Breandan Brown: Today’s easy-money-fueled economic “boom” doesn’t compare well to booms of the past:

The forces of globalization during the past two decades have been stronger than at any time since the era of “the Great Deflation” which started in the aftermaths of the US Civil War and the Franco-Prussian War, and continued through the 1880s. During the earlier period, the US economy enjoyed record growth in prosperity. But, during the present era of globalization, the US and most advanced economies have grown fitfully and overall slowly. An obvious question is whether that divergence in outcomes is due to the very different monetary environments (The US and most of Europe were on gold in the first era with prices falling, while monetary experimentation under a global 2% inflation standard prevailed in the second).

In searching for the answer there are two channels to follow, both involving counterfactual analysis. The first is to study the early episode (the early 1870s to the end of the1880s) and determine whether it would have been less glorious if the monetary environment had been the same as in the present episode (the mid-1990s to now). The other channel is an investigation of the present episode so as to determine whether a sound money regime — as in the earlier episode — would have produced a much better outcome. In conducting the latter search, the analyst should be alert to hints of the world which might have been in the actual world and indeed there are positive findings here.

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