The Keynesian economists claim that gold standard systems have historically caused “booms and busts.” Recently, I asserted that no major economic event was caused by a currency of stable value. The purpose of a gold standard system is to provide a currency of stable value – as stable as can be achieved in our imperfect world – and, for the most part, it achieved this goal over a period of centuries.
Did “booms and busts” take place during times when a gold standard system was in use? Of course. These were caused for all manner of reasons, none of which include a currency that was stable in value.
What gold standard critics are really talking about when blaming gold for “booms and busts” is that a gold standard system prevents “macroeconomic management” via currency manipulation. These economists are convinced that they could deal with any sort of economic problem with their funny money toolkit.
If there was a recession in 1854 or 1960, for whatever reason, they assume that the recession could have been completely avoided if they had been allowed to apply their fiat money magic. They thus blame the gold standard systems of the time for preventing any such action.
The recession was the gold standard’s fault!
Is “macroeconomic management” via money-jiggering such a magic cure-all for economic ills? The soft money guys have had the freedom to do what they like since 1971. Recessions still happen anyway. For the last several years, Ben Bernanke has been trying to make a housing bust, bank insolvency and unemployment problem go away with an “easy money” strategy whose aggressiveness is unprecedented in U.S. history. It hasn’t worked; all the improvement in unemployment over the past several years can be attributed to “statistical interpretation.”
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