Present day economists have come to accept the fact that the Great Depression of the 1890s and the Great Depression of the 1930's were caused by the gold standard.
You should be aware that the gold standard does NOT mean using gold as money. It means fractional reserve banking with paper money that is convertible to gold, although convertibility could be suspended during crises.
Greenspan alludes to the "relative automaticity" of the gold standard - but as he states, it was NOT automatic, just relative to what they're doing now. It worked ok within a country, but foreign exchange, then as now, is a bitch, because they didn't set convertability of gold at its market value, they picked values that suited political ends. In the US it was $22.67 an ounce from 1792 to 1934, then $35 an ounce.
Some countries chose to set the value lower to make their goods more attractive to foreign buyers - some paid high interest rates to attract more gold, some countries did not have their currency convertible to gold, some set up capital controls to keep gold from leaving the country, and always, everywhere, there were arbitrage opportunities.
In the late 19th-early 20th century, the US had roughly 40% of the world's gold reserves, but did not issue currency consistent with its reserves, because it did not want the gold to leave the country.
Politicians and central bankers are always subject to short term political pressure.
Maybe e-gold is the answer. |
