Popular in Economics

Economics

Gender and Economics

University of California Santa Barbara Shelly Lundberg

Banks and Policy Organisations

Greening the financial sector

European Investment Bank Matteo Ferrazzi

Economics

Gravity with Gravitas: A Solution to the Border Puzzle

Boston College James E. Anderson

Economic Inequalities

Visions of Inequality

City University of New York Branko Milanovic

Economics

School Finance Equalization Increases Intergenerational Mobility

Yale University Barbara Biasi

Economics

Olivier Blanchard on U.S. Pandemic-Era Inflation

Peterson Institute for International Economics Olivier Blanchard

Economics

Markets with Search Friction

London School of Economics Sir Christopher Pissarides

Golden Fetters

View more insights in Social Sciences - Economics - Economic History

View more figures from UC Berkeley

View the page of Barry Eichengreen

Read the Book

Barry Eichengreen discusses the link between the Great Depression of the 1930s and the the gold standard.

Image courtesy of interviewee. March 7, 2024

Generating Workspace

Export as PDF

This video discusses the historical analysis of the Great Depression and the economic theories surrounding its causes, primarily focusing on the role of the gold standard and international cooperation among central banks. Originally, the pre-war gold standard was deemed effective due to its credibility and cooperation among nations, which helped maintain stable exchange rates. However, World War I disrupted these systems, leading to changes in political power dynamics and the ability to cooperate internationally regarding financial stability.

The author reflects on their academic efforts to understand the impacts of the Great Depression beyond the United States, emphasizing that global financial crises can transmit problems across borders—an issue that resonated during the 2008 financial crisis as well.

This video further asserts that abandoning the gold standard allowed countries to regain control over their monetary policies, which enabled them to adapt to local economic needs. Historical evidence indicates that countries began to recover after leaving the gold standard, with subsequent adjustments in monetary policy leading to economic recovery.

Overall, the author draws lessons from the Great Depression that remain relevant today, emphasizing the importance of credible monetary regimes and international cooperation in addressing financial crises. The insights gathered from past crises informed better responses during the 2008-2009 financial turmoil, underscoring the ongoing relevance of these economic principles.

Language:

Export as PDF

Export as PDF
Here are five key points from the given video:

1. **Great Depression as a Macroeconomic Enigma**: The speaker reflects on the Great Depression of the 1930s, stating that its causes were widely debated during their graduate studies in the late 1970s. This fascination with understanding the Depression drives their research and writing, particularly the impacts of international financial crises.

2. **Global Nature of the Great Depression**: The video emphasizes that previous economic literature often focused primarily on the U.S. perspective, neglecting the global ramifications of the Great Depression. The speaker highlights that financial crises were transmitted across borders, affecting multiple countries.

3. **Collapse of the Pre-War Gold Standard**: The speaker argues that the gold standard, which functioned effectively prior to World War I due to credibility and international cooperation, faced collapse due to altered political and economic realities post-war. They note how rising priorities among the electorate shifted focus from maintaining the gold standard to addressing employment concerns.

4. **Lessons from Historical Financial Crises**: Drawing parallels between the Great Depression and the global financial crisis of 2008-2009, the speaker identifies the importance of timely responses to economic downturns and deflation. They argue that the lessons learned from the past, such as the need for stable monetary policies and international cooperation, resulted in more effective crisis management in the modern convideo.

5. **Regaining Policy Flexibility Post-Gold Standard**: The abandonment of the gold standard is portrayed as a crucial moment that allowed governments and central banks to regain flexibility in monetary policy. This flexibility enabled them to adapt to local economic needs, stabilize their economies, and ultimately recover from crises, as evidenced by the experiences of various countries during the Great Depression.

Export as PDF
Here are some key quotes from the video:

1. **On the Great Depression and its significance:**
- "Was it Ben Bernanke, who called the Great Depression of the 1930s, the Holy Grail of macroeconomics?"

2. **About the research impetus:**
- "The question of what caused the Great Depression was very much up in the air when I was in graduate school in the late 1970s."
- "The fact that the Great Depression was a global phenomenon... was not really part of the conversation."

3. **On the gold standard's effectiveness:**
- "The argument that I try to make in the book is that the pre-war gold standard worked because it was tailored to... a particular set of political and social circumstances."

