"A gold standard does not guarantee perfect steadiness in the growth of the money supply, but historical comparison shows that it has provided more moderate and steadier money growth in practice than the present-day alternative, politically empowering a central banking committee to determine growth in the stock of fiat money," White concludes. "From the perspective of limiting money growth appropriately, the gold standard is far from a crazy idea.”
"Far from a crazy idea," OK. But would you push the button for it? I say no. There is little doubt that over the broad sweep of world history, commodity standards have outperformed paper money. But we don’t live in the broad sweep of world history, we live in 2008 and our ability to monitor and control central banks is unparalleled. The central banks of the wealthier nations work pretty well. My main worry with the gold standard is simply the pro-cyclicality of the money supply and for all its talk of money demand the paper doesn’t much address this concern. For instance would you really want a contracting money supply in today’s environment? And yes credit crunches of this kind happen in market settings too so you can’t blame it all on Alan Greenspan.
And I am not reassured by this (admittedly true) sentence: "At the right reentry rate, dollar prices would not need to jump [from the transition]." One five or ten percent deflation is enough to crush the economy and indeed the whole gold standard idea. Given the socialist calculation debate, can we really know the right transition price? Gold at $900 an ounce? $600 an ounce? Anybody?
Addendum: Here is White’s response; see also the exchange in the comments with White and others.