire Angelica's well-written, entertaining blog and am a regular reader of Battlepanda. The point here is to raise awareness of the counter-counterarguments to the gold standard. The scholars have done the heavy lifting on this issue already, so -- having no scholarly credentials of my own -- consider my contributions here a mere conduit into further research on this debate. Please read the links. Carry on.***