The Great Depression
From 1929 to 1933, real output fell by about 30%.
From 1929 to 1933, unemployment rose from about 3% to about 25%.
From 1929 to 1933, the dollar deflated on average 10% per year.
From 1929 to 1933, the money supply fell by about 30%.
To put this in perspective we can look at another deflationary episode in American history.
From 1973 to 1975, real output fell by about 3.4%.
From 1973 to 1975, unemployment rose from around 4% to 9%.
In June in 1929 there were 25,300 banks in the U.S. Out of these thouands were mismanaged partly due to a lack of effective regluation. In the six years leading up to 1929, the crash and subsequent depression, on average two banks failed every day. For the six year period ending in 1932, they failed at three or more each day.
The loss of deposits, an estimated 25%, was nothing in comparison to the loss of confidence in the banks of 100%.
1922 1924 Hawley-Smoot
- ==The Gold Standard==
In our analysis of the Gold Standard in the U.S. and the World, we will be focusing on 1870's to the beginning of the First World War and from the end of the First World War up until 1936 when some of the last major countries went off.
Before the First World War, the gold standard was a successful means of stabilizing the currency. This is due to, on part, the Bank of England, which since 1694 had let the international system. The Bank of England did this by provided management and incuding cooperation. This made for a stable system because the Bank of England could easily adjust for imbalances in the system.
After the First World War was over the countries that managed to get back on to the gold standard found it very unstable. This was not the gold standard they remembered, the credibility was weakened by the destroyed economies, the financial problems such as large government debt, hyperinflation, and now there was no international leader like there had been for hundreds of years. Speculators attacked currencies like the British Pound by demanding gold for their pounds which lead the the bank collapsing in 1931.
Going back off the gold standard was not so bad. Once off the gold standard, central banks would be able to pursue expansionary policies and combat deflation. If the currency is not dirctly linked to the supply of gold, policy makers are free to increase the money supply. In hindsight we now see that those who got off the gold standard early such as Britain and Scandinavia, recovered sooner. Those who got off later such as France and Belgium, recovered later.
