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Who Anticipated the Great Depression? Gustav Cassel versus Keynes and Hayek on the Interwar Gold Standard

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  • DOUGLAS A. IRWIN

Abstract

The intellectual response to the Great Depression is often portrayed as a battle between the ideas of Friedrich Hayek and John Maynard Keynes. Yet both the Austrian and the Keynesian interpretations of the Depression were incomplete. Austrians could explain how a country might get into a depression (bust following a credit‐fueled investment boom) but not how to get out of one (liquidation). Keynesians could explain how a country might get out of a depression (government spending on public works) but not how it got into one (animal spirits). By contrast, the monetary approach of Gustav Cassel has been ignored. As early as 1920, Cassel warned that mismanagement of the gold standard could lead to a severe depression. Cassel not only explained how this could occur, but his explanation anticipates the way that scholars today describe how the Great Depression actually occurred. Unlike Keynes or Hayek, Cassel analyzed both how a country could get into a depression (deflation due to tight monetary policies) and how it could get out of one (monetary expansion).

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  • Douglas A. Irwin, 2014. "Who Anticipated the Great Depression? Gustav Cassel versus Keynes and Hayek on the Interwar Gold Standard," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(1), pages 199-227, February.
    • Handle: RePEc:wly:jmoncb:v:46:y:2014:i:1:p:199-227
    DOI: 10.1111/jmcb.12102
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    4. Carlson, Benny, 2022. "Cassel, Ohlin, Åkerman and the Wall Street Crash of 1929," OSF Preprints 78ahc, Center for Open Science.
    5. Berbenni, Enrico, 2021. "External devaluation and trade balance in 1930s Italy," Structural Change and Economic Dynamics, Elsevier, vol. 57(C), pages 93-107.
    6. Patrick Newman, 2016. "Expansionary Monetary Policy at the Federal Reserve in the 1920s," Advances in Austrian Economics, in: Studies in Austrian Macroeconomics, volume 20, pages 105-134, Emerald Group Publishing Limited.
    7. Leonidas Zelmanovitz & Carlos Newland & Juan Carlos Rosiello, 2022. "The great depression as a global currency crisis: An Argentine perspective," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 35(1), pages 99-114, March.
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    9. James Caton, 2020. "The evolution of Hayek's thought on gold and monetary standards," Southern Economic Journal, John Wiley & Sons, vol. 87(1), pages 386-405, July.
    10. Karau, Sören, 2020. "Buried in the vaults of central banks: Monetary gold hoarding and the slide into the Great Depression," Discussion Papers 63/2020, Deutsche Bundesbank.

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