David Frum is on the warpath. In a National Review Online blog post, then an NPR commentary, and most recently in a National Post article, Frum has mercilessly ridiculed the gold standard. But as with most modern critiques of the “bad old days” of the laissez-faire 19th century, Frum’s analysis is fraught with theoretical and historical problems.
Frum’s main objection is that the gold standard is allegedly rigid, preventing the economy from smoothly adjusting to various shocks. Although Frum naturally doesn’t say it explicitly, the only “cushion” that unbacked fiat money can provide is that it allows politicians to literally paper over crises, limping along from one to the next. Rather than having strong growth punctuated by acute but quick adjustments to new information, instead we have monotonous, sluggish growth. FULL ARTICLE