4. **Key elements of the gold standard:**
- "The critical elements... were the two Cs: credibility and cooperation."
- "Credibility meant that maintaining the stable exchange rates of the gold standard was the highest priority for... central banks."

5. **Impact of World War I:**
- "Both of those pillars of the pre-war gold standard were toppled... by World War I."

6. **Shifts in political dynamics post-war:**
- "The limited franchise... was no longer a tenable situation... when you'd sent millions of men off to fight the war."

7. **On international cooperation:**
- "International cooperation was much more difficult... after four years of French warfare."

8. **Deflation as an international issue:**
- "When the US had deflation and a financial crisis, our deflation became your deflation."

9. **Lessons from the Great Depression:**
- "The response to the global financial crisis of 2008, 2009 was better because we did learn some lessons from the mistakes committed not heading off deflation."

10. **Keynes's perspective on the gold standard:**
- "John Maynard Keynes... said, this is a good thing. We have been freed of our gold fetters."

11. **Economic recovery following currency depreciation:**
- "About a year after countries abandoned the gold standard and allowed their currencies to depreciate, they begin to recover."

12. **Policy stability in financial crises:**
- "In an unstable situation, stabilizing monetary and fiscal policies are your friend."

13. **Importance of credibility in current convideos:**
- "The credibility of the monetary regime is important."

14. **International cooperation post-crisis:**
- "International cooperation is important as well... we saw that after the global financial crisis with... dollar swap lines."

These quotes encapsulate the main themes and arguments in the video, focusing on the historical convideo of the Great Depression, the gold standard, the importance of international cooperation, and lessons learned for modern economic policy.

Export as PDF
Here are some articles that may have similar themes or topics related to the Great Depression, macroeconomic policy, and the gold standard:

1. **"The Great Depression: A Diary" by Benjamin Roth** - This work provides personal insights and observations during the Great Depression, shedding light on the everyday experiences of individuals affected by economic turmoil.

2. **"Manias, Panics, and Crashes: A History of Financial Crises" by Charles P. Kindleberger** - This book discusses the history of financial crises and their connections to economic downturns like the Great Depression, touching on international financial systems and cooperation.

3. **"The Great Depression and the New Deal: A Very Short Introduction" by Eric Rauchway** - This compact introduction explores the causes and effects of the Great Depression and the economic policies implemented in response, including the changing role of government and fiscal policies.

4. **"When Markets Collide: Investment Strategies for the Age of Global Economic Change" by Mohamed El-Erian** - While not exclusively focused on the Great Depression, this book discusses global markets and crises, providing insights into how economic policies can affect domestic and international economies.

5. **"The General Theory of Employment, Interest, and Money" by John Maynard Keynes** - Keynes's seminal work discusses economic theory and policy, particularly the roles of government intervention and monetary policy in stabilizing economies during downturns.

6. **"The Economic Crisis of 2008 and the Great Depression" by Allen Meltzer** - This article or essay often compares the financial crisis of 2008 with the Great Depression, analyzing similarities in causes, responses, and outcomes in the convideo of macroeconomic policy.

7. **"Globalization and Its Discontents" by Joseph E. Stiglitz** - Stiglitz critiques how globalization and international financial policies can lead to crises, drawing parallels to historical events like the Great Depression.

8. **"Gold Standards and the Great Depression"** - Articles or research papers focusing on how the gold standard affected economies during the Great Depression and the implications of moving away from it.

These articles and books address various aspects of economic history, theory, and policies, particularly in relation to the Great Depression, the gold standard, monetary policy, and international cooperation.

X-TIMESTAMP-MAP:LOCAL=00:00:00.000,MPEGTS=900000

00:00.265 --> 00:04.305
Was it Ben Bernanke, who called the Great Depression

00:04.305 --> 00:07.545
of the 1930s, the Holy Grail of macroeconomics?

00:07.665 --> 00:09.305
I think it may have been.

00:10.045 --> 00:13.065
And it was, the question of

00:13.065 --> 00:15.905
what caused the Great Depression was very much up in the air

00:15.905 --> 00:19.585
when I was in, in graduate school in the late 1970s.

00:19.965 --> 00:22.305
Uh, that is what I worked on,

00:23.005 --> 00:26.265
not entirely successfully in my PhD dissertation,

00:26.565 --> 00:30.785
but, it in turn motivated me to, think again

00:31.405 --> 00:34.465
and work on golden fetters for much of the 1980s.

