During the great depression, countries still followed the gold standard, which doesn’t translate well when banks are allowed to conduct fractional reserve banking with a low reserve ratio.

Under the gold standard, if a bank run were to occur, the bank does not have enough reserves to meet the demand and will go under. This is because the money it is supposed to have, was loaned out, and if people had purchased on margin, there might not be a way to recover that loan in time.

The solution would’ve been for the central bank to step in and supply the banks money, by increasing the monetary base; since the bank runs results in lower reserves and lower lending, that means that the money multiplier would have been lowered and thus deflation would occur unless the central bank stepped in. Deflation isn’t a bad thing, but if it’s occurring because banks failed and people lost money, then deflation occurred not because of massive output production but because of consumption cradling.

So why didn’t the central bank supply the banks money? Well that’s easy. The central bank isn’t as independent as people say. It has to follow the laws related to the central bank. During the great depression, that would be the gold standard. It’s no surprise then why countries that got off the gold standard recovered faster. Central banks literally didn’t know what they were doing back then either because they thought the gold standard was a good thing.

The gold standard simply couldn’t be held while the fractional reserve lending system was in place. The only way it could be done is to issue dollars based on the given price but accept redemptions at the reserve ratio. Of course this too is equivalent to a devaluation, but at least it would be an honest statement of what the gold standard was.

So when people talk about gold being better, the advice really only holds true before the gold standard was abandoned. We might not live in that lie anymore, but it’s possible there are other lies we are living in right now.