However, even if the value of the dollar continues to plummet wouldn’t this pattern be more predictable than the oscillations of a gold-pegged dollar? As mentioned previously, the Federal Reserve does not resolutely adhere to its own monetary rules. These deviations tend to be justified if they are done in the name of maintaining lofty “macroeconomic” targets, such as full employment. Thereby creating distortions that can hamper future investment plans and even anticipated returns on savings. The fact that the cadence in the price level has become more sporadic rather than more predictable (p.7) is a firm indictment of the Federal Reserve’s institutional failure. The common myth that the Great Depression was caused by gold rather than the malfeasance of the Fed is a fallacy that needs to be debunked. The common narrative has been the freely fluctuating value of gold drove the United States into one of the darkest eras of our economic history. To directly indicate that the Great Depression was the byproduct of mistakes (p.4) made our central bank is telling. Unfortunately, the economic calamity of the 1930s was brought on by “… Fed ..not constrained in using those reserves to expand base money, and thus the broader money supply..” (p.5). Once again validating the point that it was an issue in exercising fiscal restraint; the Fed capitulating to the impulse to use money as an instrument of political convenience. It is well noted that raising taxes and cutting welfare programs can be highly unpopular among voters. However, utilizing inflation as a circuitous form of taxation disperses the true costs of government spending, effectively hiding these expenditures from the average voter. It may be the rules of the game that have created past economic turmoil that has been erroneously attributed to gold. In all honesty, making the concept of a rules-based approach to monetary policy questionable at best. In most cases, we cannot trust those tasked with the duties to create and enforce the rules to act in the best interest of the economy.
The failure of our banking institutions to establish monetary stability is epitomized in the duration of economic downturns and the frequency of banking panics. Yes, economic downturns were more frequent before the Federal Reserve, however, they were shorter in duration. On average approximately seven months long and were “..no more severe..” (p.21). Based upon these facts it is reasonable to infer that the intervention of central banks may only prolong economic depressions. The introduction of the Federal Reserve did little to reduce the frequency of banking panics between 1914-1930 (p.24). The greatest irony being that between 1830-1914 Canada had relatively few bank failures and no reported bank runs (p.27). Not only did Canadian banks hold gold-backed currency this period also overlapped with Canada’s free-banking period. During the 19th century, Canada did not have a central bank (established in 1935) and banking was relatively free of any regulation. Despite this period of Canadian banking history committing the Cardinal sins of having a gold standard and no central bank, the nation enjoyed relative economic stability. This example only further erodes the critiques of the gold standard and claims that central banks are an absolute necessity.
Inverted logic 