Why Gold is Money

[Ronin Truth]

[h=2]The Dollar Is a Substitute for Money[/h]Gold, on the other hand, is money. Article by Doug Casey.


Why Gold is Money

By Doug Casey

Casey Research

March 21, 2016


It’s an unfortunate historical anomaly that people think about the paper in their wallets as money. The dollar is, technically, a currency. A currency is a government substitute for money. But gold is money.

Now, why do I say that?

Historically, many things have been used as money. Cattle have been used as money in many societies, including Roman society. That’s where we get the word “pecuniary” from the Latin word for a single head of cattle is pecus. Salt has been used as money, also in ancient Rome, and that’s where the word “salary” comes from; the Latin for salt is sal (or salis). The North American Indians used seashells. Cigarettes were used during WWII. So, money is simply a medium of exchange and a store of value.

By that definition, almost anything could be used as money, but obviously, some things work better than others; it’s hard to exchange things people don’t want, and some things don’t store value well. Over thousands of years, the precious metals have emerged as the best form of money. Gold and silver both, though primarily gold.

There’s nothing magical about gold. It’s just uniquely well-suited among the 98 naturally occurring elements for use as money…in the same way, aluminum is good for airplanes or uranium is good for nuclear power.

There are very good reasons for this, and they are not new reasons. Aristotle defined five reasons why gold is money in the 4th century BCE (which may only have been the first time it was put down on paper). Those five reasons are as valid today as they were then.

When I give a speech, I often offer a prize to the audience member who can tell me the five classical reasons gold is the best money. Quickly now – what are they? Can’t recall them? Read on, and this time, burn them into your memory.

Money

If you can’t define a word precisely, clearly and quickly, that’s proof you don’t understand what you’re talking about as well as you might. The proper definition of money is as something that functions as a store of value and a medium of exchange.

Government fiat currencies can, and currently do, function as money. But they are far from ideal. What, then, are the characteristics of a good money? Aristotle listed them in the 4th century BCE. A good money must be all of the following:

• Durable: A good money shouldn’t fall apart in your pocket nor evaporate when you aren’t looking. It should be indestructible. This is why we don’t use fruit for money. It can rot, be eaten by insects, and so on. It doesn’t last.

• Divisible: A good money needs to be convertible into larger and smaller pieces without losing its value, to fit a transaction of any size. This is why we don’t use things like porcelain for money – half a Ming vase isn’t worth much.

• Consistent: A good money is something that always looks the same so that it’s easy to recognize, each piece identical to the next. This is why we don’t use things like oil paintings for money; each painting, even by the same artist, of the same size and composed of the same materials is unique. It’s also why we don’t use real estate as money. One piece is always different from another piece.

• Convenient: A good money packs a lot of value into a small package and is highly portable. This is why we don’t use water for money, as essential as it is – just imagine how much you’d have to deliver to pay for a new house, not to mention all the problems you’d have with the escrow. It’s also why we don’t use other metals like lead, or even copper. The coins would have to be too huge to handle easily to be of sufficient value.

• Intrinsically valuable: A good money is something many people want or can use. This is critical to money functioning as a means of exchange; even if I’m not a jeweler, I know that someone, somewhere wants gold and will take it in exchange for something else of value to me. This is why we don’t – or shouldn’t – use things like scraps of paper for money, no matter how impressive the inscriptions upon them might be.

Actually, there’s a sixth reason Aristotle should have mentioned, but it wasn’t relevant in his age because nobody would have thought of it…it can’t be created out of thin air.

Not even the kings and emperors who clipped and diluted coins would have dared imagine that they could get away with trying to use something essentially worthless as money.

These are the reasons why gold is the best money. It’s not a gold bug religion, nor a barbaric superstition.

It’s simply common sense. Gold is particularly good for use as money, just as aluminum is particularly good for making aircraft, steel is good for the structures of buildings, uranium is good for fueling nuclear power plants, and paper is good for making books. Not money. If you try to make airplanes out of the lead, or money out of paper, you’re in for a crash.

