Inflation and the Gold Standard

Revvin' up your engine
Listen to her howlin' roar
Metal under tension
Beggin' you to touch and go
--Kenny Loggins

While absorbing the Phillips et al. (1937) study, I was struck how much money can be created inside a banking system (governed by a central bank) despite the purported 'limitations' of the gold standard. During the 1920s, the USD was still backed by gold to the extent that people could still trade dollars for gold.

Yet central banking policies facilitated the inflation of total quantity of money (particularly credit money) by orders of magnitude while the Twenties 'roared.'

Yes, several factors were working on the monetary system at the time, including some outside the US, that served to confound (and perhaps obscure) the dollar:gold relationship.

But the point is that a gold standard, by itself, does not prevent inflation of the money supply into the danger zone.

position in gold