A good article by Richard M. Ebeling:
As Martin Wolf correctly observed, historically a primary advantage of a gold standard was that it removed the hand of the government from the handle of the monetary printing press. Over and over again, governments have used their power or influence over the monetary system to either debase coins or print up paper money to cover its expenditures in excess of the taxes collected from the citizenry.
But in spite of Wolf’s concerns, it can be argued the costs of a gold standard are far less that the costs that have been imposed on society from a century of gross mismanagement of the monetary system by governments around the world. Since 1914, when the Federal Reserve System came into operation as America’s central bank, and the beginning of the First World War that same year, the world has experienced severe inflations, including a number of hyperinflations, and the rollercoaster of several booms and recessions, including the Great Depression of the 1930s and the current global economic downturn.
Placing the fate of the world’s monetary system in the hands of monetary central planners, who have had all the discretion imaginable through their control of paper money instead of gold, has not secured an inflation- or recession-free economic environment.
Read the whole article.
Ebeling’s central claim is that absent the gold standard, governments and central banks are tempted to print money, which in turn brings excess inflation.
This just isn’t true of the more responsible countries over the last century or so, while it certainly IS true of the less responsible ones, e.g. Zimbabwe, Argentina, etc. I.e. the Argentinas of this world might be advised to go onto a gold standard, or tie their currency to the US dollar. But responsible countries can gain significant advantages from NOT being on the gold standard.
For example Ebeling claims “Since 1914, when the Federal Reserve System came into operation as America’s central bank, and the beginning of the First World War that same year, the world has experienced severe inflations, including a number of hyperinflations, and the rollercoaster of several booms and recessions…”
What “hyperinflations” have there been in the US or UK over the last century? None! The worst episode (which was nowhere near a hyperinflation) was the inflationary episode of the late 1970s. But that is widely regarded as having been sparked off by the astronomic oil price increase in the late 1970s, not by a money supply increase.
Ebeling also claims that “Only the most doctrinaire Keynesian can deny or fail to see that past recessions and the current economic downturn were all preceded by unsustainable booms resulting from monetary expansions…”. That is true. But as Huerta de Sota rightly points out, the bulk of this extra money comes from PRIVATE sector or COMMERCIAL banks, not CENTRAL banks.
I.e. the latter problem is largely solved (as De Sota advocates) by the abolition of fractional reserve.
Comments are closed.