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Or gold was in a bubble that collapsed. The Depression proves that the gold standard doesn't work. There was no stability; there was deflation. Since the conc

Or gold was in a bubble that collapsed. The Depression proves that the gold standard doesn't work. There was no stability; there was deflation. Since the concept behind the gold standard means "gold always..." - a universal quantifier, one needs only show a counterexample to blow it out of the water.

throwaway90446 12y ago
Agreed that deflation is terrible. I hate paying lower prices for goods and services. Thankfully we have central banks to fight the scourge of lower prices.
- throwaway344 12y ago
  I, on the other hand, love lower wages, higher real debts, and problems with planning.
- ArkyBeagle 12y ago
  Deflation is terrible. We can largely blame deflation for WWII.
WalterBright 12y ago
> The Depression proves that the gold standard doesn't work. Not really. The government went off the gold standard in 1914 when it began printing whatever dollars it needed. A legally fixed exchange rate, however, continued. This led to an increasing disconnect between the dollar and gold, by 1929 gold was worth about twice as many dollars as the legal exchange rate. This is what lead to the banking collapse, as everyone suddenly realized this and rushed to exchange their dollars for gold at the official exchange rate. The runs persisted until the government suspended exchanging gold for dollars. We see the same thing happen in modern times every time a government decides to peg its currency to a foreign currency, and then inflate it.
- WalterBright 12y ago
  More generally, any time two unrelated commodities' values are pegged to each other, there will inevitably be a correction, usually wrenching. Bimetalism, the attempt to peg the value of silver in relation to gold, has quite an illuminating history of failure.
- ArkyBeagle 12y ago
  But that's not what happened. http://www.nber.org/papers/w16350 http://www.nber.org/papers/w16350 The hypothesis is that France "hoarded gold" - kept more gold reserves than it printed currency. This led to a paucity of gold. Those nations that played by the rules could issue less currency than was needed. This led to deflation.

throwaway90446 12y ago

Agreed that deflation is terrible. I hate paying lower prices for goods and services. Thankfully we have central banks to fight the scourge of lower prices.

throwaway344 12y ago
I, on the other hand, love lower wages, higher real debts, and problems with planning.
ArkyBeagle 12y ago
Deflation is terrible. We can largely blame deflation for WWII.

WalterBright 12y ago

> The Depression proves that the gold standard doesn't work. Not really. The government went off the gold standard in 1914 when it began printing whatever dollars it needed. A legally fixed exchange rate, however, continued. This led to an increasing disconnect between the dollar and gold, by 1929 gold was worth about twice as many dollars as the legal exchange rate. This is what lead to the banking collapse, as everyone suddenly realized this and rushed to exchange their dollars for gold at the official exchange rate. The runs persisted until the government suspended exchanging gold for dollars. We see the same thing happen in modern times every time a government decides to peg its currency to a foreign currency, and then inflate it.

WalterBright 12y ago
More generally, any time two unrelated commodities' values are pegged to each other, there will inevitably be a correction, usually wrenching. Bimetalism, the attempt to peg the value of silver in relation to gold, has quite an illuminating history of failure.
ArkyBeagle 12y ago
But that's not what happened. http://www.nber.org/papers/w16350 http://www.nber.org/papers/w16350 The hypothesis is that France "hoarded gold" - kept more gold reserves than it printed currency. This led to a paucity of gold. Those nations that played by the rules could issue less currency than was needed. This led to deflation.