Re:The U.S. government’s failed 1890s attempt to forge unity...
by billytetrud on Saturday June 12, 2021 @05:40PM
(#27487645)
> The Great Depression was caused because the Fed could not print enough money to act as the lender of last resort.
Not true. I'll quote from https://www.federalreservehistory.org/essays/great-depressio...
"One reason that Congress created the Federal Reserve, of course, was to act as a lender of last resort. Why did the Federal Reserve fail in this fundamental task? The Federal Reserve’s leaders disagreed about the best response to banking crises. Some governors subscribed to a doctrine similar to Bagehot’s dictum, which says that during financial panics, central banks should loan funds to solvent financial institutions beset by runs. Other governors subscribed to a doctrine known as real bills."
I've never seen any source other than you say that the great depression was caused because the Fed couldn't create money.
What drove us off the gold standard was that the gold standard backed the government into a corner, yes. What drove essentially all macroeconomists to conclude that this was the correct one was new theory about why this had happened, the economic possibilities of this new theory, the new theory turning out to allowing finer control over price stability than the Gold Standard had ever done and the woeful quality of the analysis of the few economists still defending the gold standard.
> For example, if you're in an airplane and you recklessly burn all your fuel because you were having fun going fast and have to eject and abandon your plane to crash, the solution is not "bring more fuel next time" nor "don't use planes anymore".
"Bring more fuel" sounds like a much better solution to fuel-shortage induced aircraft accidents than slowing down to me, and I'm confident that aircraft investigators agree with me.
Assuming that the real problem with running out of fuel isn't the quantity of fuel but that jets aren't limited to early 1900s speeds and engine technologies sounds like a pretty apt analogy for calls to return to a Gold Standard, actually...
> What caused the Long Depression was stupidly removing silver from the monetary supply very suddenly. That was an enormous shock to the economy that happened without enough warning. It was a monetary cliff, and cliffs are bad. Engineering transitions like that to be smooth and slow is the way to avoid that.
I think we can agree on that (though the reason it was removed is because the bimetallic standards with dollars redeemed in fixed quantities for commodities whose actual value ratio fluctuated were absurd). For related reasons, we decided monetary cliffs generated by metallic standards were worse than having an elastic monetary supply. The Great Depression was caused because the Fed could not print enough money to act as the lender of last resort. Again, a situation we seek to avoid by having the actual quantity of money determined by the amount of credit supplied and demanded by the market, rather than simply hoping gold reserves would automagically align with it.