You're wrong because there's plenty of other Western nations without the gold standard and higher state expenditures, yet they have low incarceration rates. The point is that there's no clear connection between your economic theory and jail sentencing. (Of course economic policies affect sentencing a lot).
Do you agree that if your policy is more jail-oriented, than free money will only accelerate it?
Also, do you agree that no matter how evil your government is, without money (taxes and/or inflation) their evilness does not mean anything - they won't be able to execute on it.
Therefore, monetary policy accelerates whatever your government is up to. If it already had a lot of military power, expect that to grow with cheap money being added.
The prison industrial complex is the formulation of dozens of compounding effects.
* The civil rights movement.
* Concentrated federal power since the first signing of the constutition to protect rich property interests (as the selfish goal, the other one was to be strong enough to resist European insurrection).
* Culture of fear, and a distrust of the "different".
* A corrections system that isn't correctional, but retributional.
So here are some reasons imprisonment rates are lower in other western nations:
* Monocultures and single race societies (for the most part) mean more cultural congruency and less conflict. Hemp was outlawed because of Mexicians, and Crack was outlawed because of Blacks, and it let them throw vast swathes of them in jail.
* The Finnish / Sweedish / etc corrections systems are correctional and rehabilitate inmates. US inmates get raped and get more access to drugs behind bars than outside them. They get into the prison culture and cycle.
* More foreign corrections systems do not engage with for profit private prisons that make money by having higher incarceration rates.
* Most foreign nations don't have a war on drugs (which is caused by the cultural animosity towards the "different").
* Other nations don't have as much blind nationalistic pride as many Americans do. I'm American - I constantly question and doubt my government. But many people in this country don't, especially those who were around to "win" the cold war.
Ignoring the incarceration rate for a moment and considering a simpler issue such as capital punishment. Whether or not to kill someone in retribution for a crime is a moral decision not an economic one. No country I would call civilised currently practices capital punishment. There are some Islamic countries, China, developing world shitholes and the USA.
You can extend that same moral sensibility to many other areas of public policy and perhaps it will have some impact on crime and incarceration rates. Blaming it on economics or racial homogeneity is a huge copout. It is foremost a moral decision.
