Apropos something I’m working on, there’s a very widespread belief on the right that banking crises only happen because either the Fed or Barney Frank cause them; go back to a gold standard, and there would be no need for financial regulation or anything like that.
This is, of course, nonsense; Walter Bagehot knew all about financial crises, which have been a constant feature of modern economies since at least the early 19th century. Just to drive the point home, I thought it might be worth posting Gary Gorton’s chart (pdf) of “panics” before the Fed went into operation:Panics will happen; the question is how they are contained.
It should be noted that listing business cycle downturns doesn't prove that those downturns weren't caused by some type of government activity.
Indeed, a compilation of essays written by Rothbard, A History of Money and Banking in the United States: The Colonial Era to World War II, discusses many of the downturns listed by Krugman and points to the role of government in causing them.
This compilation has just come to my attention, so I have the book on order, but haven't read it.
But this comes from the Amazon blurb:
In what is sure to become the standard account, Rothbard traces inflations, banking panics, and money meltdowns from the Colonial Period through the mid-20th century to show how government's systematic war on sound money is the hidden force behind nearly all major economic calamities in American history.
Never has the story of money and banking been told with such rhetorical power and theoretical vigor. You will treasure this volume.
From the introduction by Joseph Salerno:
"Rothbard employs the Misesian approach to economic history consistently and dazzlingly throughout the volume to unravel the causes and consequences of events and institutions ranging over the course of U.S. monetary history, from the colonial times through the New Deal era. One of the important benefits of Rothbard's unique approach is that it naturally leads to an account of the development of the U.S. monetary system in terms of a compelling narrative linking human motives and plans that often-times are hidden, and devious, leading to outcomes that sometimes are tragic. And one will learn much more about monetary history from reading this exciting story than from poring over reams of statistical analysis. Although its five parts were written separately, this volume presents a relative integrated narrative, with very little overlap, that sweeps across three hundreds years of U.S. monetary history."This tale that the business cycle is a natural occurrence, with Fed supporters pointing to downturns occurring before the establishment of the Federal Reserve is a regular occurrence. I pointed out that a Fed economist raised this point during the Q&A following my speech at the Fed.
In my recap of the speech, I wrote:
As soon as I finished my speech and to defuse the tension, I asked an immediate question as to whether the economists present believed that Austrian Theory had a legitimate case to make. The eventual response came down to the statement by a Fed economist that there had been worse crashes in the economy before the start of the Fed. (Side note, this is a regular argument used by those supporting the Fed, they will claim that crises were worse before the Fed. I have seen fragmented work demolishing this view, but I think there is the opportunity for some economics student to delve into the pre-Fed period in America and delve into the crashes from an Austrian business cycle viewpoint and point out clearly how government was involved in such crises, if they were--which I suspect they were. Such a study would be extremely valuable in knocking a peg out from under the Fed supporters who attempt to justify the Fed by this argument)
I suspect the Rothbard compilation advances the proof that pre-Fed downturns weren't a "natural occurrence" but the result of government interventions of one sort or another. But, I suspect more work coukd to be done to fully take this argument away from Krugman and the other Fed supporters, by covering in detail the entire banking history of the period.
Given what we know from the deductive science of economics, that business cycles are not a "natural occurrence" in the economy, but that they are the result of money printing shenanigans, what needs to be done from here is to discover and report on the money printing shenanigans of the pre-Fed United States, so that we can entirely demolish the Krugman, pro-Fed argument from this direction.