Scott Sumner’s new book on the Great Depression is coming out December 1. This is definitely something I will get and digest next year, as I’m swamped. I believe the blurbs when they say this will be a classic in the field. Among other things, Scott has (apparently) interspersed newspaper clippings and real-time financial market reactions to various events, which is not something economic historians often do.
Now to be sure, Scott has a very nuanced theory of how various factors came together to produce the Great Depression. And yet, the title of the book is The Midas Paradox. And here is Tyler Cowen’s summary of the book in his list of the best of 2015: “Boo to the gold standard during the Great Depression.”
Now let me step back and make some big-picture observations:
(1) The classical gold standard was in place from (say) 1880 – 1914, and much earlier depending on your definition. But it broke down during World War I and was replaced with something weaker, the Gold Exchange Standard, which itself broke down in 1931 (all explained at this link). Various countries started “going off gold” through the 1930s, with Japan, Germany and Great Britain doing so by 1931. FDR devalued the dollar in terms of gold in 1933. And yet “the Great Depression” typically refers to the entire decade of the 1930s.
(2) None of the financial panics that occurred during the classical gold standard turned into the Great Depression. It was only in the midst of the other interventions–particularly high-wage policies–that Sumner discusses, did we get the Great Depression.
(3) The Great Recession, which according to some metrics is the worst economic calamity second only to the Great Depression, happened when all the countries were on fiat money–so no link to gold whatsoever–yet had plenty of other government regulations on labor markets and the financial sector.
To me, this is a bit like writing a book called The Steam-Powered Curse, showing how the railroads caused the Great Depression.