Nathan Lewis debunks erroneous claims from Keynesian camp
For some reason, the
gold standard system has gained a reputation for causing crises. This is mostly from the Keynesian camp: they need floating currencies to play their funny money games. The purpose of funny money is to solve some kind of problem whose fundamental cause is typically not monetary at all. For example, we are now in a process of trying to solve a bank insolvency crisis, an unemployment problem, and a fiscal deficit problem, with a monetary solution.
The purpose of a
gold standard system is to produce stable money. Nobody has found a better way to do so. For the most part, it works. So, how does this
gold-based stable money cause a crisis? It doesn't.
Of course, many crises happened during the
gold standard era, before floating currencies appeared in 1971. In the two centuries before 1971, people got into financial trouble for all kinds of reasons. Banks lent money to people that couldn't pay it back. Businesses invested in ideas that turned out to be not so hot. Governments borrowed and spent more than they should have. Destructive domestic tax increases were imposed. Countries got into tariff wars with each other. There were even a few World Wars, Civil Wars, communist revolutions, and so forth.
None of them were caused by money that was too stable.
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