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TMFHousel (91.79)

Gold Standard and Bubbles

Recs

10

January 02, 2010 – Comments (8)

I'm currently reading Liaquat Ahamed's "Lords of Finance," a fascinating read on the history of central bankers. One quote stuck out that I thought I'd share, knowing it'll piss many off and get a good debate going:

"While it may have succeeded in controlling inflation, the gold standard was incapable of preventing the sort of financial booms and busts that were, and continue to be, such a feature of the economic landscape. These bubbles and crises seem to be deep-rooted in human nature and inherent to the capitalist system." 

I'm not even going to share my thoughts. I'll just give you that and open up the debate. Go.  

 

8 Comments – Post Your Own

#1) On January 02, 2010 at 10:47 PM, 1315623493 wrote:

No logical person would say a gold standard is going to do away with bubbles and busts. In fact, a gold standard makes them worse. 

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#2) On January 03, 2010 at 12:46 AM, SnapDave (61.41) wrote:

Does this mean you are going to start blogging?  Please say yes! 

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#3) On January 03, 2010 at 1:48 AM, AvianFlu (33.73) wrote:

Yes, boom and bust cycles existed during gold standard times. However, the supposed reason for signing on to the federal reserve board concept was to eliminate the boom and bust cycles. Clearly that has not worked as advertised. If anything, the cycles have been accentuated. Since the premise was faulty we need to stop wasting our time, freedom, and money on this failed concept.

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#4) On January 03, 2010 at 3:48 AM, whereaminow (45.39) wrote:

"While it may have succeeded in controlling inflation, the gold standard was incapable of preventing the sort of financial booms and busts that were, and continue to be, such a feature of the economic landscape. These bubbles and crises seem to be deep-rooted in human nature and inherent to the capitalist system." 

Right. And central banking's track record?

Booms and busts are exacerbated, not reduced, by interventionism and central planning.  Technocrats are cute, but they can't calculate.

David in Qatar

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#5) On January 03, 2010 at 4:51 PM, devoish (97.62) wrote:

How about the record of a progressive income tax in excess of 50% and reaching 70% on the highest earners in controlling boom/busts.

USA 1935- 1980.

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#6) On January 03, 2010 at 7:01 PM, FreeMortal (29.35) wrote:

By any measure, the bubbles and busts were worse in the absence of a central bank.

Lets look at the data. 

From the list of recessions:  For the 70 years from the ending of the Second Bank in 1836 to the founding of the Federal Reserve in 1907 there were 18 recessions that lasted an average of 1.85 years, with an average decline of business activity of 22.36%, and an average of 2.19 years between recessions.  Now, if you take the next 70 years (1910-1980) there were only 16 recessions which lasted an average of 1.22 years with an average decline of 16.20%, and an average of 3.33 years between recessions.

Since the Fed was created, recessions have been fewer, shorter, further between, and not as deep.  If we are to include the recessions from 1981 onward, the results of the central bank era are even better.

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#7) On January 03, 2010 at 7:58 PM, lucas1985 (< 20) wrote:

@devoish,
"USA 1935- 1980."
Post-World War II economic expansion:
"The post-war economic expansion, also known as the long boom and the Golden Age of Capitalism, was an international period of economic prosperity in the mid 20th century which followed the end of World War II in 1945, and lasted until the early 1970s, ending with the collapse of the Bretton Woods system in 1971, the 1973 oil crisis, and the 1973–1974 stock market crash, which led to the 1970s recession."

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#8) On January 06, 2010 at 11:21 PM, Dobbes (< 20) wrote:

@FreeMortal - Great post, always nice to have someone bring up some data!

@whereaminow - They are easy targets for criticism, but central bankers are necessary elements of the economy.  I actually just finished writing about that not 2 minutes ago.

As far as a gold standard - I consider it incredibly crude to link the economy of a country to fluctuations in the supply of a commodity with few industrial applications.  The entire idea of initiating a gold standard at this point is moot anyways, there simply isn't enough gold to match the currency in circulation.

 

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