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Posts Tagged ‘1932’

One of the main selling points of a gold standard is the claim that it holds the line on inflation.

However, what is the track record of the gold standard in the U.S. given the earliest reliable numbers?

From the Bureau of Labor Statistics Inflation Calculator, we see:

  • From 1913 to 1932, while the U.S. was on a gold standard domestically and externally, inflation was 27.5%, or 1.45% annualized.
  • From 1933 to 1970, while the U.S. was on a gold standard externally, inflation was 66.4%, or 1.79% annualized.

We see that going off the gold standard domestically did correspond with higher inflation, but only marginally so.

While low inflation is generally regarded as a good thing, deflation isn’t. What the gold standard didn’t prevent was the massive deflation of 31.5% from 1929 to 1933, which greatly contributed to the annualized inflation rate of 1.45% from 1913 to 1932, instead of the 2.27% it would’ve been if there was no deflation from 1929 to 1933.

That’s significantly higher than the 1.45% annualized inflation from 1933-1970, when the lack of a domestic gold standard, according to gold standard proponents, should’ve pushed inflation far higher.

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Dr. Ravi Batra, progressive economist and professor of economics at SMU, stated his support for a partial gold-backed currency as a replacement for the U.S. dollar.

On April 30, 2010, on the Thom Hartmann show, he stated at 57:30:

I don’t know if we will ever have one world currency in my lifetime, but currency should be backed up, partially at least, by gold, so that nobody can just inflate currency to fix the problem and leave workers dry. Wages have been stagnant at the same time, so we need to have some backing for the currency as well, and that should be gold.

The U.S. dollar was on a full gold standard until 1933, when most domestic gold was confiscated and transferred not to the U.S. Treasury, but the illegal Federal Reserve. After the confiscation, the price was raised from $20.67 USD to $35 an ounce. From then until August 15, 1971, the U.S. was on a partial gold standard, with foreign currency directly convertible into gold at the rate of $35 an ounce. Since then, gold has been able to freely float, and has hit all time highs since the economic turbulence of 2008, now over $1200 an ounce.

The call for a return to a gold-backed currency truly crosses the political divide, with a progressive economist singing the praises of a gold standard along with proponents of the libertarian Austrian School of Economics.

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On Tuesday, December 1, 2009, LewRockwell.com featured an article with the headline, “Famine or Gold Standard: Charles Goyette on the choice before us.” The article itself is entitled, “Parallel Universes,” and is a fictional account.

But wait. The U.S. was on a gold standard from 1929-1932. Did that prevent the Great Depression? No, it did not. It didn’t prevent the 20%+ unemployment, the 88% drop in the Dow Jones, nor the 5000+ bank/S&L failures during that period.

The Federal Reserve was to blame, you say? Yes, but only in part. The Federal Reserve existed while the U.S. was on a gold standard. Those two variables are conflated, and therefore, one can’t say with certainty that one was to blame and the other wasn’t, or that one factor was more to blame than the other, unless you measure the effect of each, independently of the other.

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