Gold Standard Equals Great Depression
We can debate the role of the Federal Reserve in the origin and propagation of the Great Depression, but I think it is pretty clear that the economics profession (less the real business cycle folks) puts the responsibility for the spread and depth and persistence of the worldwide Depression at the feet of the gold standard. That is where it belongs. Once World War I had come and gone, the gold standard was no longer a viable system for international finance. It took the Great Depression for the world to finally "get it" and at quite a price. It was only after countries abandoned the gold standard that recovery from the depths of the Depression commenced. The timing of leaving the gold standard and the beginning of recovery is one of the strongest empirical relations we have in all of macroeconomics.
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I guess I am confused as to how the gold standard caused the Great Depression?
Further confused how, since we didn't leave the gold standard until 1971, that leaving the gold standards somehow correlates with a recovery?
Furthermore, if I look at what has happened since 1971, stagflation, trouble reigning in inflation, asset bubbles left and right, the Great Recession, I have a hard time understanding how floating currencies and governments printing money has been a good thing.
Furthermore, it seems the only rationale Nixon had at the time for taking us off the gold standard was that he needed a way to keep funding the Vietnam War. Since we left the gold standard, and there has been no such check on government spending , what has happened to our deficit and debt?
If Greece was pegged to the dollar, pegged to the gold standard, would they have been able to pull all of Europe down with them? Would we have a $1 trillion plus deficit?
It sounds like the only reason you give for your idea that the gold standard caused the Great Depression is that leaving one was followed soon after by leaving the other. Am I right? This is classic "post hoc ergo propter hoc" -- as logically sound as asserting that the sunrise causes my alarm clock to ring. It's not that it's impossible for something to be caused by what happened before it, just that you need to provide more than that as evidence.
"Coincidence vs. causation"
Exactly. Where's the causation?
As world war 1 "came and went", don't forget that there was unprecedented wide-spread inflation to finance the war. Inflation causes trade deficits between countries that inflate at different rates. This causes an outflow of reserves as payment for the deficit in the balance of payments.
In order to stop the outflow of gold, the US had to either A) stop inflating and experience a period of deflation, or B) repudiate on it's obligation to return the property (gold) to the people who rightfully owned it. The "temporary" suspension of specie payments turned out to be not so temporary.
Therefore the need to go off the gold standard was rooted in inflationary monetary policy and trade deficits. Without inflation there would have been no need to go off the gold standard, and we would still be enjoying the most stable international economic system the world has ever known.
The gold standard was not the cause of the Great Depression. Instead, the central bank's monetary policy cause the depression...
Milton Friedman explains the depression- http://www.youtube.com/watch?v=O7pnjzCuSv8&feature=related
Alan Greenspan recommends gold - http://www.usagold.com/gildedopinion/greenspan.html
Alan Greenspan and Milton Friedman are much more respectable experts, and they both support the gold standard and refute the argument that gold cause the depression.
This seems to be the most accurate overview on how that economic fiasco occurred in the first place, and it clearly was nothing to be blamed on the gold standard:
http://mises.org/rothbard/agd.pdf
It seems this argument depends upon a historical look at gold without acknowledging the effect of fractional reserve banking coupled with Fed intervention in setting interest rates!
And what of the fairness of the hidden costs of inflationary currency creation, which favors the banks and those who spend the new currency before the inflationary effects are felt in the economy?
At least with gold (and some kind of rational whole reserve banking regulations) or some kind of commodity based currency, inflation cannot be created by pencil necks chairing the central bank.
I've yet to see anyone justify the effects of wealth re-distribution caused by inflation. Even the strongest proponents seem incapable of justifying the robbery of the poor for the benefit of the rich.
Robbing value from poor people, widows, people on fixed incomes (these are the people most effected by inflation) and awarding the proceeds to the politically well-connected is progressive?.
It's a hidden tax. Even Bernanke has admitted that inflation is a hidden tax (while being grilled by Ron Paul ).
Let's see an "expert" justification of this.
Don't forget to address the constitutionality of such a tax.
I didn't mean the kind of fractional reserve systems that allowed banks to issue unlimited notes without backing though.
Fractional Reserve banking seems like the way to go since monetary systems are thus not monopolized:
http://mars.superlink.net /~neptune/BankFAQ.html
http://video.google.com/videoplay?docid=-466210540567002553&ei=aEweSay1GJzUqAPg3smyBw&q=federal +reserve&emb=1
I read that the Glass Steagall Act was passed in 1933 to restrict commercial banks from high risk investments - that being the root cause of the depression. You're saying it was the gold standard. Please explain.