It should be remembered that the (previous?) Great Depression started when the US and a lot of other countries were on the gold standard. In fact, the defense of the US$/gold peg by the Fed is a major reason why it raised interest rates and allowed the economy to sink... When the peg went away, some reflation was possible.
Note that the gold standard is a government policy. It can be abolished any time. Under the gold standard, the peg was usually suspended during wars. Even if we were on the gold standard, that only limits the size of the "monetary base" -- unless there are stringent bank regulations. With laissez-faire credit rules, banks can build an enormous amount of credit on even a fixed monetary base. There seems to be a contradiction within "Austrian" thought: they want to be laissez-faire, but for the gold standard piece of their pie to work, they need strict regulation by the dreaded government (or its agent, the central bank). This contradiction can be seen in work by the MF -- who was more "Austrian" in his early days, I understand. He once advocated that banks have 100% reserve requirements. This didn't make much sense (to the bankers, among others) so instead, he advocated a fixed growth rate of the money supply per year, imposed by a constitutional amendment if necessary. That didn't make sense as the 1980s progressed, so he decided that the monetary base should be kept constant, which seems to be his version of the gold standard. But then you need banking regulation to keep the supplies of money and credit from growing relative to the base in an unpredictable and/or excessive way. Of course, this is just one dimension of the point that we Followers of the Old Hairy German Guy have made again and again: the "free market" (classically liberal capitalism) requires the coercive power of the state. -- Jim Devine / "Nobody told me there'd be days like these / Strange days indeed -- most peculiar, mama." -- JL. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
