December 9, 2011 Reading Time: 2 minutes

At Free Banking blog, Kurt Schuller points to Ralph Benko’s reply to Roubini’s statements that “this idea of a gold standard is pushed every other day by these gold bugs [and] is not even a theory it’s a theology,” and that the return to the Gold Standard after WWI was a major cause of the Great Depression.

Schuller rightly asks if we blame the Great Depression on the gold standard, shouldn’t we blame the Great Recession to fiat currencies? In addition, the gold standard never came back after WWI, the system instead was an administered gold exchange-standard. The whole idea of the gold standard is that there is neither need nor place for currency management. If the monetary regime needs to be managed by a monetary authority then it is not a commodity standard. I agree with Benko and Schuller that Roubini’s comment is historically flawed, and seems to be that there are just as many paper bugs as there are gold bugs.

However, there is another relevant aspect that critics of the gold standard do not always mention. The monetary problems that critics of the gold standard point to as a major cause of the Great Depression, as if that were enough to explain such a long period of economic weakness, was not the only cause of the financial crisis. Mismanagement of the international exchange-standard during the twenties, new regulations and increases in taxes, along with regime uncertainty, to name a few, are as valid explanations of why the crisis was so great as that of monetary policy. Especially in events like business cycles and depressions, the ceteris paribus does not hold in reality. To point to a monetary problem as if these other factors were constant misses the real situation and may over-weight the responsibility assigned to a single variable. Ceteris paribus is a mental tool, not a fact of reality.

The argument that the gold standard was a main cause of the Great Depression is not only historically wrong, it may overlook the role played by other factors and players.


Nicolas Cachanosky is a doctoral student in economics at Suffolk University, as well as a previous Sound Money Essay Contest winner.

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Nicolás Cachanosky

Dr. Cachanosky is Associate Professor of Economics and Director of the Center for Free Enterprise at The University of Texas at El Paso Woody L. Hunt College of Business. He is also Fellow of the UCEMA Friedman-Hayek Center for the Study of a Free Society. He served as President of the Association of Private Enterprise Education (APEE, 2021-2022) and in the Board of Directors at the Mont Pelerin Society (MPS, 2018-2022).

He earned a Licentiate in Economics from the Pontificia Universidad Católica Argentina, a M.A. in Economics and Political Sciences from the Escuela Superior de Economía y Administración de Empresas (ESEADE), and his Ph.D. in Economics from Suffolk University, Boston, MA.

Dr. Cachanosky is author of Reflexiones Sobre la Economía Argentina (Instituto Acton Argentina, 2017), Monetary Equilibrium and Nominal Income Targeting (Routledge, 2019), and co-author of Austrian Capital Theory: A Modern Survey of the Essentials (Cambridge University Press, 2019), Capital and Finance: Theory and History (Routledge, 2020), and Dolarización: Una Solución para la Argentina (Editorial Claridad, 2022).

Dr. Cachanosky’s research has been published in outlets such as Journal of Economic Behavior & Organization, Public Choice, Journal of Institutional Economics, Quarterly Review of Economics and Finance, and Journal of the History of Economic Thought among other outlets.

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