00:34.565 --> 00:37.985
The other motivation was that,

00:38.925 --> 00:41.105
the literature on the Great Depression was really

00:41.845 --> 00:44.745
disproportionately a literature on the United States

00:45.525 --> 00:48.625
and people doing American economic history,

00:48.845 --> 00:52.305
and American macroeconomics didn't pay much

00:52.305 --> 00:53.465
attention to the rest of the world.

00:53.965 --> 00:56.105
So the fact that the Great Depression was a global

00:56.505 --> 00:59.785
phenomenon, and that financial crises

00:59.965 --> 01:01.545
and depression were transmitted

01:02.245 --> 01:05.655
between countries across borders was not really part

01:05.655 --> 01:07.175
of the conversation.

01:07.405 --> 01:08.735
Charles Kindleberger

01:08.875 --> 01:11.975
and MIT professor had written a book,

01:11.975 --> 01:14.575
the World in Depression in the seventies, that kind

01:14.575 --> 01:15.855
of opened the door

01:16.075 --> 01:18.775
to thinking more broadly about the depression

01:19.275 --> 01:20.415
as a global phenomenon.

01:20.475 --> 01:22.855
But that is what motivated me

01:22.855 --> 01:24.255
and what I tried to do in the book.

01:24.755 --> 01:26.855
The argument that I try to make in the book is

01:26.855 --> 01:28.975
that the pre-war gold standard worked

01:29.645 --> 01:33.255
because it was tailored to, it was suitable

01:33.635 --> 01:35.175
to a particular time

01:35.175 --> 01:38.015
and place, a particular set of political

01:38.595 --> 01:42.295
and social circumstances, a particular

01:42.895 --> 01:47.215
intellectual UA that existed in the late 19th century,

01:47.515 --> 01:51.215
but that was effectively, toppled

01:51.835 --> 01:53.335
by World War I.

01:53.475 --> 01:57.895
So the critical elements, I think that, were central

01:57.995 --> 02:00.055
to the operation, of the gold standard

02:00.075 --> 02:04.175
before 1913, were the two Cs credibility

02:04.835 --> 02:08.775
and cooperation, where credibility meant that

02:09.775 --> 02:12.455
maintaining the stable exchange rates of the gold standard

02:13.035 --> 02:17.535
was the highest priority for, central banks

02:18.445 --> 02:22.335
politicians and accepted by the public as well,

02:22.645 --> 02:25.975
because, those who might have pointed

02:25.995 --> 02:28.095
to other priorities like organized labor

02:28.645 --> 02:32.255
were not widely organized in this earlier period.

02:32.875 --> 02:35.175
Uh, modern Keynesian theories of

02:35.175 --> 02:38.055
how monetary policy might affect not only the exchange rate,

02:38.475 --> 02:41.495
but the labor market and unemployment hadn't been ar

02:41.525 --> 02:43.695
articulated in that earlier time.

02:43.795 --> 02:48.015
So, so, central bankers commitment to,

02:48.455 --> 02:51.015
maintaining the stable exchange rates of the gold standard

02:51.115 --> 02:54.935
and open international financial markets was credible.

02:55.035 --> 02:58.815
It went unchallenged markets and people believed

02:58.815 --> 03:00.365
That it would be maintained, and,

03:00.425 --> 03:03.885
and that was kind of a self-fulfilling prophecy

03:05.115 --> 03:08.285
cooperation refers to international cooperation

03:08.335 --> 03:09.605
where central banks

03:09.605 --> 03:11.125
and governments, came

03:11.125 --> 03:14.525
to one another's aid periodically when, stability

03:14.585 --> 03:15.965
of domestic finances

03:16.065 --> 03:19.765
and a particular country's commitment to the gold standard,

03:20.345 --> 03:22.005
was challenged.

03:22.305 --> 03:24.645
So the Bank of France lent gold to the Bank

03:24.645 --> 03:26.005
of England in extremists.

03:26.225 --> 03:30.205
Uh, the State Bank of Russia lent gold to the Bank

03:30.205 --> 03:34.925
of France, similarly in, in, in, in difficult periods.

03:35.585 --> 03:38.805
So both of those pillars

03:38.805 --> 03:41.565
of the pre-work gold standard were toppled, as I said

03:41.565 --> 03:44.925
before, by World War I,

03:46.745 --> 03:48.885
the limited franchise, the fact

03:48.885 --> 03:51.085
that working people couldn't vote in

03:51.085 --> 03:52.565
many countries before the war.

