danhoff said – “Sorry infose. You have fallen for a trick. I listened to a talk given at a think tank ( called mensis society or something like that)”...
danhoff – I think that you may mean the Ludwig Von Mises Institute (LVMI) (mises.org). In fact it could’ve been this one by Tom Woods (a senior fellow at LVM and prominent historian). Really is worth a watch for those wanting to educate themselves.
http://www.youtube.com/watch?v=dyyPrQUNYy0
BTW mises.org has plenty of free videos, books and courses in (Austrian school) economics – an awesome resource - http://mises.org/media
---
Infose “I have no idea about who is financing the think tank that you mention. Actually I don't even care.”
The Mises Institute (assuming that that is to what danhoff refers) is non-profit and exists solely on voluntary contributions. I’ve even donated to scholarship programs run by LVM Institute, and I’m hardly a “billionaire funder”. And funded “beyond the left’s wildest dreams”…well, I would consider the enormous welfare state and big government as basically a leftist institution. I don’t think the Cato Institute can match that for funding (not that I consider LVMI and Cato in the same category or level of integrity, it’s just that most vitriol toward ‘conservative think tanks’ are generally directed at Cato and the Koch brothers.)
---
“What I know are these facts:”
Infose, I don’t agree that those are indisputable facts. Much of which is passed off as conventional wisdom is self-serving revisionist history that allow central planners to meddle and politicians to spend.
Price stability
The gold standard is not supposed to maintain ‘price stability’. It is supposed to maintain monetary stability (or if you prefer the ‘price stability of money’, not of goods). Prices consistently fell during a large portion of US history under the gold standard, and this deflation in prices lead to vastly increased living standard as real wages increased. This makes perfect sense. As productive capacity, technology and efficiency increased, and monetary stability was maintained (i.e. money supply was relatively stable), then there were more goods available for consumption, and thus lower prices.
Targeting ‘price stability’ is a problem because it essentially requires inflation of the money supply to offset increases in productivity (which would by itself produce falling prices and benefit most the middle class and the poor). Anna Schwartz and Milton Friedman (Chicago School) were right about many things re market economy, but money was not one of them. During the 1920’s there was actually a large increase in money supply and consequently an inflationary economic boom (which eventually led to the crash and then morphed the great depression thanks mainly to the Hoover, then FDR’s, interventions). Prices during that time were relatively stable though, which is why the prominent economists at the time didn’t see it coming (sounds familiar right..2008?). Yes, the US was on a gold standard, but the fractional reserve banking system, and importantly the new ‘gold-exchange’ standard of Europe following the war (and Genoa Conference of 1922) which distorted the money supply were the primary causes.
As an aside, it is worth noting that the Austrian economists of the day warned of the impending crash during the 1920’s because they were watching money supply, not price stability – this is a short good read http://www.zerohedge.com/article/mises-man-who-predicted-depression).
Murray Rothbard wrote what is considered by many as the authoritative book on the causes of the 1929 crash and the initial causes of the depression in his book ‘Americas Great Depression’ – in it he meticulously (it is a somewhat painstaking read actually) explains the inflationary expansion in the 1920’s. ‘The forgotten man’ by Amity Schlaes is also a worthwhile read.
Economic stability
Generally this argument is made on the premise that busts are caused by ‘under utilised capacity’ and that the central bank and government through monetary and fiscal policy can solve this problem, usually by trying to artificially increase demand (by credit expansion / debt).
The idea that central planning and manipulation of money supply can solve the structural issues of the misallocation of the factors of production (land / labour / capital) is a popular myth that persists today, although that can be the topic for another day. Regardless, I hardly think history supports the idea that the Fed succeeded in promoting economic stability, even if it was the aim.
I highly recommend this video, also by Tom Woods, ‘why you’ve never heard of the Great Depression of 1920’
http://www.youtube.com/watch?v=czcUmnsprQI
related to this topic.
Bank Failures
The bank failures were a result of the inflation of the 1920’s and the fractional reserve system, not of any remanent of the gold standard that existed at the time. Insolvent banks did fail, just like any insolvent business should (I recall from memory reading that only ~2% savers deposits were actually lost though).
The FDIC (deposit insurance) was one of the results of this era and an attempt to stop bank runs. Deposit insurance is a very destructive idea as it separates risk from reward and thus banks compete on returns (at increased risk) rather than security, and is still one of the primary causes of reckless risk taking in the financial sector today (particularly with the removal of Glass Steagall which previously somewhat counteracted the effect).
For the refutation of many depression era myths I refer those interested to “The Politically Incorrect Guide to the Great Depression” by R.P. Murphy.
Also for history on the US banking system before the Fed, download this free book at http://mises.org/books/historyofmoney.pdf ___
And why was the fed created…in secret...by predominantly a bunch of bankers…? Hmm, must have just been because of the general benevolence of the bankers and politicians looking out for the little guy. Of course the loss of >95% of the purchasing power of the dollar since the inception of the Fed has been a boon for the little guy..
BTW “The creature from Jekyll Island” is a good book on the intriguing circumstances leading to creation of the Fed. ___
