Preview

The Gold Standard critique

Powerful Essays
Open Document
Open Document
4450 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
The Gold Standard critique
AMERICAN UNIVERSITY OF BEIRUT
The Gold Standard, Deflation, and Financial Crisis in the Great Depression: An International Comparison
Second DRAFT

Melkon Eleijian

OUTLINE:
I. Introduction
II. The Gold Standard and Deflation
III. The Link Between Deflation and Depression
IV. Interwar Banking and Financial Crisis
V. Lebanese Situation Regarding Gold Standard
VI. Conclusion
VII. Reference

The Gold Standard, Deflation, and Financial Crisis in the Great Depression: An International Comparison

Introduction:
The latest investigations examining the causes behind the Great Depression stress the vital part played by the international gold standard which lead to extremely harmful results. The recovery of countries that did not adopt the gold standard or got rid of it and from the contractionary monetary policies was quicker than those that continued on gold (Eichengreen and Sachs, 1985). Moreover, Hamilton (1987, 1988) added in his research that the ongoing contractionary monetary policies at that time in countries such as the United States of America and France introduced heavily the Great Slide and, on the other side, the reliance on gold standard worsened the situation adding more deflationary pressure.
The deflation was lengthy and intense between 1920 and 1930, making us able to identify the reason behind this crisis as monetary. In this paper, we will try to explain the link between depression and deflation during that period, and the margin by which deflation affected and created depression. Hereafter, this paper will also stress the negative impact of deflation that caused depression during the 1930s. Deflation was the core of banking panics during the early 1930s that affected the economic performance of the banks. However, panics can occur in weak banking systems. A second major player was the debt inflation. Hence, when the real value of nominal debts experiences an increase and the borrowers are promoted insolvency, it will be difficult to land new



References:

You May Also Find These Documents Helpful

  • Good Essays

    The Great Depression Dbq

    • 451 Words
    • 2 Pages

    On top of the issues involving the stock market, the banking systems weren't hot either. Banks during the time of the Depression tended to have a weak structure which ultimately led to a domino type affect. As said in Document L, when one bank would collapse, it would weaken all the other banks around it which was no help during such hard times. The weak structure within the banking systems played a serious part in putting the United States in a Depression.…

    • 451 Words
    • 2 Pages
    Good Essays
  • Good Essays

    When referring to 1930, the term “period of depression” is often used. The downward tendency, that earlier resulted in the Stock Market Crash began with the surplus of agricultural products, which led to deflation and therefore reduction of the farming population’s income. With the agricultural industry down, other manufactories gained in strength, until the fear of the market becoming saturated came. “On October 24 1929, 13 million shares were sold on Wall Street” , following the loss of about forty billion dollars owned by the American investors…

    • 254 Words
    • 2 Pages
    Good Essays
  • Good Essays

    The Great Crash of 1929 brought American to the great depression that was the longest, deepest and the greatest widespread economic depression of the 20th century. Before “Black Tuesday” America’s economic and production was at an all-time high. The prices of the stock exchange continued to increase upward, which created a sense of security related to the profits. There were a few warning signs of disaster, nevertheless, it was not bold enough to overcome the “chatter of the ticker-tape machine”. On October 29, 1929 the stock market had a catastrophic crash, which sent the American economy to swirl downwards. One of the causes of the crash was triggered the British. The British raised interest rates in an effort to bring back investment that was lured away from American…

    • 393 Words
    • 2 Pages
    Good Essays
  • Good Essays

    It was not just one specific factor that caused the Great Depression, there were many factors causing the economy to collapse. It is yet still unknown the main cause of the great depression, it is a question that will remain standing. Although most think the main cause was the 1929 crash of the stock market, still none agreed upon that. The 1929 crash of the stock market was not “the” cause of the great depression; however it was “one” of the causes. The unequal distribution of wealth, the rising unemployment rate and the panic of the American people had enormous effects on the economy. Nonetheless, the 1929 crash of the stock market played an extremely significant role as well.…

