Quote Originally Posted by Mr. Tempus View Post
My understanding(and its been a while) is that in WWI we did everything we could to avoid entering to lend money to foreign countries and accumulate gold. We then suspended the gold standard ourselves* and printed a bunch of money to pay for adventures.....So inflation took place, in 1920ish they actually did contract the money supply temporarily to stop that inflation, which leads to Rothbard. Rothbard cherry picks his data as he uses the bottom of that very short contraction of the money supply as a starting point. Most of that new money creation that Rothbard claims happened went on within the first few months of that decade as it was simply reversing that contraction. That means for much of the decade there was little money creation.

As Scott Sumner said, if we use the price of gold as a proxy for inflation(which is common among internet austrians, although not really accepted as valid measure by actual economists) the annual inflation rate was 0%.

A good article on Rothbards account of the Depression can be found here.
http://marketmonetarist.com/2012/02/...writers-block/

*The biggest issue of a G.S. is what kind of G.S. are talking about? Unless it is gold coins, then we are having one where the gov't controls the dollar price of gold. If that is the case a government could print money and change the dollar price or suspend it altogether just like it did during WWI if it really wanted, thus I never understood why that is supposed to prevent governments from inflating. There seems to be much better alternatives.
What we did in 1920 is also cut spending and lower taxes while the fed wasnt quite used to the new abilities it found out in the federal reserve act. I dont think there was any cherry picking involved in Rothbard's analysis because you have to start somewhere when analysing the growth in the money supply.

Not all Austrians use the price of gold as a singular way of analysing the rate of inflation, but it is just one way. The problem with the reversing of the contraction notion is that it necessitates a reversal in the first place and that reversal didnt just lead to new malinvestments. Inflation doesnt affect all prices equally but it pushes up the prices where it has entered first which makes the CPI index pretty misleading IMO anyway.

While it is correct that governments can inflate at will even under a pseudo gold standard, but that is because of the nationalization of currency and currency production. What most Austrians advocate is not really demanding that there be a gold standard and thats the final word, but what we advocate is a competing currency based on real assets. Practically anything could serve as a currency icluding filled bottles of beer, cigarrettes, etc. The point in question is who should be the ultimate decider of what the currency should be? Governments or people engaging in market cooperation. If people are free to accept the currency they want to, then local currencies could in effect provide a check against government attempts to foster a highly devalued currency upon the populace.