That gold is money is simply the result of the market process, seeking optimum means of storing value and making exchanges.

Reprinted with permission from Casey Research.

The Best of Doug Casey


Doug Casey (send him mail) is a best-selling author and chairman of Casey Research, LLC., publishers of Casey’s International Speculator.

Copyright © 2016 Casey Research, LLC

https://www.lewrockwell.com/2016/03/doug-casey/dollar-government-substitute-money/

 

[Zippyjuan]

The proper definition of money is as something that functions as a store of value and a medium of exchange.

Do you take gold to the store and trade it for goods and services? Do you use it as "a medium of exchange"? If you give them gold, do you get gold back in change? Can you use gold coins for internet purchases?

That gold is money is simply the result of the market process, seeking optimum means of storing value and making exchanges.

These days the market has chosen electronic money. Highly portable, convenient. Divisible.

 

[Ronin Truth]

Do you take gold to the store and trade it for goods and services? Do you use it as "a medium of exchange"? If you give them gold, do you get gold back in change?

The proper definition of money is as something that functions as a store of value and a medium of exchange.

How are those ~2 cent FRNs doin', as a store of value?

 

[Zippyjuan]

Free market determines the value of money. When we had a gold standard, the government declared what gold was worth- ie $20 = one ounce of gold. That is not free market. That is fiat. Now the price of gold and the price of money are free to fluxuate. Neither holds a fixed value.

 

[Ronin Truth]

Free market determines the value of money. When we had a gold standard, the government declared what gold was worth- ie $20 = one ounce of gold. That is not free market. That is fiat. Now the price of gold and the price of money are free to fluxuate. Neither holds a fixed value.

"Earth to Zippy, what planet are you currently posting from?"

"There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose." -- John Maynard Keynes

 

[Zippyjuan]

Ah- so you are Keynesian! So do you use gold as a medium of exchange- or are you mostly digital like the rest of us? Money is a medium of exchange. Period. It is what the citizens agree to use. If you aren't using gold as a medium of exchange, it isn't money. It could be in theory (and once was) but it isn't today.

 

[erowe1]

If Gold is money, then the only reason for that is that people choose to use it as money. And anything else that people choose to use as money is also money.

 

[Ronin Truth]

Ah- so you are Keynesian! So do you use gold as a medium of exchange- or are you mostly digital like the rest of us? Money is a medium of exchange. Period. It is what the citizens agree to use.

Sounds a whole more like government mandated legal tender "currency", to me. But you can just go ahead and dishonestly call it, whatever you want.


https://mises.org/library/what-has-government-done-our-money

 

[Zippyjuan]

Gold was once government mandated legal tender "currency" too. Was it better? Did it prevent price inflation? Did it lead to a stable economy without recessions? Full employment? (the Great Depression happened on a gold standard)

Ah- the good old days! When a dollar was a dollar and life was wonderful!

 

[oyarde]

If Gold is money, then the only reason for that is that people choose to use it as money. And anything else that people choose to use as money is also money.

True , I also accept silver , copper , lead , nickel , ammo , hides etc

 

[Ronin Truth]

What Has Government Done to Our Money?

When this gem first appeared in 1963, it took the form of a small paperback designed for mass distribution.

Innumerable economists, investors, commentators, and authors have learned from this book through the decades. After fifty years, it remains the best book in print on the topic, a real manifesto of sound money.

Rothbard boils down the Austrian theory to its essentials. The book also made huge theoretical advances.

Rothbard was the first to prove that the government, and only the government, can destroy money on a mass scale, and he showed exactly how they go about this dirty deed. But just as importantly, it is beautifully written. He tells a thrilling story because he loves the subject so much.

The passion that Murray feels for the topic comes through in the prose and transfers to the reader. Readers become excited about the subject, and tell others. Students tell professors. Some, like the great Ron Paul of Texas, have even run for political office after having read it.

Rothbard shows precisely how banks create money out of thin air and how the central bank, backed by government power, allows them to get away with it. He shows how exchange rates and interest rates would work in a true free market. When it comes to describing the end of the gold standard, he is not content to describe the big trends. He names names and ferrets out all the interest groups involved.

