I’m certainly no expert, but I have also read some on this topic. That anchor you mentioned, that the gold standard imposed, was around the neck of government, limiting the extent to which they could exploit their citezens. That was a very good thing.
The problem that we, had with our gold standard, was much like the problem we now have with our constitution – we didn’t go by it. Periodically, throughout the 19th century, banks were allowed to “suspend speci payments”, in other words, violate the most important fundamental of the gold standard – redeemability. This was done because the banks issued more claims against actual deposits of real money (gold) than they had gold on hand. Another word for this activity is “inflation.”
This type of activity was expanded to enormous proportions during the mid and late 1920’s, producing the false prosperity that came to be known as “The Roaring Twenties.” In real economic terms, we had outrageous inflation, which was channeled into asset bubbles (real estate and stocks).
During this same era, the industrial revolution was really kicking into high gear. This sudden surge in production of both consumer, and capital goods, wielded a huge downward pressure on prices. Were it not for the outrageous credit expansion, which was effectively a huge increase in the money supply, prices would have taken a very healthy drop, greatly increasing the value of the dollar. Even with all the inflation, consumer prices did drop, but surely not as much as they would have, if the money supply had been held constant.
Well, as all artificial bubbles inevitably do, the the false prosperity of the 20’s, including the stock market, real estate market, and the inflated money supply, all went bust. Inflation gave way to deflation. The money supply that was previously, and artificially elevated to an outrageous height came crashing down. I like to use the analogy of a hammer that comes crashing down. In order for it to even be possible for it to come crashing down, IT HAD TO FIRST BE RAISED UP! In other words, the deflation that has been blamed for causing the Great Depression, was, in turn caused by INFLATION.
Beyond all the above, I’m convinced that another problem with our monetary system is “Fractional Reserve Banking.” This country has always had this system, clear back to the inception of America. The gold standard was far far far better than the present fiat system, but I agree with Jesus Huerta de Soto: “Fractional Reserve Banking IS fraud!”…..By God.
Sound Money Steve