03:52.835 --> 03:54.565
That was no longer a situa,

03:54.565 --> 03:57.845
that was no longer a tenable situation when you'd sent

03:58.815 --> 04:01.495
millions of men off to fight the war in the trenches

04:01.915 --> 04:03.295
for multiple years.

04:03.435 --> 04:05.015
So the franchise was broadened,

04:05.015 --> 04:07.335
and people who were more concerned about their employment

04:07.575 --> 04:11.775
prospects than, preoccupations

04:11.775 --> 04:14.655
of financiers could vote in governments

04:14.685 --> 04:17.775
with different priorities starting in the 1920s.

04:18.275 --> 04:20.935
And international cooperation was much more difficult,

04:20.935 --> 04:23.975
obviously, after four years of French warfare,

04:24.795 --> 04:28.495
the re German reparations tangle the French

04:28.675 --> 04:32.455
and Belgian occupation of the rural valley, all these

04:33.255 --> 04:37.655
problems that arose on the diplomatic front in the 1920s.

04:37.835 --> 04:39.735
So when push came to shove,

04:39.735 --> 04:44.295
when a massive financial crisis broke out in 1931,

04:44.555 --> 04:46.455
people didn't automatically believe

04:46.485 --> 04:49.575
that the gold standard would be a stabilizing mechanism

04:49.575 --> 04:51.615
rather than a destabilizing mechanism.

04:52.115 --> 04:55.615
And the cooperation that had helped to support it

04:55.675 --> 04:57.815
before 1913 was no longer there.

04:58.325 --> 05:02.585
When you have a set of exchange rates that are all fixed

05:02.585 --> 05:06.285
to gold, when they all trade under law

05:06.825 --> 05:11.285
at a fixed domestic currency price for an ounce of gold,

05:11.675 --> 05:14.365
they're a, they're fixed indirectly to one another.

05:14.825 --> 05:19.085
So this was a system of, of pegged exchange rates with

05:19.915 --> 05:22.165
open, international, product

05:22.265 --> 05:25.445
and capital markets, at least before 1931.

05:26.025 --> 05:29.165
So when the US had deflation

05:29.225 --> 05:33.835
and a financial crisis, our deflation became your deflation.

05:34.175 --> 05:36.915
And deflation in the US became deflation in the rest

05:36.915 --> 05:39.755
of the world because price, the, the price of

05:40.355 --> 05:43.715
a particular commodity, be it a, a, a bushel of wheat

05:43.715 --> 05:44.715
or a bale of cotton

05:44.735 --> 05:48.155
or whatever, was tied together on, on,

05:48.175 --> 05:49.235
on, on global markets.

05:49.855 --> 05:52.995
And secondly, destabilizing financial

05:53.795 --> 05:56.875
impulses were transmitted internationally.

05:57.155 --> 06:00.945
Banks held deposits in, in foreign banks.

06:01.445 --> 06:04.065
So when that foreign bank had a problem and failed

06:04.245 --> 06:08.315
or shut its doors, for,

06:08.415 --> 06:11.115
for a period that created problems for

06:12.505 --> 06:15.255
banks in other countries that were linked to them through

06:15.845 --> 06:17.415
international financial markets.

06:17.835 --> 06:20.735
So these, these are problems that we have become familiar

06:20.735 --> 06:24.415
with in our own age, that during the global financial crisis

06:24.515 --> 06:28.135
of 2008, 2009, financial problems

06:29.165 --> 06:32.185
in one country didn't stay in one country,

06:32.285 --> 06:34.665
but they were transmitted internationally.

06:34.925 --> 06:36.585
And after 2008,

06:36.655 --> 06:41.305
when everybody became worried about deflation, we recognized

06:41.305 --> 06:44.025
that if deflation was allowed to occur,

06:44.125 --> 06:46.945
it would become a global problem.

06:47.325 --> 06:50.185
So one argument I like to make,

06:50.185 --> 06:54.105
and I'm not alone in making it, is that the response

06:54.105 --> 06:57.625
to the global financial crisis of 2008, 2009 was better

06:58.055 --> 07:01.585
because we did learn some lessons from the mistakes

07:02.255 --> 07:06.185
committed not heading off deflation, not moving quickly

07:06.285 --> 07:07.585
to contain financial crises.

