24 Nov 2015

From the Comments, Quoting Myself on the Gold Standard and Scott Sumner

All Posts, Scott Sumner 11 Comments

Apparently I do a great impression of a sphinx. This comment might clarify what I was trying to get across in my previous post:

E. Harding now we go from “the monetary deflationary shock so obviously caused the Great Depression that it’s hard to deny it” to “it didn’t matter”? That’s a lot of goalpost moving.
My whole OP is showing that a deflationary shock because of gold can’t be the primary cause of the GD, because such shocks happened several times during the prior decades. It would be like blaming the Russian plane crash on gravity.

Here, the 1920-21 episode had far worse deflation in the opening years than any period in the GD. And yet it was over in 2 years; the decade was “the Roaring Twenties.”

Look, all I’m doing here is the same trick that Sumner uses to show that the 1929 stock market crash can’t be the explanation. He points to the 1987 stock market crash, says it’s bigger and no Depression, so therefore that couldn’t be the reason. [Note that the link I give is not the most succinct place where Sumner has made that argument, but he has indeed made it.]

So I’m doing the same thing with the gold standard.

11 Responses to “From the Comments, Quoting Myself on the Gold Standard and Scott Sumner”

  1. E. Harding says:

    You know, I replied to that one. Couldn’t you post my reply?

    • E. Harding says:

      And this totally doesn’t contain any answers to my question

      Also, he said “caused” “in large part”. So that’s something over 30%, at least, by my interpretation. Are you arguing an effect between 30 and 0%?

    • RPLong says:

      Jeez, man. Your reply was: “Ah, Bob, he said “monetary” deflationary shock, not necessarily one having anything to do with gold.” Sumner’s book is called The Midas Paradox. (!) If he’s not talking about gold, then why did he put gold in the title of his book? That’s Bob’s whole point.

      • E. Harding says:

        Context, Long. You’re missing it.

        • RPLong says:

          Oh right. For a minute there I thought the context was Bob’s point that Scott Sumner wrote a book about the gold standard and the Great Depression. My bad.

          • E. Harding says:

            Long, your missing the context should not be a point of pride. That’s stupid.

            • Major.Freedom says:

              Yes because the context was definitely neither gold nor the Great Depression.

            • RPLong says:

              Sorry – pride? Can you point out the pride you’re referring to? Or have we just settled on name-calling?

  2. AD says:

    This is Sumner on 1920-21, which Bob commented on: http://www.themoneyillusion.com/?p=28226

    “M2 money supply:

    May 1920 peak: $30,304 million.

    Sept. 1921 trough: $27,830 million

    December 1922: $31,920 million

    Monetarists would predict a steep recession and fast recovery. And that’s what happened.”

    He also added: “I do believe the 1921 depression is a good example of the natural recuperative powers of a free market economy. In that sense, it could be viewed as being inconsistent with old Keynesianism, as well as modern variants that say wage cuts will make the depression worse, and that massive fiscal stimulus is needed.”

    And: “in both depressions the economy began recovering almost exactly when the M2 money supply started rising. There is no difference there. The big difference is that the supply-side policies were much worse in the 1930s, leading to a slower recovery.”

    So what is really the disagreement? You acknowledge that monetary contractions are contractionary, don’t you? I presume you also agree about the supply-side policies. Is the argument that malinvestment of the 1920s is the ultimate cause, which for some reason was far worse than any other business cycle? It’s not very informative to keep coming back to this when these monetary events and supply-side policies are driving downturns and aborted recoveries, which is what Sumner is showing — if you had a better monetary and regulatory environment, can’t you do better than the Depression economy and adjust to malinvestments? You can still be free market and point to these as harmful policies (and an unstable monetary system).

Leave a Reply