Money, Bank Credit, and Economic Cycles - The Ludwig von Mises ...

778 Money, Bank Credit, and Economic Cyclesin the past on various occasions. For example, we havealready mentioned the case of the United States during theperiod from 1867, following the Civil War, until 1879. EvenMilton Friedman and Anna J. Schwartz have had to admit thatthis periodwas a vigorous stage in the continued economic expansionthat was destined to raise the United States to a first rankamong the nations of the world. And their coincidence castsserious doubts on the validity of the now widely held view that secularprice deflation and rapid economic growth are incompatible. 817. “The maintenance of a pure gold standard and a 100-percentreserve requirement would be very costly in terms of economicresources and would therefore inhibit economic development.” Theargument that a pure gold standard would be quite expensivein terms of economic resources was raised by John MaynardKeynes, who viewed such a standard as no more than a “barbarousrelic” of the past. This argument then found its wayinto the most commonly used textbooks. For instance, Paul A.Samuelson indicates: “(It) is absurd to waste resources digginggold out of the bowels of the earth, only to inter it backagain in the vaults of Fort Knox.” 82 It is obvious that a puregold standard, with slight “deflation,” i.e., a constant, gradualincrease in the purchasing power of the monetary unit,would offer a continuous incentive to find and mine largerquantities of gold, thus employing valuable, scarce economicresources in the search for, extraction and distribution of theyellow metal. Although there is no unanimous estimate ofthe economic cost of this monetary standard, for the sake ofargument we might even admit, as Leland B. Yeager does, that81 Friedman and Schwartz, A Monetary History of the United States,1867–1960, p. 15; italics added. Mises expresses an identical conclusionin Money, Method, and the Market Process, pp. 90–91, and he conveyed thesame idea in the previously cited 1930 memorandum to the specialists ofthe financial committee of the League of Nations. See also the detailedeconomic study of the period from 1873 to 1896 which Selgin includesin his book, Less Than Zero, pp. 49–53.82 Samuelson, Economics, 8th ed. (New York: Macmillan, 1970).