Since Rothbard's death, scholars have worked to assess his legacy, and many of them agree that this little book is one of his most important. Though it has sometimes been inauspiciously packaged and is surprisingly short, its argument took huge strides toward explaining that it is impossible to understand public affairs in our time without understanding money and its destruction.

https://mises.org/library/what-has-government-done-our-money

 

[Ronin Truth]

Gold was once government mandated legal tender "currency" too. Was it better? Did it prevent price inflation? Did it lead to a stable economy without recessions? Full employment? (the Great Depression happened on a gold standard)

Ah- the good old days! When a dollar was a dollar and life was wonderful!

http://onlygold.com/Info/Historical-Gold-Prices.asp

Looks pretty stable to me up until about 1933.

How has the FRN done?

Still ducking and dodging that 'store of value issue', I sadly see.

 

[Ronin Truth]

Debt is the barbarous relic. Not gold.

Simon Black

July 16, 2015

Kunming, China

“The first form of culture,” wrote historian Will Durant, “is agriculture.”

And he was right. When human beings discovered 10,000 years ago that the soil would provide more food than they could possibly eat, this changed everything.

For the first time ever, early humans could actually work WITH nature and reliably control their food production.

They were no longer dependent on unpredictable wildlife or the dangers of the hunt.

Nor were they resigned to devouring an entire beast in one sitting, only to end up right back where they started– in search of their next meal.

Agriculture gave them the opportunity to produce far more than they could consume. And to easily save the surplus for a later time.

To save like this is completely natural. And by that I mean saving is part of nature.

Dogs bury their bones. Squirrels hoard nuts. Even plants set aside some excess solar energy for a rainy day by producing and storing sugar.

For us humans, agriculture was our earliest form of savings. And it was the key ingredient to civilization.

With a vast pool of food savings at his disposal, early man could put down roots and build societies without having to worry about where the next meal would come from.

It was this sense of savings that formed the dividing line between primitive man and civilized man.

This reminds me of that old criticism about gold being a “barbarous relic”.

John Maynard Keynes first coined the term when he denounced the gold standard, and Paul Krugman has echoed this sentiment in our own time.

Both men are champions of government spending and the inexhaustible creation of paper money.

It’s a curious statement, though, given that gold is an acknowledged form of savings.

Even governments and central banks around the world continue to hold gold as part of their official reserves.

Owning gold is saving, which by definition is civilized, i.e. NOT barbarous.

Debt, on the other hand, is the exact opposite. It is a lack of savings that shows a complete disregard for the future.

It is the modern equivalent of gorging on some wild beast with no thought to tomorrow’s meal… or in this case, no thought of tomorrow’s generation.

Debt is the barbarous relic. Not gold.

And governments are up to their eyeballs in it, continuing to engage in this primitive, uncivilized behavior with wanton abandon.

Don’t expect them to change their ways.

Our society awards our most respected prizes for intellectual achievement to faux-scientists who encourage these barbarous acts.

They create complex mathematical models, ‘proving’ why our Neanderthal governments should print more money, borrow more debt, and stage fake alien invasions to boost the economy.

No doubt future anthropologists will find this to be a curious and savage system.

https://www.sovereignman.com/trends/debt-is-the-barbarous-relic-not-gold-17267/

 

[Zippyjuan]

http://onlygold.com/Info/Historical-Gold-Prices.asp

Looks pretty stable to me up until about 1933.

How has the FRN done?

Still ducking and dodging that 'store of value issue', I sadly see.

Why does money have to be a store of value? (still ducking the "do you use gold as a medium of exchange" question)

(noting that the government said what the price of gold was in terms of dollars back then- it wasn't a free market price for gold).

If gold was a store of value, then prices should have been stable.

http://blogs.wsj.com/economics/2015/12/14/a-brief-history-of-u-s-inflation-since-1775/

 

[Danke]

 

[oyarde]

How are those ~2 cent FRNs doin', as a store of value?

