Cato: Ten Things Every Economist Should Know about the Gold Standard

At the risk of sounding like a broken record (well, OK–at the risk of continuing to sound like a broken record), I’d like to say a bit more about economists’ tendency to get their monetary history wrong. In particular, I’d like to take aim at common myths about the gold standard.

If there’s one monetary history topic that tends to get handled especially sloppily by monetary economists, not to mention other sorts, this is it. Sure, the gold standard was hardly perfect, and gold bugs themselves sometimes make silly claims about their favorite former monetary standard. But these things don’t excuse the errors many economists commit in their eagerness to find fault with that “barbarous relic.”

The false claims I have in mind are mostly ones I and others–notably Larry White–have countered before. Still I thought it would be useful to address them again here, because they’re still far from being dead horses, and also so that students wrapping-up the semester will have something convenient to send to their misinformed gold-bashing profs (though I urge them to wait until grades are in before sharing!).

For the sake of those who don’t care to wade through the whole post, here is a “jump to” list of the points covered:

* The Gold Standard wasn’t an instance of government price fixing. Not traditionally, anyway.

* A gold standard isn’t particularly expensive. In fact, fiat money tends to cost more.

* Gold supply “shocks” weren’t particularly shocking.

* The deflation that the gold standard permitted wasn’t such a bad thing.

* It wasn’t to blame for 19th-century American financial crises.

* On the whole, the classical gold standard worked remarkably well (while it lasted).

* It didn’t have to be “managed” by central bankers.

* In fact, central banking tends to throw a wrench in the works.

* “The “Gold Standard” wasn’t to blame for the Great Depression.

* It didn’t manage money according to any economists’ theoretical ideal. But neither has any fiat-money-issuing central bank.

Read more at http://www.cato.org/blog/ten-things-every-economist-should-know-about-gold-standard