The gold standard and the Titanic

History demonstrates that letting politicians manipulate the money supply does far greater harm than the problem it was supposed to solve. Why does this happen? Mainly because the argument that we can modulate the money supply to soften economic cycles is based on two incorrect premises.

The first of these is that it is possible to forecast economic cycles and adjust monetary policy accordingly and precisely. In practice, this is technically impossible. The result of trying to mitigate the effects is further distortion which only serves to actually amplify the effects we are attempting to calm.

The second premise is the good faith, independence and technical expertise of governments, central banks, and politicians. Big assumption! What happens in practice is that short-term party interests – e.g. elections - tend to come into play, if not incompetence or lack of rigour on the part of certain governors. The sum of these ingredients, technical difficulties and lack of political rigour, is disaster. 

Read the full blog post here

Source: http://www.iea.org.uk/blog/the-gold-standard-and-the-titanic

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