FRN's are not a store of value . I take them as last on my list and dump them right away .

 

[Ronin Truth]

Why does money have to be a store of value? (still ducking the "do you use gold as a medium of exchange" question)

Currency(money substitute) isn't and doesn't, real money is and does. And of course I don't, because gold is not legal tender by government order, mandate and decree. Currency is.

(noting that the government said what the price of gold was in terms of dollars back then- it wasn't a free market price for gold).

Did I say it was? Or are you just really enjoying playing with your straw man?

Incorrect, you have it 180 degrees backward. The government said what the dollar was in terms of gold and silver. Without the government interference and involvement, the market would, could, and did sort itself all out. Gresham's Law pretty much explains and handles that question and situation.

//

 

[Ronin Truth]

Gold and Economic Freedom

by Alan Greenspan

Published in Ayn Rand's "Objectivist" newsletter in 1966, and reprinted in her book, Capitalism: The Unknown Ideal, in 1967. (Note: BEFORE he sold his soul to the banksters.)

An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense — perhaps more clearly and subtly than many consistent defenders of laissez-faire — that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other.

In order to understand the source of their antagonism, it is necessary first to understand the specific role of gold in a free society.

Money is the common denominator of all economic transactions. It is that commodity which serves as a medium of exchange, is universally acceptable to all participants in an exchange economy as payment for their goods or services, and can, therefore, be used as a standard of market value and as a store of value, i.e., as a means of saving.

The existence of such a commodity is a precondition of a division of labor economy. If men did not have some commodity of objective value which was generally acceptable as money, they would have to resort to primitive barter or be forced to live on self-sufficient farms and forgo the inestimable advantages of specialization. If men had no means to store value, i.e., to save, neither long-range planning nor exchange would be possible.

What medium of exchange will be acceptable to all participants in an economy is not determined arbitrarily. First, the medium of exchange should be durable. In a primitive society of meager wealth, wheat might be sufficiently durable to serve as a medium, since all exchanges would occur only during and immediately after the harvest, leaving no value-surplus to store. But where store-of-value considerations are important, as they are in richer, more civilized societies, the medium of exchange must be a durable commodity, usually a metal. A metal is generally chosen because it is homogeneous and divisible: every unit is the same as every other and it can be blended or formed in any quantity.

Precious jewels, for example, are neither homogeneous nor divisible. More important, the commodity chosen as a medium must be a luxury. Human desires for luxuries are unlimited and, therefore, luxury goods are always in demand and will always be acceptable. Wheat is a luxury in underfed civilizations, but not in a prosperous society. Cigarettes ordinarily would not serve as money, but they did in post-World War II Europe where they were considered a luxury. The term "luxury good" implies scarcity and high unit value. Having a high unit value, such a good is easily portable; for instance, an ounce of gold is worth a half-ton of pig iron.

In the early stages of a developing money economy, several media of exchange might be used, since a wide variety of commodities would fulfill the foregoing conditions. However, one of the commodities will gradually displace all others, by being more widely acceptable. Preferences on what to hold as a store of value will shift to the most widely acceptable commodity, which, in turn, will make it still more acceptable. The shift is progressive until that commodity becomes the sole medium of exchange. The use of a single medium is highly advantageous for the same reasons that a money economy is superior to a barter economy: it makes exchanges possible on an incalculably wider scale.

Whether the single medium is gold, silver, seashells, cattle, or tobacco is optional, depending on the context and development of a given economy. In fact, all have been employed, at various times, as media of exchange. Even in the present century, two major commodities, gold and silver, have been used as international media of exchange, with gold becoming the predominant one. Gold, having both artistic and functional uses and being relatively scarce, has significant advantages over all other media of exchange. Since the beginning of World War I, it has been virtually the sole international standard of exchange. If all goods and services were to be paid for in gold, large payments would be difficult to execute and this would tend to limit the extent of a society's divisions of labor and specialization. Thus a logical extension of the creation of a medium of exchange is the development of a banking system and credit instruments (bank notes and deposits) which act as a substitute for, but are convertible into, gold.