07:08.005 --> 07:12.425
In 19 29, 19 31, Britain had an,

07:13.595 --> 07:18.445
financial and political crisis in 1931 that,

07:18.865 --> 07:22.585
caused, other individuals, banks

07:22.605 --> 07:25.305
and governments to take gold, which they had

07:25.965 --> 07:27.305
in effect on deposit in London

07:27.365 --> 07:29.825
and repatriate it, bring it back home,

07:29.825 --> 07:33.105
because they worried about whether Britain's commitment

07:33.105 --> 07:36.585
to make it available would be, honored.

07:36.855 --> 07:39.865
Britain was forced to abandon the gold standard

07:39.925 --> 07:42.465
and allowed the pound sterling to depreciate,

07:42.835 --> 07:45.725
which many people had been taught to think of

07:46.225 --> 07:47.285
as a catastrophe.

07:47.785 --> 07:51.285
But John Maynard Keynes in a, in a newspaper article right

07:51.285 --> 07:54.165
after the event said, this is a good thing.

07:54.185 --> 07:57.005
We have been freed of our gold fers.

07:57.425 --> 07:58.885
So he called it gold fetters.

07:59.165 --> 08:00.285
I, tried

08:00.285 --> 08:02.485
to make it a little bit more social media friendly

08:02.625 --> 08:04.845
by calling it Golden Fetters.

08:04.865 --> 08:09.435
But the idea is that when Kanes said we, he meant the uk,

08:09.935 --> 08:12.555
but more broadly, I would say governments

08:12.555 --> 08:15.755
and central banks regained their room for maneuver,

08:15.885 --> 08:18.355
their ability to adjust monetary

08:18.935 --> 08:22.995
and to a lesser extent fiscal policies to meet the needs

08:23.055 --> 08:27.795
of the local economy and, stabilize the situation.

08:28.215 --> 08:33.105
And Gaines was right to recognize that.

08:33.685 --> 08:36.345
So it's evident in the, in, in the time series in

08:36.345 --> 08:37.865
that about a year

08:38.315 --> 08:40.785
after countries abandoned the gold standard

08:40.805 --> 08:44.025
and allowed their currencies to, to depreciate, they begin

08:44.025 --> 08:46.545
to recover because prices stop falling

08:47.515 --> 08:50.095
and they, in some cases begin rising

08:50.525 --> 08:52.615
because if you depreciate your currency,

08:52.685 --> 08:55.905
your exports become more competitive.

08:56.485 --> 09:00.025
And if domestic demand is scarce,

09:00.025 --> 09:02.785
having additional external demand, export demand

09:03.605 --> 09:04.865
is a good thing.

09:05.245 --> 09:09.465
And finally, monetary policy can be used a, a, a, as you

09:10.015 --> 09:14.665
suggested, Sam, to give an additional boost the economy,

09:14.845 --> 09:17.665
the equivalent of quantitative easing, if you will,

09:17.765 --> 09:19.305
in the modern context.

09:19.965 --> 09:22.545
So different countries devalued at, at,

09:22.565 --> 09:23.745
at different points in time.

09:24.295 --> 09:25.705
They needed about three

09:25.725 --> 09:29.025
or four quarters for their economies to respond,

09:29.585 --> 09:32.985
relative prices and production to adjust.

09:33.045 --> 09:34.745
And, and at that point,

09:34.745 --> 09:36.465
they bottomed out and began to recover.

09:36.845 --> 09:38.265
The other thing you see is

09:38.335 --> 09:40.825
that some countries never go off the gold standard

09:40.915 --> 09:43.985
until the bitter end, where the bitter end is typically the

09:43.985 --> 09:46.465
end of 1936 and they don't recover.

09:46.965 --> 09:49.625
So you see it in the cross section that,

09:49.625 --> 09:51.785
Britain recovers in 1931,

09:51.925 --> 09:55.505
the US recovers when it goes off the gold standard in 1933,

09:55.925 --> 09:57.905
France and Belgium

09:58.365 --> 10:00.985
and Switzerland don't recover until 1937,

10:01.355 --> 10:04.175
after they finally abandoned the gold

10:04.375 --> 10:06.035
standard at the bitter end.

10:06.655 --> 10:10.395
In, in an unstable situation, stabilizing monetary

10:10.395 --> 10:13.585
and fiscal policies are your friend, that

10:13.605 --> 10:15.225
that's a key lesson.

