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Anticipating the Great Depression? Gustav Cassel's Analysis of the Interwar Gold Standard

  • Douglas A. Irwin

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 an 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 economists such as 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 explained 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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17597.

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Date of creation: Nov 2011
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Publication status: published as You have free access to this content Who Anticipated the Great Depression? Gustav Cassel versus Keynes and Hayek on the Interwar Gold Standard Journal of Money, Credit and Banking Volume 46, Issue 1, February 2014, Pages: 199–227, DOUGLAS A. IRWIN Article first published online : 20 JAN 2014, DOI: 10.1111/jmcb.12102
Handle: RePEc:nbr:nberwo:17597
Note: DAE IFM ME
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  1. Eichengreen, Barry, 1996. "Golden Fetters: The Gold Standard and the Great Depression, 1919-1939," OUP Catalogue, Oxford University Press, number 9780195101133, March.
  2. Choudhri, Ehsan U & Kochin, Levis A, 1980. "The Exchange Rate and the International Transmission of Business Cycle Disturbances: Some Evidence from the Great Depression," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 12(4), pages 565-74, November.
  3. Solomou, Solomos, 1992. "Modern Europe Golden Fetters: The Gold Standard and the Great Depression, 1919–1939. By Barry Eichengreen. New York: Oxford University Press, 1992. Pp. xix, 425. $39.95," The Journal of Economic History, Cambridge University Press, vol. 52(03), pages 709-710, September.
  4. Berg, Claes & Jonung, Lars, 1999. "Pioneering price level targeting: The Swedish experience 1931-1937," Journal of Monetary Economics, Elsevier, vol. 43(3), pages 525-551, June.
  5. Lawrence H. White, 2008. "Did Hayek and Robbins Deepen the Great Depression?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(4), pages 751-768, 06.
  6. repec:cup:cbooks:9780521641739 is not listed on IDEAS
  7. White, Lawrence H, 1999. "Hayek's Monetary Theory and Policy: A Critical Reconstruction," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(1), pages 109-20, February.
  8. Dimand, Robert W, 2003. " Irving Fisher on the International Transmission of Booms and Depressions through Monetary Standards," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(1), pages 49-59, February.
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