by Mish Shedlock, Mish Talk: The Wall Street Journal reports Gold Standard Didn’t Really Tame Inflation, New Research Says.
The research was by St. Louis Fed economist Fernando Martin. Curiously, his study precisely shows that the gold standard did indeed tame inflation.
Let’s investigate Martin’s bogus claim and his peculiar logic in making it.
In his email to the WSJ, Martin stated: “Most of the price increase in the period starting with World War II is due to two specific episodes.”
WWII was the first episode and the “1970s inflation episode was unambiguously the result of Fed policy blunders.” Supposedly, “the lessons learned from the experience helped central bankers start a multi-decadelong effort to lower inflation to historically low levels.”
I cannot tell if the second set of quotes is the WSJ view or Martin’s.
Martin’s Peculiar Logic
Here is Martin’s peculiar logic in explaining why the gold standard does not work: “You can still have high inflation with a metallic standard” because history shows governments regularly go off such regimes.
Got that? The gold standard won’t tame inflation because … the government won’t stick with it!
This is what constitutes critical research and absurd posting of said research by the Wall Street Journal.
CPI Since US Founding
Policy Error by the Fed
The article cited a “policy error” by the Fed as the cause of the stagflation period.
Actually, the policy error was Nixon closing the gold window on August 15, 1971, ending convertibility of gold for dollars. Our balance of trade soon went haywire, as did the explosion of credit and debt.
Balance of Trade