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The active debate surrounds the relative roles that the consumption/investment crisis and monetary supply crisis played in causing and persisting the Great Depr

The active debate surrounds the relative roles that the consumption/investment crisis and monetary supply crisis played in causing and persisting the Great Depression, i.e. which one played the greater role. One group would say that the gold standard was a primary cause, the other would say that it only worsened a situation that was already going to end very badly. Meanwhile, the actual ideologists are the persistent minor branch of heterodox economists with an ideological incentive to resist any explanation that suggests that the cause was the gold standard or that the fix was government spending (and thus oppose both the consumption crisis and monetary supply crisis explanations), because they hold various libertarian-ish sorts of political views and would like to believe that high government spending and government control of the money supply are both uniformly bad. I get the impression from how your comment is worded that perhaps you endorse the heterodox position on this topic. The intro to this wiki article has a decent summary of the various positions. https://en.wikipedia.org/wiki/Causes_of_the_Great_Depression https://en.wikipedia.org/wiki/Causes_of_the_Great_Depression

kkjjkgjjgg 5y ago
Interesting read, thanks, but so far I don't get the impression that the gold standard features as prominently in the explanations as you claim? I don't know enough about the Great Depression to have a good opinion, but the discussion seems to rage on in present times, and there certainly are points of views that I consider unlikely to be correct. As an example, I don't think Krugman's babysitting circle is sufficient proof to bet the fate of nations on printing money. Economics is also not my specialisation, I only find it interesting. Science is also not a democracy - scientific truth is not decided by democratic vote, and there are many examples throughout history when the mainstream consensus was wrong. Therefore I admit I find statements like "only ideologists still peddle other theories" a bit odd. Not saying ideology does not affect things, I said so myself. It may be more likely that a theory is affected by ideology than not.
- dodobirdlord 5y ago
  > Interesting read, thanks, but so far I don't get the impression that the gold standard features as prominently in the explanations as you claim? To preface this, I think a combination of the two mainstream proposals (Keynesian, Monetarist) provide the best explanation, rather than an either/or approach. * https://en.wikipedia.org/wiki/Causes_of_the_Great_Depression#Keynesian https://en.wikipedia.org/wiki/Causes_of_the_Great_Depression... * https://en.wikipedia.org/wiki/Causes_of_the_Great_Depression#Monetarist https://en.wikipedia.org/wiki/Causes_of_the_Great_Depression... The Keynesian and Monetarist explanations are slightly different, but both point fingers at insufficient money supply. But why was the money supply insufficient? Well, because of the gold standard. The federal government would trade dollars for gold at a fixed conversion rate, so the supply of dollars was fixed against the supply of gold that the treasury was holding. As demand for dollars grew faster than the treasury could expand its gold reserves, deflation happened. As banks started to fail the need to keep the money supply proportional to the gold reserves prevented the Federal Reserve from creating money to extend loans to failing banks, touching off waves of failures and economic crisis. And then with the economy stagnated due to demand shocks, business failures, and unemployment, the need to keep the money supply proportional to the gold reserves prevented the Federal Reserve from creating money to loan to the federal government to boost spending. Instead the federal government raised taxes to strengthen government finances, taking even more money out of the economy at a critical time, because it could not originate money without buying gold from somewhere, and nobody was selling, including other countries that themselves needed gold for their gold-backed currencies. (The money shortage was at this point basically global.) It wasn't until FDR suspended redemption of dollars for gold and forced everyone with gold to turn it over to the treasury in exchange for dollars that the money supply could be meaningfully expanded (and then only in proportion to the amount of surrendered gold). Then, with the nation's stock of gold under the control of the treasury and redemptions of dollars for gold suspended, the federal government could go about meaningfully expanding the money supply, which it did by announcing that the value of gold had increased from $20/ounce to $35/ounce, which allowed the federal government to issue 70% more dollars, since the money supply was still actually restricted to the amount of gold held by the treasury. (Though if the government owns all the gold, and doesn't actually allow redemptions of dollars for gold, and gets to set the price of gold, you basically have a fiat currency with additional steps).

kkjjkgjjgg 5y ago

Interesting read, thanks, but so far I don't get the impression that the gold standard features as prominently in the explanations as you claim? I don't know enough about the Great Depression to have a good opinion, but the discussion seems to rage on in present times, and there certainly are points of views that I consider unlikely to be correct. As an example, I don't think Krugman's babysitting circle is sufficient proof to bet the fate of nations on printing money. Economics is also not my specialisation, I only find it interesting. Science is also not a democracy - scientific truth is not decided by democratic vote, and there are many examples throughout history when the mainstream consensus was wrong. Therefore I admit I find statements like "only ideologists still peddle other theories" a bit odd. Not saying ideology does not affect things, I said so myself. It may be more likely that a theory is affected by ideology than not.

dodobirdlord 5y ago
> Interesting read, thanks, but so far I don't get the impression that the gold standard features as prominently in the explanations as you claim? To preface this, I think a combination of the two mainstream proposals (Keynesian, Monetarist) provide the best explanation, rather than an either/or approach. * https://en.wikipedia.org/wiki/Causes_of_the_Great_Depression#Keynesian https://en.wikipedia.org/wiki/Causes_of_the_Great_Depression... * https://en.wikipedia.org/wiki/Causes_of_the_Great_Depression#Monetarist https://en.wikipedia.org/wiki/Causes_of_the_Great_Depression... The Keynesian and Monetarist explanations are slightly different, but both point fingers at insufficient money supply. But why was the money supply insufficient? Well, because of the gold standard. The federal government would trade dollars for gold at a fixed conversion rate, so the supply of dollars was fixed against the supply of gold that the treasury was holding. As demand for dollars grew faster than the treasury could expand its gold reserves, deflation happened. As banks started to fail the need to keep the money supply proportional to the gold reserves prevented the Federal Reserve from creating money to extend loans to failing banks, touching off waves of failures and economic crisis. And then with the economy stagnated due to demand shocks, business failures, and unemployment, the need to keep the money supply proportional to the gold reserves prevented the Federal Reserve from creating money to loan to the federal government to boost spending. Instead the federal government raised taxes to strengthen government finances, taking even more money out of the economy at a critical time, because it could not originate money without buying gold from somewhere, and nobody was selling, including other countries that themselves needed gold for their gold-backed currencies. (The money shortage was at this point basically global.) It wasn't until FDR suspended redemption of dollars for gold and forced everyone with gold to turn it over to the treasury in exchange for dollars that the money supply could be meaningfully expanded (and then only in proportion to the amount of surrendered gold). Then, with the nation's stock of gold under the control of the treasury and redemptions of dollars for gold suspended, the federal government could go about meaningfully expanding the money supply, which it did by announcing that the value of gold had increased from $20/ounce to $35/ounce, which allowed the federal government to issue 70% more dollars, since the money supply was still actually restricted to the amount of gold held by the treasury. (Though if the government owns all the gold, and doesn't actually allow redemptions of dollars for gold, and gets to set the price of gold, you basically have a fiat currency with additional steps).