Great Depression Warning: You are not logged in. Your IP address will be publicly visible if you make any edits. If you log in or create an account, your edits will be attributed to your username, along with other benefits.Anti-spam check. Do not fill this in! === The gold standard and the spreading of global depression === The [[gold standard]] was the primary transmission mechanism of the Great Depression. Even countries that did not face bank failures and a monetary contraction first-hand were forced to join the deflationary policy since higher interest rates in countries that performed a deflationary policy led to a gold outflow in countries with lower interest rates. Under the gold standard's [[price–specie flow mechanism]], countries that lost gold but nevertheless wanted to maintain the gold standard had to permit their money supply to decrease and the domestic price level to decline ([[deflation]]).<ref>Peter Temin, Gianni Toniolo, ''The World Economy between the Wars'', Oxford University Press, 2008, {{ISBN|978-0-19-804201-3}}, p. 106</ref><ref>Randall E. Parker, ''Reflections on the Great Depression'', Elgar publishing, 2003, {{ISBN|978-1-84376-335-2}}, p. 22.</ref> There is also consensus that protectionist policies, and primarily the passage of the [[Smoot–Hawley Tariff Act]], helped to exacerbate, or even cause the Great Depression.<ref name="ReferenceB">{{Cite journal |last1=Whaples |first1=Robert |year=1995 |title=Where is There Consensus Among American Economic Historians? The Results of a Survey on Forty Propositions |journal=The Journal of Economic History |volume=55 |issue=1 |pages=139–154 |doi=10.1017/S0022050700040602 |jstor=2123771 |s2cid=145691938}}</ref> ==== Gold standard ==== [[File:Graph charting income per capita throughout the Great Depression.svg|thumb|upright=1.8|The Depression in international perspective<ref>International data from {{cite web |last=Maddison |first=Angus |author-link=Angus Maddison |title=Historical Statistics for the World Economy: 1–2003 AD |url=https://www.ggdc.net/Maddison/Historical_Statistics/}}{{dead link|date=May 2017|bot=InternetArchiveBot|fix-attempted=yes}}. Gold dates culled from historical sources, principally {{Cite book |last=Eichengreen |first=Barry |url=https://archive.org/details/goldenfettersgol00eich |title=Golden Fetters: The Gold Standard and the Great Depression, 1919–1939 |publisher=Oxford University Press |year=1992 |isbn=0-19-506431-3 |location=New York |author-link=Barry Eichengreen}}</ref>]] Some economic studies have indicated that just as the downturn was spread worldwide by the rigidities of the [[gold standard]], it was suspending gold convertibility (or devaluing the currency in gold terms) that did the most to make recovery possible.<ref>{{Cite book |last=Eichengreen |first=Barry |url=https://archive.org/details/goldenfettersgol00eich |title=Golden Fetters: The Gold Standard and the Great Depression, 1919–1939 |publisher=Oxford University Press |year=1992 |isbn=0-19-506431-3 |location=New York |author-link=Barry Eichengreen}}</ref> Every major currency left the gold standard during the Great Depression. The UK was the first to do so. Facing [[speculative attack]]s on the [[Pound sterling|pound]] and depleting [[Official gold reserves|gold reserves]], in September 1931 the [[Bank of England]] ceased exchanging pound notes for gold and the pound was floated on foreign exchange markets. Japan and the Scandinavian countries joined the United Kingdom in leaving the gold standard in 1931. Other countries, such as Italy and the United States, remained on the gold standard into 1932 or 1933, while a few countries in the so-called "gold bloc", led by France and including Poland, Belgium and Switzerland, stayed on the standard until 1935–36. According to later analysis, the earliness with which a country left the gold standard reliably predicted its economic recovery. For example, The UK and Scandinavia, which left the gold standard in 1931, recovered much earlier than France and Belgium, which remained on gold much longer. Countries such as China, which had a [[silver standard]], almost avoided the depression entirely. The connection between leaving the gold standard as a strong predictor of that country's severity of its depression and the length of time of its recovery has been shown to be consistent for dozens of countries, including [[Developing country|developing countries]]. This partly explains why the experience and length of the depression differed between regions and states around the world.