The Gold Standard and the Great Depression

[Toro]

As countries abandoned the gold standard during the Depression, they began to grow again. The longer countries waited to leave the gold standard, the longer they waited for growth to resume.

Barry Eichengreen pointed out years ago that major economies went off gold in the following order: Japan, Britain, Germany, US, France. [... the correlation between going off gold and recovery is in fact perfect] And here’s what happened to their industrial output:

Modified goldbugism at the WSJ - Paul Krugman Blog - NYTimes.com

 

[Elutherian]

As countries abandoned the gold standard during the Depression, they began to grow again. The longer countries waited to leave the gold standard, the longer they waited for growth to resume.

Barry Eichengreen pointed out years ago that major economies went off gold in the following order: Japan, Britain, Germany, US, France. [... the correlation between going off gold and recovery is in fact perfect] And here’s what happened to their industrial output:

Modified goldbugism at the WSJ - Paul Krugman Blog - NYTimes.com

It might have worked well for them in the short run, but in the long run they all got f*cked over.

Paper ain't money. I'm not so hung up on Gold as I am commodity currency. You can't print prosperity.

 

[Mike Mitrosky]

As countries abandoned the gold standard during the Depression, they began to grow again. The longer countries waited to leave the gold standard, the longer they waited for growth to resume.

Barry Eichengreen pointed out years ago that major economies went off gold in the following order: Japan, Britain, Germany, US, France. [... the correlation between going off gold and recovery is in fact perfect] And here’s what happened to their industrial output:

Modified goldbugism at the WSJ - Paul Krugman Blog - NYTimes.com

It might have worked well for them in the short run, but in the long run they all got f*cked over.

Paper ain't money. I'm not so hung up on Gold as I am commodity currency. You can't print prosperity.

You know the old saying...

Gold is the currency of Kings
Silver is the currency of Free Men
And Debt is the currency of slaves...

Right now debt is our currency.. so we're all slaves.

 

[xsited1]

As countries abandoned the gold standard during the Depression, they began to grow again. The longer countries waited to leave the gold standard, the longer they waited for growth to resume.

Barry Eichengreen pointed out years ago that major economies went off gold in the following order: Japan, Britain, Germany, US, France. [... the correlation between going off gold and recovery is in fact perfect] And here’s what happened to their industrial output:

Modified goldbugism at the WSJ - Paul Krugman Blog - NYTimes.com

Thank you for the graph. This made my day. What an awesome example of twisting data to attempt to prove a point. It's textbook! I sometimes go to the Paul Krugman blog to have a good laugh, but I hadn't seen this.

On a serious note:

In a study covering many decades in a large sample of countries, Federal Reserve Bank economists found that "money growth and inflation are higher" under fiat standards than under gold and silver standards. Nor is the gold standard a source of harmful deflation.

Money, inflation, and output under fiat and commodity standards

Here's a chapter from a book (The Gold Standard: Perspectives in the Austrian School By Llewellyn H. Rockwell, Jr.) that should be required reading on the subject of the Gold Standard.

The Gold Standard: Perspectives in ... - Google Books

 

[BaronVonBigmeat]

Wow, debasing the currency lowers real incomes, which then means that businesses can hire more people?

I wonder what Krugman's take is on the depression of 1921? The one that was as bad as the great depression, only it was over in 2 years without inflating the currency.

 

[The Rabbi]

It makes perfect sense. With a gold standard you get a severe capital shortage since capital is artificially limited by the amount of gold available. More capital generally means more ability to build productive assets, like factories and the like.
Lew Rockwell is a quack.

 

[Mike Mitrosky]

With this same logic we should just make a new minimum wage law of $100 an hour right?

That would cure everybodys' money problems...

HA HA!

 

[xsited1]

It makes perfect sense. With a gold standard you get a severe capital shortage since capital is artificially limited by the amount of gold available. More capital generally means more ability to build productive assets, like factories and the like.
Lew Rockwell is a quack.

Read the links. The data is sound. The authors of the reports I mentioned are not Lew Rockwell if that makes you feel any better.

 

[Elutherian]

It makes perfect sense. With a gold standard you get a severe capital shortage since capital is artificially limited by the amount of gold available. More capital generally means more ability to build productive assets, like factories and the like.
Lew Rockwell is a quack.

Capital is supposed to be limited to the amount available. What, you think money just grows on trees... hell you don't even think that, it would be too limited to the amount of trees available. You just want money and prosperity to appear out of thin air.

Some things people say are just ingorant.

 

[Mike Mitrosky]

It makes perfect sense. With a gold standard you get a severe capital shortage since capital is artificially limited by the amount of gold available. More capital generally means more ability to build productive assets, like factories and the like.
Lew Rockwell is a quack.

