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Role Of The International Gold Standard In Propagating The Great Depression

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  • JAMES D. HAMILTON

Abstract

I do not claim in this paper that the international gold standard was a principal cause of the Great Depression. Instead, I explore the events that allowed the world to slip deeper into depression despite the gold standard. The volatility of international short-term capital flows surely contributed greatly to the Depression. I argue that this volatility was exacerbated-rather than ameliorated-by the international gold standard. The reason is that despite governments' legal assurances that they are committed to a gold standard, speculators never perceive the terms of gold parity as immutable. This statement holds with increasing force when one observes the precarious status of government debts and international finance during the 1920s. This reality renders a gold standard vulnerable to precisely the type of volatility in international capital markets that made the 1931 downturn more severe. Copyright 1988 Western Economic Association International.

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  • James D. Hamilton, 1988. "Role Of The International Gold Standard In Propagating The Great Depression," Contemporary Economic Policy, Western Economic Association International, vol. 6(2), pages 67-89, April.
  • Handle: RePEc:bla:coecpo:v:6:y:1988:i:2:p:67-89
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    References listed on IDEAS

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    1. Eichengreen, Barry & Portes, Richard, 1986. "Debt and default in the 1930s : Causes and consequences," European Economic Review, Elsevier, vol. 30(3), pages 599-640, June.
    2. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-325, August.
    3. Flood, Robert P & Garber, Peter M, 1984. "Gold Monetization and Gold Discipline," Journal of Political Economy, University of Chicago Press, vol. 92(1), pages 90-107, February.
    4. Salant, Stephen W, 1983. "The Vulnerability of Price Stabilization Schemes to Speculative Attack," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 1-38, February.
    5. Michael D. Bordo & Anna J. Schwartz, 1984. "A Retrospective on the Classical Gold Standard, 1821-1931," NBER Books, National Bureau of Economic Research, Inc, number bord84-1, June.
    6. Salant, Stephen W & Henderson, Dale W, 1978. "Market Anticipations of Government Policies and the Price of Gold," Journal of Political Economy, University of Chicago Press, vol. 86(4), pages 627-648, August.
    7. Milton Friedman & Anna J. Schwartz, 1963. "A Monetary History of the United States, 1867–1960," NBER Books, National Bureau of Economic Research, Inc, number frie63-1, June.
    8. Hamilton, James D., 1987. "Monetary factors in the great depression," Journal of Monetary Economics, Elsevier, vol. 19(2), pages 145-169, March.
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    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Return to the gold standard
      by James Hamilton in Econbrowser on 2012-09-01 14:31:48
    2. Gold conspiracies
      by JP Koning in Moneyness on 2012-09-20 19:02:00
    3. Why a gold standard is a very bad idea
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2016-12-19 19:51:14

    Citations

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    Cited by:

    1. J. Peter Ferderer, 1999. "Credibility of the Interwar Gold Standard, Uncertainty, and the Great Depression," Macroeconomics 9907002, EconWPA.
    2. Bernanke, Ben S, 1995. "The Macroeconomics of the Great Depression: A Comparative Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(1), pages 1-28, February.
    3. Sebastiano Nerozzi, 2011. "From the Great Depression to Bretton Woods: Jacob Viner and international monetary stabilization (1930-1945)," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 18(1), pages 55-84.
    4. Eichengreen, Barry, 1990. "Relaxing the External Constraint: Europe in the 1930s," CEPR Discussion Papers 452, C.E.P.R. Discussion Papers.
    5. Maurice Obstfeld & Alan M. Taylor, 2017. "International Monetary Relations: Taking Finance Seriously," Journal of Economic Perspectives, American Economic Association, vol. 31(3), pages 3-28, Summer.
    6. Maurice Obstfeld & Alan M. Taylor, 1998. "The Great Depression as a Watershed: International Capital Mobility over the Long Run," NBER Chapters,in: The Defining Moment: The Great Depression and the American Economy in the Twentieth Century, pages 353-402 National Bureau of Economic Research, Inc.
    7. Ben Bemanke & Harold James, 1991. "The Gold Standard, Deflation, and Financial Crisis in the Great Depression: An International Comparison," NBER Chapters,in: Financial Markets and Financial Crises, pages 33-68 National Bureau of Economic Research, Inc.
    8. Mathy, Gabriel P. & Meissner, Christopher M., 2011. "Business cycle co-movement: Evidence from the Great Depression," Journal of Monetary Economics, Elsevier, vol. 58(4), pages 362-372.
    9. Barry Eichengreen & Marc Flandreau, 2008. "The Rise and Fall of the Dollar, or When Did the Dollar Replace Sterling as the Leading International Currency?," NBER Working Papers 14154, National Bureau of Economic Research, Inc.
    10. Eichengreen, Barry & Flandreau, Marc, 2009. "The rise and fall of the dollar (or when did the dollar replace sterling as the leading reserve currency?)," European Review of Economic History, Cambridge University Press, vol. 13(03), pages 377-411, December.
    11. James D. Hamilton, 2005. "What's real about the business cycle?," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 435-452.
    12. Richardson Gary & Van Horn Patrick, 2011. "Fetters of Debt, Deposit, or Gold during the Great Depression? The International Propagation of the Banking Crisis of 1931," Jahrbuch für Wirtschaftsgeschichte / Economic History Yearbook, De Gruyter, vol. 52(2), pages 29-54, December.
    13. Selgin, George & Lastrapes, William D. & White, Lawrence H., 2012. "Has the Fed been a failure?," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 569-596.
    14. Carmen M. Reinhart & Vincent R. Reinhart, 2009. "When the North Last Headed South: Revisiting the 1930s," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 40(2 (Fall)), pages 251-276.
    15. Rodriguez, Gabriel & Rowe, Nicholas, 2007. "Why U.S. money does not cause U.S. output, but does cause Hong Kong output," Journal of International Money and Finance, Elsevier, vol. 26(7), pages 1174-1186, November.

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