10:15.405 --> 10:18.305
And it was learned from this earlier experience.

10:18.605 --> 10:23.225
And, the lesson was powerfully deployed, as I said

10:23.225 --> 10:28.185
before in 2008, 2009,

10:28.495 --> 10:32.675
that the credibility of the monetary regime is important.

10:32.815 --> 10:34.875
So if you have a problem,

10:35.185 --> 10:37.835
hopefully financial capital flows toward your

10:37.835 --> 10:38.915
country rather than away.

10:39.615 --> 10:43.115
Uh, many countries now have credible inflation targeting

10:43.885 --> 10:47.295
regimes where they are credibly committed to

10:48.015 --> 10:50.855
bringing inflation back to 2% and holding it there.

10:51.275 --> 10:56.255
So they're not quite there yet, as you and I talk today.

10:56.315 --> 10:58.055
But I think that commitment is credible

10:58.155 --> 11:00.295
and everybody believes that sooner

11:00.295 --> 11:04.975
or later, except for a few unusual cases.

11:05.475 --> 11:08.295
Turkey Springs to mind, we could point to a few others.

11:08.825 --> 11:10.455
There is this credible commitment,

11:10.455 --> 11:11.815
which is a stabilizing force

11:12.395 --> 11:16.015
and that international cooperation is important as well.

11:16.075 --> 11:17.135
And, and we saw that

11:17.135 --> 11:20.295
after the global financial crisis with,

11:20.315 --> 11:21.455
dollar swap lines

11:21.455 --> 11:24.615
and credits that the Federal Reserve extended

11:25.315 --> 11:26.375
to foreign central banks.

00:00 - Was it Ben Bernanke, who called the Great Depression of the 1930s, the Holy Grail of macroeconomics? I think it may have been. And it was, the question of what caused the Great Depression was very much up in the air when I was in, in graduate school in the late 1970s.

00:19 - that is what I worked on, not entirely successfully in my PhD dissertation, but, it in turn motivated me to, think again and work on golden fetters for much of the 1980s. The other motivation was that, the literature on the Great Depression was really disproportionately a literature on the United States and people doing American economic history, and American macroeconomics didn't pay much attention to the rest of the world.

00:53 - So the fact that the Great Depression was a global phenomenon, and that financial crises and depression were transmitted between countries across borders was not really part of the conversation. Charles Kindleberger and MIT professor had written a book, the World in Depression in the seventies, that kind of opened the door to thinking more broadly about the depression

01:19 - as a global phenomenon. But that is what motivated me and what I tried to do in the book. The argument that I try to make in the book is that the pre-war gold standard worked because it was tailored to, it was suitable to a particular time and place, a particular set of political and social circumstances, a particular intellectual UA that existed in the late 19th century,

01:47 - but that was effectively, toppled by World War I. So the critical elements, I think that, were central to the operation, of the gold standard before 1913, were the two Cs credibility and cooperation, where credibility meant that maintaining the stable exchange rates of the gold standard was the highest priority for, central banks politicians and accepted by the public as well, because, those who might have pointed

02:25 - to other priorities like organized labor were not widely organized in this earlier period. modern Keynesian theories of how monetary policy might affect not only the exchange rate, but the labor market and unemployment hadn't been ar articulated in that earlier time. So, so, central bankers commitment to, maintaining the stable exchange rates of the gold standard and open international financial markets was credible. It went unchallenged markets and people believed

02:58 - That it would be maintained, and, and that was kind of a self-fulfilling prophecy cooperation refers to international cooperation where central banks and governments, came to one another's aid periodically when, stability of domestic finances and a particular country's commitment to the gold standard, was challenged. So the Bank of France lent gold to the Bank

03:24 - of England in extremists. the State Bank of Russia lent gold to the Bank of France, similarly in, in, in, in difficult periods. So both of those pillars of the pre-work gold standard were toppled, as I said before, by World War I, the limited franchise, the fact that working people couldn't vote in many countries before the war. That was no longer a situa,

03:54 - that was no longer a tenable situation when you'd sent millions of men off to fight the war in the trenches for multiple years. So the franchise was broadened, and people who were more concerned about their employment prospects than, preoccupations of financiers could vote in governments with different priorities starting in the 1920s. And international cooperation was much more difficult, obviously, after four years of French warfare,

04:24 - the re German reparations tangle the French and Belgian occupation of the rural valley, all these problems that arose on the diplomatic front in the 1920s. So when push came to shove, when a massive financial crisis broke out in 1931, people didn't automatically believe that the gold standard would be a stabilizing mechanism rather than a destabilizing mechanism. And the cooperation that had helped to support it before 1913 was no longer there.

