Earlier today, I ran across an excellent article (”David Frum on the Gold Standard“) on the Mises Institute’s web site written by Robert Murphy. In it, he responds to some of David Frum’s baseless accusations (no pun intended) that he’s recently aimed at the gold standard.
Mind you, I’d prefer to see people just trade ounces of gold or silver rather than try to peg the dollar at a particular weight in gold, but the gold standard would be a serious improvement over the mess we’ve got now. To borrow one of Murphy’s quotes from the latter part of the article (wherein he modifies a Frum quote and skewers him with great aplomb):
[W]hy giving politicians of all people access to a printing press [for money] should be regarded as an improvement by anyone, I cannot understand.
Murphy quite effectively eviscerates Frum’s feeble arguments that the gold standard didn’t adequately prevent recessions by not only showing data that demonstrate that his contention isn’t true, but also argues (quite correctly, in my opinion) that the recessions that did happen while the US was on the gold standard were actually the result of government meddling in the first place:
Let’s return to Frum’s central point, namely that the gold standard makes the economy inflexible and volatile. According to Frum, recessions have been “fewer and shallower” since abandoning the link to gold.
There are several responses to this (typical) objection to gold. First, it completely ignores the causes of the “shocks” to the economy in the first place. Recessions are not an inherent feature of laissez-faire markets, but, on the contrary, are fostered by government intervention in the banking sector. Even during the 19th century, federal and state governments routinely relieved American banks of their contractual obligations — “bank holidays” and other privileges allowed banks to get away with issuing more credit than would have occurred if property rights were enforced. If government had kept its hands off and let the dreaded bank runs really run their course every time they occurred, it would have kept the bankers much more honest in the long run. Government-sponsored bailouts only lead to reckless lending.
I suspect that if the government provided a way for common people to spend enormous sums of money they didn’t have, and somehow not pay it back without any serious consequences, they’d take it.
Oh yeah, we already have that. It’s called bankruptcy.
Murphy then takes things a step further and argues (again, correctly in my opinion) that the Federal Reserve actually caused the Great Depression rather than preventing it:
In truth, the Great Depression can’t be blamed on any single cause. As a subscriber to the Misesian theory of the boom-bust cycle, I happen to believe that the Federal Reserve — which was created precisely to smooth out macroeconomic growth just as Frum wants — created an artificial boom in the 1920s by issuing unbacked bank credit. Then, the unimaginably horrible policies of Hoover and then FDR in response to the inevitable contraction and readjustment just prolonged the misery. (Just look at this timeline to see what these two clowns did with tax rates during the greatest economic calamity in US history — and then you’ll understand exactly why we look to these years as the greatest economic calamity in US history.)
Let me tell you, I have a great deal of respect for anybody who is willing to call Hoover and FDR clowns …
And to think I used to buy into the view that Hoover was right and FDR mucked things up.
This seems to be an appropriate time to wrap things up with another quote from Calvin Coolidge, who I’ve already discussed this week:
[F]or six years that man [Hoover] has given me unsolicited advice—all of it bad.
He might have been called “Silent Cal”, but he sure had a way with words … when he spoke, every one counted.
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