A free banking system based on gold is able to extend credit and thus to create bank notes (currency) and deposits, according to the production requirements of the economy. Individual owners of gold are induced, by payments of interest, to deposit their gold in a bank (against which they can draw checks). But since it is rarely the case that all depositors want to withdraw all their gold at the same time, the banker need keep only a fraction of his total deposits in gold as reserves. This enables the banker to loan out more than the amount of his gold deposits (which means that he holds claims to gold rather than gold as security of his deposits). But the amount of loans which he can afford to make is not arbitrary: he has to gauge it in relation to his reserves and to the status of his investments.

When banks loan money to finance productive and profitable endeavors, the loans are paid off rapidly and bank credit continues to be generally available. But when the business ventures financed by bank credit are less profitable and slow to pay off, bankers soon find that their loans outstanding are excessive relative to their gold reserves, and they begin to curtail new lending, usually by charging higher interest rates. This tends to restrict the financing of new ventures and requires the existing borrowers to improve their profitability before they can obtain credit for further expansion. Thus, under the gold standard, a free banking system stands as the protector of an economy's stability and balanced growth.

When gold is accepted as the medium of exchange by most or all nations, an unhampered free international gold standard serves to foster a world-wide division of labor and the broadest international trade. Even though the units of exchange (the dollar, the pound, the franc, etc.) differ from country to country, when all are defined in terms of gold the economies of the different countries act as one — so long as there are no restraints on trade or on the movement of capital. Credit, interest rates, and prices tend to follow similar patterns in all countries. For example, if banks in one country extend credit too liberally, interest rates in that country will tend to fall, inducing depositors to shift their gold to higher-interest paying banks in other countries. This will immediately cause a shortage of bank reserves in the "easy money" country, inducing tighter credit standards and a return to competitively higher interest rates again.

A fully free banking system and fully consistent gold standard have not as yet been achieved. But prior to World War I, the banking system in the United States (and in most of the world) was based on gold and even though governments intervened occasionally, banking was more free than controlled. Periodically, as a result of overly rapid credit expansion, banks became loaned up to the limit of their gold reserves, interest rates rose sharply, new credit was cut off, and the economy went into a sharp, but short-lived recession. (Compared with the depressions of 1920 and 1932, the pre-World War I business declines were mild indeed.) It was limited gold reserves that stopped the unbalanced expansions of business activity, before they could develop into the post-World War I type of disaster. The readjustment periods were short and the economies quickly reestablished a sound basis to resume expansion.

But the process of cure was misdiagnosed as the disease: if shortage of bank reserves was causing a business decline — argued economic interventionists — why not find a way of supplying increased reserves to the banks so they never need be short! If banks can continue to loan money indefinitely — it was claimed — there need never be any slumps in business. And so the Federal Reserve System was organized in 1913. It consisted of twelve regional Federal Reserve banks nominally owned by private bankers, but in fact government sponsored, controlled, and supported. Credit extended by these banks is in practice (though not legally) backed by the taxing power of the federal government.

Technically, we remained on the gold standard; individuals were still free to own gold, and gold continued to be used as bank reserves. But now, in addition to gold, credit extended by the Federal Reserve banks ("paper reserves") could serve as legal tender to pay depositors.

When business in the United States underwent a mild contraction in 1927, the Federal Reserve created more paper reserves in the hope of forestalling any possible bank reserve shortage. More disastrous, however, was the Federal Reserve's attempt to assist Great Britain who had been losing gold to us because the Bank of England refused to allow interest rates to rise when market forces dictated (it was politically unpalatable). The reasoning of the authorities involved was as follows: if the Federal Reserve pumped excessive paper reserves into American banks, interest rates in the United States would fall to a level comparable with those in Great Britain; this would act to stop Britain's gold loss and avoid the political embarrassment of having to raise interest rates. The "Fed" succeeded; it stopped the gold loss, but it nearly destroyed the economies of the world, in the process. The excess credit which the Fed pumped into the economy spilled over into the stock market, triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed. Great Britain fared even worse, and rather than absorb the full consequences of her previous folly, she abandoned the gold standard completely in 1931, tearing asunder what remained of the fabric of confidence and inducing a world-wide series of bank failures. The world economies plunged into the Great Depression of the 1930's.

