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The Great Depression of 1929 devastated the U.S. economy. Half of all banks failed. Unemployment rose to 25 percent and homelessness increased. Housing prices plummeted 30 percent, global trade collapsed by 60 percent and prices fell 10 percent. It took 25 years for the stock market to recover.
A strictly monetary theory of the Great Depression is generally thought to have originated with Milton Friedman. Designed to counter the Keynesian notion that the Depression resulted from instabilities inherent in modern capitalist economies, Friedman's explanation identified the culprit as an ill-conceived monetary policy pursued by an inept Federal Reserve Board. More recent work on the Depression suggests that the causes of the Depression, rooted in the attempt to restore an international gold standard that had been suspended after World War I started, were more international in scope than Friedman believed. We document that current views about the causes of the Depression were anticipated in the 1920s by Ralph Hawtrey and Gustav Cassel who independently warned that restoring the gold standard risked causing a disastrous deflation unless the resulting increase in the international monetary demand for gold could be limited. Although their early warnings of potential disaster were validated, and their policy advice after the Depression started was consistently correct, their contributions were later ignored and forgotten. This paper explores the possible reasons for the remarkable disregard by later economists of the Hawtrey-Cassel monetary explanation of the Great Depression.
2010 •
This paper discusses the fiscal policy reactions and economic policies of European countries and the United States during the Great Depression. Economic as well as economic history literature has tended to overlook the fiscal policy aspects of the Great Depression, in particular in relation to European countries. This paper concentrates specifically on this aspect, providing a comprehensive discourse on the
Benjamin Strong, first governor of the Federal Reserve Bank of New York (1914–1928), dominated the Federal Reserve System during its formative years. Strong perceived the System as one means whereby the United States could assume a far more substantial international role. Fiercely pro-Ally in outlook during the First World War, Strong pushed successfully for monetary policies that effectively assisted the Allies to raise war finance in the United States. During the 1920s, in close collaboration with Montagu Norman, governor of the Bank of England, Strong played a major part in the restoration of European currency stability. Since the late 1920s, politicians, bankers, and economic historians have debated the extent to which the internationalist nature of Strong’s monetary policies and other flaws in his policy views contributed to the onset and intensification of the Great Depression in the United States and Europe. Close examination of Strong’s intellectual outlook suggests that its shortcomings, notably Strong’s near-unquestioning acceptance of economic orthodoxy and his respect for sterling, characterized the thinking not only of Strong but of most of his contemporaries and reflected the broader limitations of prevailing interwar internationalist thinking in the United States.
1998 •
In this paper we analyze the changing role of gold in the international monetary system, in particular the persistence of gold holdings by monetary authorities for 20 years following the breakdown of the Brettone Woods system system and the Second Amendment to the Articles of Agreement of the International Monetary Fund which severed the formal link to gold. We stress