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The gold standard constrained policymakers' ability to adjust the money supply from "summary" of A Monetary History of the United States, 1867-1960 by Milton Friedman,Anna Jacobson Schwartz

The gold standard was a system in which the value of a country's currency was directly linked to a specific amount of gold. Under this system, the government was required to hold a certain amount of gold reserves to back its currency. This meant that the money supply was tied to the amount of gold held by the government, limiting policymakers' ability to adjust it as needed. Because the money supply was tied to gold reserves, policymakers had to ensure that the amount of money in circulation corresponded to the available gold reserves. If the government printed too much money relative to its gold reserves, it risked running out of gold and being unable to redeem its currency at the set exchange rate. This constraint limited policymakers' ability to stimulate economic growth by increasing the money supply during times of recession. Conversely, if the government did not print enough money relative to its gold reserves, it risked creating deflation and making it more difficult for businesses and individuals to access credit. This could also have negative effects on economic growth. Thus, the gold standard forced policymakers to prioritize maintaining the fixed exchange rate over other economic objectives. The gold standard also limited policymakers' ability to respond to external shocks or changes in the global economy. For example, if a country experienced an influx of gold due to increased gold production in other countries, policymakers would be required to increase the money supply to prevent deflation. However, under the gold standard, this was not always possible, as the government would need to have enough gold reserves to back the increase in the money supply.
  1. The gold standard constrained policymakers' ability to adjust the money supply by tying it to gold reserves. This limitation could have negative effects on economic growth and stability, as policymakers were forced to prioritize maintaining the fixed exchange rate over other economic objectives.
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A Monetary History of the United States, 1867-1960

Milton Friedman

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