With a logic reminiscent of a generation earlier, statists argued that the gold standard was largely to blame for the credit debacle which led to the Great Depression. If the gold standard had not existed, they argued, Britain's abandonment of gold payments in 1931 would not have caused the failure of banks all over the world. (The irony was that since 1913, we had been, not on a gold standard, but on what may be termed "a mixed gold standard"; yet it is gold that took the blame.) But the opposition to the gold standard in any form — from a growing number of welfare-state advocates — was prompted by a much subtler insight: the realization that the gold standard is incompatible with chronic deficit spending (the hallmark of the welfare state). Stripped of its academic jargon, the welfare state is nothing more than a mechanism by which governments confiscate the wealth of the productive members of a society to support a wide variety of welfare schemes. A substantial part of the confiscation is effected by taxation. But the welfare statists were quick to recognize that if they wished to retain political power, the amount of taxation had to be limited and they had to resort to programs of massive deficit spending, i.e., they had to borrow money, by issuing government bonds, to finance welfare expenditures on a large scale.

Under a gold standard, the amount of credit that an economy can support is determined by the economy's tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government's promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets. A large volume of new government bonds can be sold to the public only at progressively higher interest rates. Thus, government deficit spending under a gold standard is severely limited. The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. They have created paper reserves in the form of government bonds which — through a complex series of steps — the banks accept in place of tangible assets and treat as if they were an actual deposit, i.e., as the equivalent of what was formerly a deposit of gold. The holder of a government bond or of a bank deposit created by paper reserves believes that he has a valid claim on a real asset. But the fact is that there are now more claims outstanding than real assets. The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy's books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion.

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.

http://www.constitution.org/mon/greenspan_gold.htm

 

[presence]

Gold was once government mandated legal tender "currency" too. Was it better? Did it prevent price inflation? Did it lead to a stable economy without recessions? Full employment? (the Great Depression happened on a gold standard)

there is no one single action that you can use to intervene in an economy to "make it stable". The market makes economies stable.

By 1914 the Fed had already nationalized clearinghouse associations. They made themselves, rather than the free market the "lender of last resort".

then... when the last resort was needed... they did nothing.


and poof


You can't blame that on gold or lack thereof backing the dollar

[/IMG]

https://books.google.com/books?id=c...ationalize clearinghouse associations&f=false

http://fee.org/articles/the-great-depression-according-to-milton-friedman/

Friedman’s conclusion was perfectly logical given his belief that had the Fed not been created, the downturn of 1929 would not have become a major depression. Friedman claims in the paragraph above that without the Fed “the same measures would have been taken [in 1930] as in 1907—a restriction of payments,” which he believes would have prevented the crisis from spreading to “stronger banks,” those not guilty of overextending themselves through over-risky loans. Monetary economist Lawrence H. White of the University of Missouri-St. Louis filled in the blanks in Friedman’s “institutional counter-factual” on the Division of Labour blog (March 12, 2007):
Friedman understood . . . that before the Federal Reserve Act financial panics in the US were mitigated by the actions of private commercial bank clearinghouses. Friedman and Schwartz’s view of the 1930′s was that the Fed, having nationalized the roles of the clearinghouse associations [CHAs], particularly the lender-of-last-resort role, did less to mitigate the panic than the CHAs had done in earlier panics like 1907 and 1893. In that sense, the economy would have been better off if the Fed had not been created. This position is perfectly consistent with the position that, provided we take the Fed’s nationalization of the clearinghouse roles for granted, the Fed was guilty of not doing its job.
Thus the Fed’s failure in the early ’30s shows the dangers of excessive centralization of important market functions that were previously dispersed among multiple private institutions. Friedman’s bottom line remains intact: The Fed caused the Great Depression.