The Failure of the Gold-Exchange System

The rule-based true gold standard not only ends the official reserve currency role of the dollar, but it also limits arbitrary Federal Reserve money issuance secured by defective and illiquid collateral.  Unstable mutations in the true (or classical) gold standard of the past—including the failed “gold-exchange” system of Bretton Woods and the collapse of its predecessor, the “gold-exchange standard” of the 1920s and 1930s—must be ruled out. So, too, must floating exchange rates.  For almost a century, policy makers, politicians, historians, and economists have confused the flawed interwar gold-exchange standard, based on official reserve currencies, with the true or classical gold standard.  Led by Ben Bernanke and Milton Friedman, economists have mistakenly blamed the Great Depression on the gold standard, instead of on the liquidation of the gold-exchange system and the official reserve currency system established at Genoa in 1922-40.