Capital is supposed to be limited to the amount available. What, you think money just grows on trees... hell you don't even think that, it would be too limited to the amount of trees available. You just want money and prosperity to appear out of thin air.

Some things people say are just ingorant.

Ive never heard that before.. Thats awesome.. Im gonna have to remember that one.

 

[Mike Mitrosky]

It makes perfect sense. With a gold standard you get a severe capital shortage since capital is artificially limited by the amount of gold available. More capital generally means more ability to build productive assets, like factories and the like.
Lew Rockwell is a quack.

The disconnect here is that paper is NOT capital. In our current system paper only serves to act as capital because it steals value from already existing capital.


"Paper is poverty,... it is only the ghost of money, and not money itself." --Thomas Jefferson

 

[Maple]

As countries abandoned the gold standard during the Depression, they began to grow again. The longer countries waited to leave the gold standard, the longer they waited for growth to resume.



Modified goldbugism at the WSJ - Paul Krugman Blog - NYTimes.com

It might have worked well for them in the short run, but in the long run they all got f*cked over.

Paper ain't money. I'm not so hung up on Gold as I am commodity currency. You can't print prosperity.

You know the old saying...

Gold is the currency of Kings
Silver is the currency of Free Men
And Debt is the currency of slaves...

Right now debt is our currency.. so we're all slaves.

Very well said.

 

[The Rabbi]

It makes perfect sense. With a gold standard you get a severe capital shortage since capital is artificially limited by the amount of gold available. More capital generally means more ability to build productive assets, like factories and the like.
Lew Rockwell is a quack.

The disconnect here is that paper is NOT capital. In our current system paper only serves to act as capital because it steals value from already existing capital.


"Paper is poverty,... it is only the ghost of money, and not money itself." --Thomas Jefferson

Huh?
Money is capital. Gold is not capital under the present system, any more than pork bellies are capital.

 

[Maple]

With this same logic we should just make a new minimum wage law of $100 an hour right?

That would cure everybodys' money problems...

HA HA!

Right now we have a 52% unemployment rate among people 16-21, I think in part it's because of the minimum wage law.

 

[Mike Mitrosky]

It makes perfect sense. With a gold standard you get a severe capital shortage since capital is artificially limited by the amount of gold available. More capital generally means more ability to build productive assets, like factories and the like.
Lew Rockwell is a quack.

The disconnect here is that paper is NOT capital. In our current system paper only serves to act as capital because it steals value from already existing capital.


"Paper is poverty,... it is only the ghost of money, and not money itself." --Thomas Jefferson

Huh?
Money is capital. Gold is not capital under the present system, any more than pork bellies are capital.

Pork bellies ARE capital. They have value. They trade on the exchange just like gold, and coffee and orange juice. They are the result of production.

Savings is capital in the sense you are thinking of, and thats all fine and well.. But everytime the federal reserve creates more currency it only has value because it is stealing value from the pool of existing currency.

In the real sense "Money" is capital. However "money" is only silver and gold. If we had gold or silver certificates that would be money. Notes, like Federal Reserve Notes are not money. Ever wonder why United States Notes are not acceptable to pay import duties or interest on the public debt? because its not real money.

 

[The Rabbi]

No, everything with value is not capital. Only money is capital. You could substitute money for pork bellies or gold or whatever, but that doesn't make them the same thing.

 

[Elutherian]

No, everything with value is not capital. Only money is capital. You could substitute money for pork bellies or gold or whatever, but that doesn't make them the same thing.

Dude, what kind of economics have you been studying?

From the Merriam-Webster Online Dictionary:

Main Entry: Capital
Function: noun
Etymology: French or Italian; French, from Italian capitale, from capitale, adjective, chief, principal, from Latin capitalis
Date: circa 1639
1 a (1) : a stock of accumulated goods especially at a specified time and in contrast to income received during a specified period; also : the value of these accumulated goods (2) : accumulated goods devoted to the production of other goods (3) : accumulated possessions calculated to bring in income b (1) : net worth (2) : stock 7c(1) c : persons holding capital d : advantage, gain <make capital of the situation> e : a store of useful assets or advantages

 

[Toro]

Thank you for the graph. This made my day. What an awesome example of twisting data to attempt to prove a point. It's textbook! I sometimes go to the Paul Krugman blog to have a good laugh, but I hadn't seen this.

On a serious note:

In a study covering many decades in a large sample of countries, Federal Reserve Bank economists found that "money growth and inflation are higher" under fiat standards than under gold and silver standards. Nor is the gold standard a source of harmful deflation.