04:58 - When you have a set of exchange rates that are all fixed to gold, when they all trade under law at a fixed domestic currency price for an ounce of gold, they're a, they're fixed indirectly to one another. So this was a system of, of pegged exchange rates with open, international, product and capital markets, at least before 1931. So when the US had deflation and a financial crisis, our deflation became your deflation. And deflation in the US became deflation in the rest

05:36 - of the world because price, the, the price of a particular commodity, be it a, a, a bushel of wheat or a bale of cotton or whatever, was tied together on, on, on, on global markets. And secondly, destabilizing financial impulses were transmitted internationally. Banks held deposits in, in foreign banks. So when that foreign bank had a problem and failed or shut its doors, for,

06:08 - for a period that created problems for banks in other countries that were linked to them through international financial markets. So these, these are problems that we have become familiar with in our own age, that during the global financial crisis of 2008, 2009, financial problems in one country didn't stay in one country, but they were transmitted internationally. And after 2008, when everybody became worried about deflation, we recognized

06:41 - that if deflation was allowed to occur, it would become a global problem. So one argument I like to make, and I'm not alone in making it, is that the response to the global financial crisis of 2008, 2009 was better because we did learn some lessons from the mistakes committed not heading off deflation, not moving quickly to contain financial crises. In 19 29, 19 31, Britain had an, financial and political crisis in 1931 that,

07:18 - caused, other individuals, banks and governments to take gold, which they had in effect on deposit in London and repatriate it, bring it back home, because they worried about whether Britain's commitment to make it available would be, honored. Britain was forced to abandon the gold standard and allowed the pound sterling to depreciate, which many people had been taught to think of as a catastrophe.

07:47 - But John Maynard Keynes in a, in a newspaper article right after the event said, this is a good thing. We have been freed of our gold fers. So he called it gold fetters. I, tried to make it a little bit more social media friendly by calling it Golden Fetters. But the idea is that when Kanes said we, he meant the uk, but more broadly, I would say governments and central banks regained their room for maneuver,

08:15 - their ability to adjust monetary and to a lesser extent fiscal policies to meet the needs of the local economy and, stabilize the situation. And Gaines was right to recognize that. So it's evident in the, in, in the time series in that about a year after countries abandoned the gold standard and allowed their currencies to, to depreciate, they begin to recover because prices stop falling and they, in some cases begin rising

08:50 - because if you depreciate your currency, your exports become more competitive. And if domestic demand is scarce, having additional external demand, export demand is a good thing. And finally, monetary policy can be used a, a, a, as you suggested, Sam, to give an additional boost the economy, the equivalent of quantitative easing, if you will, in the modern context. So different countries devalued at, at,

09:22 - at different points in time. They needed about three or four quarters for their economies to respond, relative prices and production to adjust. And, and at that point, they bottomed out and began to recover. The other thing you see is that some countries never go off the gold standard until the bitter end, where the bitter end is typically the end of 1936 and they don't recover.

09:46 - So you see it in the cross section that, Britain recovers in 1931, the US recovers when it goes off the gold standard in 1933, France and Belgium and Switzerland don't recover until 1937, after they finally abandoned the gold standard at the bitter end. In, in an unstable situation, stabilizing monetary and fiscal policies are your friend, that that's a key lesson.

10:15 - And it was learned from this earlier experience. And, the lesson was powerfully deployed, as I said before in 2008, 2009, that the credibility of the monetary regime is important. So if you have a problem, hopefully financial capital flows toward your country rather than away. many countries now have credible inflation targeting regimes where they are credibly committed to bringing inflation back to 2% and holding it there.

10:51 - So they're not quite there yet, as you and I talk today. But I think that commitment is credible and everybody believes that sooner or later, except for a few unusual cases. Turkey Springs to mind, we could point to a few others. There is this credible commitment, which is a stabilizing force and that international cooperation is important as well. And, and we saw that after the global financial crisis with,

11:20 - dollar swap lines and credits that the Federal Reserve extended to foreign central banks.

Faculti AI can make mistakes