Gold-Exchange Standard, Gold, and Monetary Freedom

By Michael S. Rozeff, GoldSeek

Two major government economists, Christina D. Romer and Ben Bernanke, have done influential research on the Great Depression. Both implicate the State-run gold standard of that era, which differed from the pre-1914 gold standard, as a major culprit in the Great Depression. (See here and here.) Their work parallels that of other economists such as Barry Eichengreen and Peter Temin on the negative role of the interwar gold exchange standard. There is an emerging or existing consensus among economists about the negative effects of the gold-exchange standard.

Still, research continues. The precise role of the gold-exchange standard in the Great Depression remains a question mark. Richardson and Van Horn have evidence that New York banks “had large exposures to foreign deposits and German debt,” that led to problems when Creditanstalt collapsed. Bordo et al.contend that the gold standard did not fetter central banks. Murray Rothbard, Benjamin Anderson, and Richard M. Ebeling all emphasize the FED’s inflationary price-stabilization policies in the 1920s, which are connected to how the FED operated under the gold-exchange standard.

Suppose that Romer and Bernanke are correct about the role of the gold standard in worsening the Great Depression. This shows absolutely nothing about gold (or any other medium) as free market money. Romer and Bernanke do not bother to distinguish a State-run gold standard from a free market gold standard, i.e., use of gold as free market money. They ignore gold used as non-State or privately-generated money. They ignore any free market in money, whether gold, credits, silver, cowrie, copper, or anything else.

In this way, Romer and Bernanke provide us with a false choice: State-run gold standard or State-run paper money. Which pair of handcuffs do you prefer?

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