Tyler Cowen says “OK” to the claim in my Cato Briefing Paper that a gold standard isn’t a crazy idea. He grants that “over the broad sweep of world history, commodity standards have outperformed paper money”. Yet he would not “push the button” for a gold standard because

we don't live in the broad sweep of world history, we live in 2008 and our ability to monitor and control central banks is unparalleled.

Monitor, yes. But control? Who is this “we” that controls central banks? “We” inflation hawks, or “we” the people clamoring for low interest rates and monetary stimulus? Why is CPI inflation currently above 4% and rising if we have such firm control?

Tyler adds: “The central banks of the wealthier nations work pretty well.” They work better than they used to, as I note in the Cato paper. But surely today's inflation is worse than what a gold standard produces.

My main worry with the gold standard is simply the pro-cyclicality of the money supply and for all its talk of money demand the paper doesn't much address this concern. For instance would you really want a contracting money supply in today's environment? And yes credit crunches of this kind happen in market settings too so you can't blame it all on Alan Greenspan.

I take it that Tyler is here referring to pro-cyclicality of the inside money stock (bank liabilities) due credit crunches and bank runs, not of the stock of gold. (The gold mining industry is actually counter-cyclical: a high price level reduces mining output. The price-specie-flow mechanism is likewise counter-cyclical.) The paper does try to address that concern in its argument that US banking panics in the gold standard era were due to weak banking (in turn due to legal restrictions) and not due to inherent instability. I would be grateful if someone could point me to evidence that countries with sound banking systems (e.g. Canada) had bigger problems with cyclical banking under the gold standard without a central bank than we have today. Yes, in principle a central bank can act counter-cyclically, but what’s the success rate in practice, even among the wealthier nations? Worse than break-even, I would submit.