A short note on the gold standard
I do not favor a gold standard, nor do I for that matter favor price stability, nor do I think a gold standard brings short-run price stability. I think a gold standard today would be much worse than the 19th century gold standard, in part because commodity prices are currently more volatile and may be for some time. I do not favor commodity bundle standards. I favor some amount of ongoing inflation, and my reasons for this view are close to those of Larry Summers.
That all said, when I read recent critiques of the gold standard, occasioned by recent GOP debates on the topic, I feel I am living in a different universe than those who wrote them. A few points:
1. Jim Hamilton aside, hardly anyone has reported the denouement: “…the final document [the GOP platform] makes no mention of gold, and instead seems to have settled on a proposal that is unlikely to do any harm…”
2. Why is no one mentioning Christina Romer’s work on how discretionary macroeconomic management does not have a totally superb comparative historical record in lowering volatility? Start here, but there is more in this literature. She is still a prominent economist.
3. Dare anyone critical of the gold standard bring themselves to utter these (roughly true) words?: “For the Western world, the gold standard era, defined say as 1815-1913, was arguably the greatest period of human advance ever, at least in matters of economics, culture, and technology.” Chunks of the post-WWII era contend for this designation, but still this sentence is not a crazy one.
4. I remain baffled by treatments of Japan’s slow growth era as primarily a monetary phenomenon. Under such a view, how was Europe’s 19th century possible at all? Why wasn’t it a total economic disaster? Data from government bonds show that “expected inflation” across the period was close to zero, yet somehow “For the Western world, the gold standard era, defined say as 1815-1913, was arguably the greatest period of human advance ever, at least in matters of economics, culture, and technology.”
Good economics is to integrate #2 and #3 with the fact that one need not favor a gold standard. I’ve been seeing a lot of arguments against gold standards, many of which I agree with. What I haven’t been seeing is the integration with the broader set of relevant facts, which of course present a more complicated picture.