>>Thus it would seem that the historical record will be difficult to use to separate out the effects of the gold standard vs the effects of fractional reserve banking.<<
This is one of the problems, but there's no getting around it, because it's there. Other problems are whether a country decides to use gold, silver, or both, and at what exchange rate.
These problems could be solved by simply insisting that gold and/or silver are the only forms of money, but that won't work, IMO. People can write checks, and people can discount promissory notes, both of which can circulate as if they were money, and I don't know how you can say they are not money.
According to Hawtrey, during the bank panics of 1907, 1893, 1873, and 1857, even though banks suspended payments to their depositors in cash, depositors continued to write checks and the machinery of clearing remained in operation. During the panic of 1873, there were three media of payment - inconvertible paper, which was legal tender money; gold, which was used in foreign trade transactions, and was at a premium over paper; and bank credit, by which I think he means checks. |
