The Corner

Gold Standards, Past and Future

Daniel Oliver takes to the Washington Times to criticize market monetarists, specifically mentioning me. I’ll go through a few disagreements I have with what he has to say and then try to identify a little bit of common ground. I speak, of course, solely for myself and not for the other two people Oliver names.

Oliver says that I want the Fed to print money to “plug the holes in banks’ balance sheets.” I’ve never said it, and I don’t believe it. I have said that I think Fed policy has been too focused on the narrow interests of the financial industry for the last few years.

Oliver wants to restore the gold standard. He cites my repeating the commonplace observation that countries recovered from the Great Depression in the order they left gold. He counters that the gold standard was not the cause of the Great Depression. Note, though, that this counter isn’t a counter; both his claim and mine could be simultaneously true.

Note also that my claim could be false and his could be true without making a restoration of the gold standard a good idea. Take a look at the recent summary of the history of gold standards in the United States that George Selgin wrote for the Cato Institute. It is a very gold-friendly account, but it “concludes that the conditions that led to the gold standard’s original establishment and its successful performance are unlikely to be replicated in the future.”

Oliver says that inflation transfers money from creditors to debtors. That’s true only if inflation is higher than the parties expected when they made the loan contract. (Quoted interest rates include an expected-inflation component.) But he is taking issue with my policy recommendations over the last few years, when inflation has been running at a rate lower than it did during the preceding ones.

He suggests that loose monetary policy aggrandizes government by “funneling” money to it. See the charts here for reasons to doubt that anything of the sort has happened in recent years. It is at least as arguable that inappropriately tight money abetted the growth of government in both the 1930s and 2008-9, by strengthening parties of the Left.

I agree, though, that on average over the last few decades Fed policy has been too loose (and was too loose in the middle of the last decade). A policy of keeping nominal spending growing at about 4.5 or even 5 percent a year, as I’ve been proposing, would have been significantly tighter on average than actual Fed policy in most years of the last few decades. Even in recent years, that policy would probably have led to a smaller expansion of the monetary base. So maybe Oliver, even given his premises, should be friendlier to market monetarism.

Ramesh Ponnuru is a senior editor for National Review, a columnist for Bloomberg Opinion, a visiting fellow at the American Enterprise Institute, and a senior fellow at the National Review Institute.


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