By Request: Monetarism and the Great Depression
By Arnold Kling
The request is for my reaction to the way that economies in the Great Depression seemed to do better after going off the gold standard. Does this provide evidence that monetary easing would help today?
In general, macroeconomic data are consistent with many interpretations. The best evidence we have for any proposition is likely to be less than decisive. I suppose that you could say that decisiveness is in the eye of the beholder. Some people find vector autoregressions decisive. Some people find 1970-vintage macro models decisive. Some people find the behavior of economies following suspension of the gold standard decisive. I do not find any of this evidence decisive.
My guess is that if we were to try a Sumnerian monetary expansion today, the effect on employment and real output would not be very great. I don’t think that the misalignment between nominal wages and prices is such a big deal at the moment.