Why would the supply of gold decrease during a recession? Does the supply of gold = the supply of money if we have a gold standard? What was the 'gold standard' in place @ the time of the great depression?


If it weren't for the Federal Reserve and fiat money the Great Depression never would have happened, and if it weren't for efforts to 'socialize the troubles' by FDR & Hoover the Great Depression would have been over in a couple years if that. It wasn't the Gold Standard that exacerbated the Great Depression it was intervention in the market place by the federal government.

Because people and banks start converting their dollars into gold and hoarding it. This lowers the supply of gold in the economy and creates deflationary pressure.
Given that you think fiat money was a cause of the Great Depression, when the US was in fact on the gold standard at the time, you should maybe do some research before commenting. The US recovery didn't begin until Roosevelt lifted the gold standard restriction and the dollar was allowed to be priced according the market.

A gold standard would mean instead of our money losing it's value every year it would slowly gain purchasing power. Without inflation there would be more incentive for saving. It would be difficult for the state to finance wars of aggression absent the power to debase the money supply. People on fixed incomes wouldn't feel so squeezed. Honest money is the foundation of a sound economy.


The great depression was a testament to the failure of state intervention in the economy and a stunning indictment of Keynesianism. Data which indicates that abandoning the gold standard leads to recovery is fallacious. What is the argument against having a gold standard?

Lol wat is all that can be said to that. During the Great Depression all data indicates that those countries which waited the longest to abandon the gold standard suffered the most and the had longest time till recovery. This includes the US. There's a very good explanation for all of this. Care to explain why that data is fallacious?

I've seen the charts... this article rebuts :

http://mises.org/daily/3778

Remember folks, even if you are right for the wrong reasons, you are still RIGHT.

You've kind of gotten to the heart of the matter here. The only way the gold standard works is when literally everyone with any kind of economic clout adopts it, and commits to it 100%. This is why it worked until WWI. The only problem is if you make questionable economic decisions or end up in economic hardship (like a lot of countries during and after WWI), it limits your financial flexibility big time, raising the chances that you will abandon it, leading to speculative attacks on your currency. These are usually disastrous and often will end up forcing you to abandon the peg. This is what happened to a lot of countries (including the US) during the Great Depression.

This is why its retarded to advocate for the US to adopt the standard again. It just won't work unless everyone else does it too.

So basically, what you want is every country in the world to dismantle their central bank, adopt the gold standard, and commit 100% to leaving their monetary policy and economic fortunes in the hands of the market. Good luck with that. I want world peace too. It would be really easy, all every country has to do is not go to war with each other. For some reason I'm not holding out hope for that.

That is being far too kind to Murphy's logic, which is basically a dynamic prisoner's dilemma. It would imply that as countries went off the gold standard, the last few countries would be left holding the bag, and these countries would suffer far more than those who went off the peg earlier, even after they came off the gold standard. So which were these countries? Given that countries that went of the peg later didn't seem to suffer long-run effects, but instead simply recovered with a trend commensurate with their de-pegging date, Murphy's story is inconsistent with the evidence.

Not that we'd expect any better from him, of course. I have yet to see him give a coherent macro-type argument in a Mises article - although he seems to be more circumspect in his exchanges with the mainstream, suggesting that he is just taking advantage of the gullibility of Mises.org readers in his articles.

When was the last time one nation invaded another to steal its paper money?

The gold standard caused crisis after crisis well before US abandoned it officially. Every gold rush caused waves of unpredictable inflation and waste of resources (to mine an inherently unproductive metal). Every downturn was exacerbated by the gold standard's inherent deflationary properties, encouraging people to basically stuff money under the mattress instead of investing in productive assets.

Gold, silver, whatever medium of exchange (including USD) you use, at the end of the day, is backed by the people that are willing to accept such "monies." In USD's case, we're backing it with the full might of the US, military, economic, cultural, and other forms of soft powers. That and, presently, just about the entire world backs the USD as the de-facto hard currency, even our enemies.

Historically, Spain backed silver and gold, Greeks backed electrum, China backed seashells (no ****), and Japan... backed frigging rice (abandoning gold btw at one point).

Wasnt the old timey gold standard just a different form of government managed money? Why arent we talking about free banking? Gold, fiat currencies, bitcoins, whatever you want. Competition in currencies is what libertarians should be for but for some reason they have a fetish for gold. Give me a secure electronic money like bitcoins any day over gold, although it might take us some time before we get that kind of security.

Why?

grizzy : the idea that the gold standard (assumably contrasted with todays paper money) is prone to inflation seems obviously false to me. Isn't it easier to print money or change a digit on a computer than it is to physically mine new gold?

I said unpredictable.

Sure it sounds easy to just print or change numbers... that's why we politically isolate central banks from politics as much as possible. They obviously will often screw with it up or down, but their real range of actions is very limited. In situations where they'd implement policies that would discredit the dollar, gold standards would not hold anyway.

A predictably modest level of inflation is actually desirable. There is some debate about this obviously but it's current consensus in academia. The Fed has done a pretty good job controlling inflation (NOT the same as saying getting it down to zero, which is not necessarily desirable) within a pretty narrow range for almost 20 years.

That's not to say that the depression wouldn't have gone on forever in those countries if they would have stubbornly stuck to the peg. These are the dynamics of fixed exchange rates. If the market wants you to devalue its usually retarded to fight it. There's a subtle irony about advocating for the gold standard because you believe in the markets over government intervention, because during the Great Depression it was those countries who ignored the markets and used government intervention to defend the standard that suffered the most.

I studied pretty much this exact issue for a monetary policy class back in the day. Two seminal papers, that have the data and information on some of the specific countries, are this one by Barry Eichengreen and Jeffrey Sachs, and this one by Ehsan Choudhri and Levis Kochin. The data shows a high correlation between the length of time one stayed with the gold standard and both the magnitude and duration of depression.