Econbrowser: Why not abolish the Fed and return to the gold standard?

The pre-Fed financial panics were also accompanied by long contractions in overall economic activity, as indicated by the NBER dates for economic recessions noted in the graph below. Although of course we still had recessions after the Federal Reserve was established in 1913, they tended to be less frequent and shorter in duration.

One of the problems with the gold standard is that when the real value of gold changes (as it does all the time) and the dollar price of an ounce of gold is fixed (as it must be by definition under a gold standard), that means dollar prices have to adjust in response to anything that happens to the gold market. With the economic and financial turbulence of the late 1920s and early 1930s, there was a big increase in the relative price of gold.

For example, to get an ounce of gold in 1929, a farmer would need to deliver a little over a hundred pounds of cotton. By 1932, it would take more than three times as much cotton to get that same ounce of gold. Whereas 18 bushels of wheat would be enough to buy an ounce of gold in 1929, you would have needed more than twice as much wheat to get gold in 1932.