Golden Fetters: The Gold Standard And The Great Depression, 1919-1939 Golden Fetters Nber Series On Long-term Factors In Economic Development

## Abstract The gold standard and the Great Depression might appear to be two very different topics requiring two entirely separate books, and the attempt to combine them here reflects Barry Eichengreen's conviction that the gold standard is the key to understanding the Depression. The gold standard of the 1920s set the stage for the Depression of the 1930s by heightening the fragility of the international financial system, and was the mechanism that transmitted the destabilizing impulse from the USA to the rest of the world and magnified that initial destabilizing shock; it was the principal obstacle to offsetting action, and the binding constraint preventing policymakers from averting the failure of banks and containing the spread of financial panic. For all these reasons, the international gold standard was a central factor in the worldwide Depression; recovery proved possible, for these same reasons, only after abandoning the gold standard. The gold standard also existed in the nineteenth century, of course, without exercising such debilitating effects – the explanation for the contrast lies in the disintegration during and after World War I of the political and economic foundations of the prewar gold standard system. The dual bases for the prewar system were the credibility of the official commitment to gold and international cooperation: the credibility induced financial capital to flow in stabilizing directions, buttressing economic stability; the cooperation signaled that support for the gold standard in times of crisis transcended the resources any one country could bring to bear. Both were eroded by the economic and political consequences of the Great War, and the decline in credibility rendered cooperation all the more vital – when it was not forthcoming, economic crisis was inevitable. The decline in both credibility and cooperation during and after World War I reflected a complex confluence of domestic and international political changes, and economic and intellectual changes. This book attempts to fit all these elements together into a coherent portrait of economic policy and performance between the wars. The goal is to show how the policies pursued, in conjunction with economic imbalances created by World War I, gave rise to the catastrophe that was the Great Depression. The argument is that the gold standard fundamentally constrained economic policies, and that it was largely responsible for creating the unstable economic environment on which the policies acted.

This book offers a reassessment of the international monetary problems that led to the global economic crisis of the 1930s. It explores the connections between the gold standard—the framework regulating international monetary affairs until 1931—and the Great Depression that broke out in 1929. Eichengreen shows how economic policies, in conjunction with the imbalances created by World War I, gave rise to the global crisis of the 1930s. He demonstrates that the gold standard fundamentally constrained the economic policies that were pursued and that it was largely responsible for creating the unstable economic environment on which those policies acted. The book also provides a valuable perspective on the economic policies of the post-World War II period and their consequences.

This comprehensive account of the management of the international monetary system from the 1944 Bretton Woods conference to the present day documents the structure and movements of the world economy during a period of dramatic change. Commissioned by the International Monetary Fund to mark its fiftieth anniversary, the work is nevertheless a fully independent one: written by an outside historian with full access to IMF archives and staff, and reviewed by an independent editorial committee. An objective study of issues and events that are often controversial, the book skillfully interweaves the history of the IMF with that of world economic developments after the Second World War. Eichengreen Argues That The Gold Standard Of The 1920s Set The Stage For The Depression Of The 1930s By Heightening The Fragility Of The International Financial System, And Was The Mechanism That Transmitted The Destabilizing Impulse From The Usa To The Rest Of The World. Barry Eichengreen. Includes Bibliographical References And Index. This is a reassessment of the international monetary crisis of the post-World War I period that led to the Great Depression of the 1930s. It analyzes the responses of the world economic powers to the Depression and describes how the Depression created the collapse of the world monetary system "Finance is the nervous system of capitalism," observed Ramsay MacDonald, intermittently Britain's prime minister between 1924 and 1935.