Money, inflation, and output under fiat and commodity standards

Here's a chapter from a book (The Gold Standard: Perspectives in the Austrian School By Llewellyn H. Rockwell, Jr.) that should be required reading on the subject of the Gold Standard.

The Gold Standard: Perspectives in ... - Google Books

Ah yes, the anti-empirical ideologues of the moldy Austrian School, a school of thought which essentially contends that all advancements in our understanding of economics came to an end in c1915. How quaint. It is akin to when I was a wee lad, going over to my great-grandmother’s, whose house was filled with dusty remnants from another era, long forgotten by society that had passed them by except by those who had a sentimental attachment to it. While the world listens to iPods, the Austrian ideologues listen to phonographs.

Now, I do agree with much of what the Austrians say. Not everything Austrian is wrong. Adherence to everything Austrian, however, is wrong.

Ideologues always contend that their religion is not the cause of bad things, that it is always others which are responsible for our ills. Rather than focus on what should happen, as ideologues do, let’s focus on what did happen. And indeed, the gold standard was very much a deflationary force during the Great Depression. This is from the scholarly work by Barry Eichengreen. My apologies for not being able to C&P the relevant posts. Thus, I will take screenshots of the important parts.

For those who couldn't be bothered to read it all, I'll give a synopsis: The gold standard threatened the stability of the global economy.

The gold standard was inflexible and led to shocks in the international flow of capital, destabilizing countries outside the United States. Price deflation in the US caused price deflation in other countries, even when there was little deflationary pressure.

Countries that remained on the gold standard experienced more banking panics. This is not surprising given that the gold standard required the banks maintain a deflationary policy. This deflation caused people to fear bank collapses, which caused them to pull their deposits, precipitating bank collapses. In the Austrian school, this type of behavior is not supposed to happen, but it did.

Going off the gold standard was expansionary. Countries that went off the gold standard began expanding before those that did not. This is to be expected as the gold standard was a restrictive policy.

Here is the empirical data showing this to be the case.

http://posterous.com/getfile/files....0rPtmDydkX/Eiichengreen_Origins_and_Natur.pdf

It is interesting, xsited, that you respond by saying the data is being manipulated, yet you don’t actually show how, nor do you explain why the data would be wrong. You just assume that it is without offering any explanations nor any references to the real world.

I do appreciate your link that fiat currency systems cause inflation. No contention there. But thank you, that is the point. By removing the monetary system from the gold standard, the Fed and the government could implement inflationary policies to counter the enormous deflationary forces in the economy.

As Rabbi stated, when credit is restrictive, economic activity is constrained, as it was under the gold standard. When countries are no longer bound by those restrictions, credit and economic activity are no longer constrained by this anchor. When countries left the gold standard, their economies began to rise again.

 

[The Rabbi]

No, everything with value is not capital. Only money is capital. You could substitute money for pork bellies or gold or whatever, but that doesn't make them the same thing.

Dude, what kind of economics have you been studying?

From the Merriam-Webster Online Dictionary:

Main Entry: Capital
Function: noun
Etymology: French or Italian; French, from Italian capitale, from capitale, adjective, chief, principal, from Latin capitalis
Date: circa 1639
1 a (1) : a stock of accumulated goods especially at a specified time and in contrast to income received during a specified period; also : the value of these accumulated goods (2) : accumulated goods devoted to the production of other goods (3) : accumulated possessions calculated to bring in income b (1) : net worth (2) : stock 7c(1) c : persons holding capital d : advantage, gain <make capital of the situation> e : a store of useful assets or advantages

Dude, I study economics from economists, not from Merriam Webster's dictionary.

 

[Elutherian]

No, everything with value is not capital. Only money is capital. You could substitute money for pork bellies or gold or whatever, but that doesn't make them the same thing.

Dude, what kind of economics have you been studying?

From the Merriam-Webster Online Dictionary:

Main Entry: Capital
Function: noun
Etymology: French or Italian; French, from Italian capitale, from capitale, adjective, chief, principal, from Latin capitalis
Date: circa 1639
1 a (1) : a stock of accumulated goods especially at a specified time and in contrast to income received during a specified period; also : the value of these accumulated goods (2) : accumulated goods devoted to the production of other goods (3) : accumulated possessions calculated to bring in income b (1) : net worth (2) : stock 7c(1) c : persons holding capital d : advantage, gain <make capital of the situation> e : a store of useful assets or advantages

Dude, I study economics from economists, not from Merriam Webster's dictionary.

Wow... I don't even know what to make of this statement.

Are you saying the definition of Capital in the dictionary is wrong? If the economists you follow don't use words according to their actual meaning, I'm not sure I want to know what their ideas are.