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

Abstract

Pnt research has providel stron circntantial evidence for the prcçositici that sustainI deflation-the result of a mismanaged international gold starxard-was a major cause of the Great Depression of the 1930s. Less clear is the itcthanism by 'which deflation led to depression. In this paper cnsider several channels, I luflr effects cperatir thrcuh real wages anl thrgh interest rates. CXr foo.s, however, is on the disruptive effect of deflation on the financial system, partiQllarly the bankirq system. Thecry su3gests that fan ir prices, by reducixxj the net worth of banks arri borrowers, cn affect flows of credit ard thus real activity. Usir annual data for twenty-four cxxintries, we confirm that cxxmtries 'which (for historical or institutional reasons) were nre vulnerable to severe banJd.n panics also suffered iaidi worse depressions, as did intries which reained on the gold stardard. We also fird that there may have been a feedback locp thrh which bankIrx panics, partioularly those in the United States, intensified the worldwide deflation.

Predicting the past: Understanding the causes of bank distress in the Netherlands in the 1920s

“…Bernanke and James (1991) and Van Zanden (1997b) date it to 1921 and 1922 only; Reinhart and Rogoff (2009) follow their example, while Colvin (2011) considers the crisis to run from 1920 to 1927. This much longer period is preferable, because signs of bank distress were observed long after the Dutch economy had stabilised; some problems caused by the crisis took many years to fully manifest or be disclosed to the public; distress events were revealed only after the distress was beyond the Robaver debacle in 1924, and finally includes the government-backed reorganisation of the middenstandsbanken in 1927 which forever changed expectations about the role of the state in crisis resolution in the Netherlands (Colvin, 2011).…”

With a Bang, not a Whimper: Pricking Germany's “Stock Market Bubble” in 1927 and the Slide into Depression

“…"PferdekurWarum?". 107 Frankfurter Zeitung, 13.5.1927Frankfurter Zeitung, 15.5.1927 Balderston 1992, James 1990, Borchardt 1991 Bernanke and James 1991, Eichengreen and Grossman 1994. 113 Mishkin 1991 Gilchrist 1996.…”

“…115 Bernanke 1983;Temin (1989) finds that the cross-sectional evidence does not support the Bernanke hypothesis. 116 Bernanke and James 1991. Declines in the value of a firms assets as a result of a stock market crash will lower the value of collateral it can offer. This in itself may cause greater asymmetric information problems, causing a rise in long-term interest rates for private firms and a fall in investment.…”

Deficit Spending in the Nazi Recovery, 1933–1938: A Critical Reassessment

“…The early follower of Keynes, Joan Robinson, stated with perplexity that "Hitler had found a cure against unemployment before Keynes was finished explaining it" (Garvy, 1975), and contributed in this way to establishing a Keynesian orthodoxy on the fiscal policies of recovery in Germany. Later critics, however, insisted that the Nazi recovery was merely part of an international upswing that had set in autonomously (see James, 1986, Bernanke/James, 1991.…”