Let me make a confession, I am not a gold-bug, but my original introduction to economics was by someone who stressed the virtues of 'honest money' and I wrote an op-ed as a youngster advocating a return to a true gold-standard. Now, I would simply argue that we should move toward a system of free banking. My "market prediction" as opposed to theoretical necessity would be that some form of commodity-backed currency would emerge in the competition as the most 'trusted' money. But it need not.
Still, as I read the various discussions about the Gold-Standard inspired by Ron Paul's political campaign, I am struck by the unwarranted attacks. I know the arguments that people like Barry Eichengreen have made about the gold-standard and GD, but it is my understanding that the historical record is a bit more complicated. Eichengreen is no doubt a first-rate economic historian, but the gold-standard that existed at the time he is talking about is not the historical gold-standard that advocates push for. Eichengreen does for the gold-standard, what Stiglitz does for 'shock therapy' in East and Central Europe, or what Rodrik does for the 'Washington consensus' in the developing world. Free market shock therapy didn't take place in the transition economies, it was a government administered and regulated 'market' economy that was instituted. And similarly the developing world did not follow a path of fiscal and monetary responsibility, free trade, and low taxes and minimal regulation. The transition has been slowest and the development the least in those countries that have failed to move toward a free market system. It is government policies of regulation, taxation and restrictions on trade that cause the problems. To give one example, when Argentina had its recent woes, the problems often got blamed on the currency board system it was operating under, but it wasn't the currency board that caused the problems, but the fiscal policies that eventually destroyed the currency board that caused the problems.
I really think the issue of understanding cause and consequence (and not confusing them) are critical in all these discussions.
I might be wrong on the Gold Standard and the Great Depression, but nothing I have read to date has convinced me on that. The Great Depression was a consequence of (a) credit expansion to pay off war debts from WWI during the 1920s, (b) monetary contraction during the 1930s, (c) government microeconomic policies which completely curtailed the ability of market forces to adjust to the changing circumstances, and (d) government policies which eliminated the ability of individuals to realize gains from trade. None of this is about the gold-standard.
The gold-standard is a serious check on government debasement of the currency. This should be viewed as a GOOD THING to have done in the realm of public policy. I am not saying it is the best way to do this, but that is its main strength as far as I am concerned. Like the lock system on my car raises the costs of the car thief, a gold-standard raises the cost to government thievery of our wealth. Unfortunately, it alone doesn't prevent government stealing anymore than door locks prevent car theft. But we would have more theft if we left our doors open and our keys in the ignition. Fiat currency is analogous to leaving the keys in the ignition with the door unlocked.
Does it make one a suspect economist to argue that government debasement of the currency is a problem? Not any more than arguing that socialism doesn't work or macroeconomic policies will be counter-productive. Perhaps you might be referred to as a 'market fundamentalist' in economics, but all that means is that you understand the basic principles of economics and BELIEVE them to be true based on logic and evidence. As the old joke used to go, at Harvard we read the same books in economics that you guys read at Chicago, we just don't believe them. Well, the market fundamentalist believes there are good reasons to believe them if you tell the complete story.
Of course, Austrians have some important nuanced points to make about dynamic adjustment, time, ignorance, uncertainty, and mutual dependence. And these are extremely important points to insist on in the scientific and policy discussion, but at the moment there are even more basic issues that are missed and thus the discussion is confused.
As Jim Buchanan always stressed to his students ... "it takes varied reiterations to force alien concepts upon reluctant minds." Those of us who understand and believe in 'basic economics' (the wonderful phrase that Bruce Caldwell uses to describe Hayek's economics in Hayek's Challenge) have our work cut out for us to educate our students, the public, and to a considerable extent our peers who fall prey to Romantic notions of politics and scientistic notions of economics. The alliance between statism and scientism is what Hayek had to fight against in his career, and the current manifestation of that alliance is what we must continue to fight against. In our contemporary context it has shown itself in the scoffing at the 'old fashion' ideas of Ron Paul and the contempt of anyone who would be silly enough to believe in the old-wisdoms of the classical economists.