One thing that abandonment of the Gold Standard has most proven is that “a sharp drop in productive output, in investment, in employment and in the value of capital assets.” is not inevitable in capitalistic society. At least a group of corporations will judge correctly what other individuals desire, and trade successfully. However, with an extremely flexible currency, having a successful business venture is somewhat akin to shooting a flying object. The right to consistency is really a right to trade valuable assets. When this right is denied, economic instability exists.
Abandonment of consistency is really what has caused depressions. In 1913, the federal reserve was created with the power to print new money, and as of 1971, the dollar is not redeemable for anything but itself. Economist Alan Greenspan explains that a healthy currency must operate under a standard, in which a luxury commodity is used. Numbers of different commodities have been used. For instance, cigarettes would not typically be used as money, but they did in post world war two Europe. Under a gold standard, a free banking system serves as the protector of an economy. Over speculation will not be allowed for these free banks, because they would operate based on a fixed amount of Gold. When there are high demands for loans, banks would be forced to either raise interest rates or scrutinize more. Greenspan explains that under the gold standard, the amount of credit an economy can support is determined by its amount of tangible assets. On the other hand, government bonds are not backed by tangible wealth.
In the pre-World War 1 economy, there was a short-lived recession, after the federal reserve began bailing out banks with paper money, much worse depressions took place in 1920 and 1932. When the economy underwent a mild contraction in 1927, the Federal Reserve created more paper reserves, hoping to forestall any bank reserve shortage. This was also somewhat of an attempt to bailout Great Britain, who refused to raise interest rates when market forces demanded it. Nonetheless, the excess credit pumped in by the government created a speculative boom. A global depression followed poor trade policies, abandonment of the gold standard and government bailouts. Great Britain fared worse in the depression, perhaps due to their complete abandonment of the gold standard in 1931.
Many educators might have attributed America’s depressions to a capitalistic economy. Instead, it is ignored that what America really has is a mixed economy. When individuals are constantly restricted their right to trade, pay reasonable wages, conduct business independently, and have a tangibly valuable currency, they are not free. Harmful Policies are what has really caused collective economic struggle. In a truly free society, nothing man does will hurt other men, except using force on them. A government’s job is to prevent coercion, by using force on those who enslave or use physical coercion on others. When one man creates something new from the materials provided, the standard of life raises for everyone from that point on. That man can never receive his full payment, he has contributed something meaningful. Economic depressions should not come in a completely capitalistic society, but the quality of life should increase for all, as it has even in a mixed economy.