<ref>{{Cite journal |last=Bernanke |first=Ben |date=March 2, 2004 |title=Remarks by Governor Ben S. Bernanke: Money, Gold and the Great Depression |url=https://www.federalreserve.gov/boarddocs/speeches/2004/200403022/default.htm |url-status=live |journal=At the H. Parker Willis Lecture in Economic Policy, Washington and Lee University, Lexington, Virginia |archive-url=https://web.archive.org/web/20220215053205/https://www.federalreserve.gov/boarddocs/speeches/2004/200403022/default.htm |archive-date=February 15, 2022 |access-date=February 18, 2022}}</ref> ==== German banking crisis of 1931 and British crisis ==== The financial crisis escalated out of control in mid-1931, starting with the collapse of the [[Creditanstalt|Credit Anstalt]] in Vienna in May.<ref>[[Charles Loch Mowat]], ''Britain between the wars, 1918–1940'' (1955) pp. 379–385.</ref><ref name="William Ashworth 1962 pp. 237-244">William Ashworth, ''A short history of the international economy since 1850'' (2nd ed. 1962) pp. 237–244.</ref> This put heavy pressure on Germany, which was already in political turmoil. With the rise in violence of Nazi and communist movements, as well as investor nervousness at harsh government financial policies,<ref name="Isabel Schnabel 1931">Isabel Schnabel, "The German twin crisis of 1931". ''Journal of Economic History'' 64#3 (2004): 822–871.</ref> investors withdrew their short-term money from Germany as confidence spiraled downward. The Reichsbank lost 150 million marks in the first week of June, 540 million in the second, and 150 million in two days, 19–20 June. Collapse was at hand. U.S. President Herbert Hoover called for a [[Hoover Moratorium|moratorium on Payment of war reparations]]. This angered Paris, which depended on a steady flow of German payments, but it slowed the crisis down, and the moratorium was agreed to in July 1931. An International conference in London later in July produced no agreements but on August 19 a standstill agreement froze Germany's foreign liabilities for six months. Germany received emergency funding from private banks in New York as well as the Bank of International Settlements and the Bank of England. The funding only slowed the process. Industrial failures began in Germany, a major bank closed in July and a two-day holiday for all German banks was declared. Business failures were more frequent in July, and spread to [[Kingdom of Romania|Romania]] and Hungary. The crisis continued to get worse in Germany, bringing political upheaval that finally led to the [[Adolf Hitler's rise to power|coming to power of Hitler's Nazi regime]] in January 1933.<ref name="V. Hodson, 1938 pp. 64-76">H. V. Hodson (1938), ''Slump and Recovery, 1929–1937'' (London), pp. 64–76.</ref> The world financial crisis now began to overwhelm Britain; investors around the world started withdrawing their gold from London at the rate of £2.5 million per day.<ref name="David Williams 1963">{{cite journal |last1=Williams |first1=David |year=1963 |title=London and the 1931 financial crisis |journal=Economic History Review |volume=15 |issue=3 |pages=513–528 |doi=10.2307/2592922 |jstor=2592922}}</ref> Credits of £25 million each from the Bank of France and the Federal Reserve Bank of New York and an issue of £15 million fiduciary note slowed, but did not reverse, the British crisis. The financial crisis now caused a major political crisis in Britain in August 1931. With deficits mounting, the bankers demanded a balanced budget; the divided cabinet of Prime Minister Ramsay MacDonald's Labour government agreed; it proposed to raise taxes, cut spending, and most controversially, to cut unemployment benefits 20%. The attack on welfare was unacceptable to the Labour movement. MacDonald wanted to resign, but King George V insisted he remain and form an all-party coalition "[[National Government (United Kingdom)|National Government]]". The Conservative and Liberals parties signed on, along with a small cadre of Labour, but the vast majority of Labour leaders denounced MacDonald as a traitor for leading the new government. Britain went off the [[gold standard]], and suffered relatively less than other major countries in the Great Depression. In the 1931 British election, the Labour Party was virtually destroyed, leaving MacDonald as prime minister for a largely Conservative coalition.<ref>Mowat (1955), ''Britain between the wars, 1918–1940'', pp. 386–412.</ref><ref name="John Oxborrow 1976 pp. 67-73">Sean Glynn and John Oxborrow (1976), ''Interwar Britain : a social and economic history'', pp. 67–73.</ref> Summary: Please note that all contributions to Christianpedia may be edited, altered, or removed by other contributors. If you do not want your writing to be edited mercilessly, then do not submit it here. You are also promising us that you wrote this yourself, or copied it from a public domain or similar free resource (see Christianpedia:Copyrights for details). Do not submit copyrighted work without permission! Cancel Editing help (opens in new window) Discuss this page