    • 477 Words
    • 2 Pages
    Good Essays
  • Better Essays

    Most everyone has at least heard of the Great Depression that hit America by storm in the early twentieth century. Even though people are taught about the Great Depression, I personally think that a lot of people do not understand the severity that it caused and the livelihoods that it forever changed. The Great Depression, which lasted over a period of ten years, resulted in a lot of heartache for many nations worldwide (Fraser, 2010). As for the United States, the worst of the Great Depression harbored between 1929 through 1933 (Fraser, 2010). The Great Depression went down into history as being the worst traumatic economic moment for the United States (Paul Evans). It is still recognized for being the longest and severe depression that has ever been experienced by the Western hemisphere (Romer). The Great Depression originated in the United States causing drastic declines in output, severe unemployment, and heightened deflation in almost every country of the world (Romer). To this day economist and historians are still trying to analyze what really happened in the quake of the Great Depression, along with understanding the true underlying causes that created this grave crisis (Fraser, 2010). Even though the Great Depression will be forever stamped in history books as the economic meltdown of the twentieth century, we as Americans can learn to oversee and conquer what lies before us by understanding what put us in that dark place to begin with. The following depicts and analyzes the four main causes that economist believe lead to the demise of the Great Depression which are, the Stock market crash, banking panics and monetary contradiction, the gold standard, and international lending and trade (Bernstein).…

    • 1709 Words
    • 7 Pages
    Better Essays
  • Good Essays

    The depression, which was signalled by a financial panic in 1893, has been blamed on the deflation dating back to the Civil War, the gold standard and monetary policy, under consumption (the economy was producing goods and services at a higher rate than society was consuming and the resulting inventory accumulation led firms to reduce employment and cut back production), a general economic unsoundness (a reference less to tangible economic difficulties and more to a feeling that the economy was not running properly), and government extravagance .…

    • 917 Words
    • 4 Pages
    Good Essays
  • Good Essays

    The United States of America has gone through many different economic ups and downs, two of the most horrific downturns would be the current recession and The Great Depression though out 1929 to 1939. The cause of these two economic events cannot be blamed on one single person or a group, but on the United States as a whole who neglected to perform their economic duties. While these two deflationary periods in our economy have several differences, they have many similarities as well, such the difficulty in receiving money from bank banks but they differ in that the Great Depression was much more difficult to go through.…

    • 367 Words
    • 2 Pages
    Good Essays
  • Good Essays

    Bank failure was a cause, because at that time a lot of banks failed and causing people to lose all their saved money and make a huge depression. The 1930 was not that good for farmers and others, making the bank drop to three percent and making the year worse. The stock market crash of October 1929 left the American public highly nervous and extremely susceptible to rumors of impending financial disaster. Consumer spending and investment began to decrease,…

    • 1182 Words
    • 5 Pages
    Good Essays
  • Better Essays

    Dbq Great Depression

    • 894 Words
    • 4 Pages

    America had experienced difficult circumstances before: a bank frenzy and discouragement in the mid 1820s, and other financial tough circumstances in the late 1830s, the mid-1870s, and the early and mid-1890s. In any case, never did it endure a monetary disease so profound thus long as the Great Depression of the 1930s. Market analysts have contended as far back as to exactly what brought about it. In any case, it's sheltered to state that a cluster of entwined components contributed. Among them were:…

    • 894 Words
    • 4 Pages
    Better Essays
  • Powerful Essays

    Great Depression Dbq

    • 1939 Words
    • 8 Pages

    The Great Depression in the United States brought an end to a long era of economic expansion and social progress which had been in full bloom since the 1890s (Mitchell 1947). There had been monetary recessions in 1907, 1913 and 1921, but these reversals were never severe enough or long enough to shake the deeply rooted confidence in the American economic system or to generate any widespread national discontent. Many history books tell of the depression of the '30s; they often begin with the stock market crash of October 1929 (Estey 1950). Among economists, a tendency to decry the importance of the crash as a cause of the depression: "The crash was part of the froth, rather than the substance of the situation" (Shannon 1960). The fundamental…

