The Gold Standard critique

Powerful Essays
AMERICAN UNIVERSITY OF BEIRUT
The Gold Standard, Deflation, and Financial Crisis in the Great Depression: An International Comparison
Second DRAFT

Melkon Eleijian

OUTLINE:
I. Introduction
II. The Gold Standard and Deflation
III. The Link Between Deflation and Depression
IV. Interwar Banking and Financial Crisis
V. Lebanese Situation Regarding Gold Standard
VI. Conclusion
VII. Reference

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

Introduction:
The latest investigations examining the causes behind the Great Depression stress the vital part played by the international gold standard which lead to extremely harmful results. The recovery of countries that did not adopt the gold standard or got rid of it and from the contractionary monetary policies was quicker than those that continued on gold (Eichengreen and Sachs, 1985). Moreover, Hamilton (1987, 1988) added in his research that the ongoing contractionary monetary policies at that time in countries such as the United States of America and France introduced heavily the Great Slide and, on the other side, the reliance on gold standard worsened the situation adding more deflationary pressure.
The deflation was lengthy and intense between 1920 and 1930, making us able to identify the reason behind this crisis as monetary. In this paper, we will try to explain the link between depression and deflation during that period, and the margin by which deflation affected and created depression. Hereafter, this paper will also stress the negative impact of deflation that caused depression during the 1930s. Deflation was the core of banking panics during the early 1930s that affected the economic performance of the banks. However, panics can occur in weak banking systems. A second major player was the debt inflation. Hence, when the real value of nominal debts experiences an increase and the borrowers are promoted insolvency, it will be difficult to land new



References:

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