    • 1939 Words
    • 8 Pages
    Powerful Essays
  • Good Essays

    Approaching the end of the 1920's, the United States' economy was thriving with what was considered the largest economy in the world. Furthermore, due to America's then- current economic status no one was prepared for what the following years would entail. It was as if suddenly, everything America had worked so hard to achieve had just fallen apart. The 1929 stock market crash had touched off the downward spiral that led the United States into what would become the longest, most widespread depression of the 20th century. Contrary to popular belief, the stock market crash of 1929 was not single handedly responsible for the Great Depression. Although it did in fact play a large role, there were many underlying causes that factored into what became The Great Depression.…

    • 798 Words
    • 3 Pages
    Good Essays
  • Good Essays

    The rules of a gold standard are simple: first, a country’s government declares its’ issued currency, (may be coin or paper currency) will exchange for a weight in gold. Second, in a pure gold standard, a country’s government declares that it will freely exchange currency for actual gold at designated exchange rate. This “rule of exchange” means that anyone can go to the central bank with coin or currency and walk out with pure gold. Equally, one could also walk in with pure gold and walk out with the equivalent in coin or currency. The gold standard did not give any country special status in the world and its big advantage is that it acts as an automatic restraint on increasing money supplies too quickly, preventing inflationary monetary policies from irresponsible governments.…

    • 901 Words
    • 4 Pages
    Good Essays
  • Best Essays

    Bretton Woods System

    • 2712 Words
    • 11 Pages

    In July, 1944, 730 delegates from the 44 Allied nations got together and hold an international conference (Bretton Woods conference) for three weeks in Bretton Woods, New Hampshire. During this conference, Bretton Woods Agreement was signed and passed (Investopedia, 2005, para.1). The Bretton Woods Agreement is an agreement which regards U.S. dollar as a central part of international monetary system after the Second World War. It then established a capitalist world’s monetary system called Bretton Woods system. This system was a Gold Exchange Standard. It relied on U.S. dollar and gold, then treated U.S. dollar and gold as solid foundation (Investopedia, 2005, para.2).The core content of Bretton Woods Agreement is liberalization of foreign exchange, capital account liberalization and trade liberalization. Its original purpose is to rebuild the world after the World War II though a series of currency stabilization programs and infrastructure loans to war-ravaged nations (Investopedia, 2005, para.3). Bretton Woods Agreement's major outcomes comprise the International Monetary Fund and the International Bank for Reconstruction & Development’s formation, moreover, it suggested introducing an adjustable pegged foreign exchange rate system (Wiggin, 2006, para.3).The establishment of the Bretton Woods system promotes the capitalist world's economic recovery and development after the World War II. This essay will discuss the most significant features of the Bretton Woods Agreement, in addition, it will illustrate why Bretton Woods system broke down and what has replaced it.…

    • 2712 Words
    • 11 Pages
    Best Essays
  • Powerful Essays

    1. The gold standard and the money supply. Under the gold standard all national governments promised to follow the “rules of the game”. This meant defending a fixed exchange rate. What did this promise imply about a country’s money supply? A country’s money supply was limited to the amount of gold held by its central bank or treasury. For example, if a country had 1,000,000 ounces of gold and its fixed rate of exchange was 100 local currency units per ounce of gold, that country could have 100,000,000 local currency units outstanding. Any change in its holdings of gold needed to be matched by a change in the number of local currency units outstanding. 2. Causes of devaluation. If a country follows a fixed exchange rate regime, what macroeconomic variables could cause the fixed exchange rate to be devalued? The following macroeconomic variables could cause the fixed exchange rate to be devalued:…

    • 2218 Words
    • 9 Pages
    Powerful Essays
  • Powerful Essays

    After World War I most countries wanted to return to the old financial security system and stable situation of pre-war times as soon as possible. Discussions about a return to the gold standard began and by 1926 all leading economies had re-established the system, according to which every nation’s circulating money had to be backed by reserves of gold and foreign currencies to a certain extent. But there were…

    • 5199 Words
    • 21 Pages
    Powerful Essays