The great depression as a global currency crisis: An Argentine perspective
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The great depression as a global currency crisis: An Argentine perspective Leonidas Zelmanovitz 1
& Carlos
Newland 2
& Juan
Carlos Rosiello 2
Accepted: 2 September 2020/ # The Author(s) 2020
Abstract Many of the works that have tried to understand the proximate causes of the Great Depression have emphasized the consequences of maintaining the Gold Standard during the interwar period, as its innate inflexibility prevented the use of expansive monetary policies and generated recessionary deflationary processes. Another perspective, both complementary and different, is that offered by new works that consider the Great Depression as to some extent a consequence not so much of a Gold Standard per se, but of the return to redemability at an overvalued parity after the Great War. The novelty of this new approach is to stress the negative effect of maintaining an unbalanced price for the metal over time. The models that have analyzed the currency crises suffered in recent decades by many Latin American countries help to understand the path that led the world to the Great Depression, with the convertibility regime applied in Argentina between 1991 and 2001 being particularly relevant. Keywords Great depression . Gold standard . Exchange rate
1 Introduction In economic history, it has been common to attribute a strong responsibility to the gold standard in generating the Great Depression, as in Temin (1989); Eichengreen (1992), and Bernanke (1995). Temin (1989) pointed out that the monetary system imposed a deflationary necessity on the world economy, with negative effects on economic activity. He concluded: ‘In fact it was the attempt to preserve the gold standard that produced the Great Depression’ (Temin 1989, p. 38). The situation would have been different, Eichengreen (1992) argued, if countries had coordinated their actions to allow
* Leonidas Zelmanovitz [email protected]
1
Liberty Fund, Inc., Carmel, IN, USA
2
Instituto Universitario ESEADE, Buenos Aires, Argentina
L. Zelmanovitz et al.
for expansive monetary policies, which were, however, impossible according to the gold standard’s rules. For Bernanke (1995, p. 4), the fate of a country during the crisis depended on its abandoning, or not, the system: ‘To an overwhelming degree’, he writes, ‘the evidence shows that countries that left the gold standard recovered from the Depression more quickly than countries that remained on gold. Indeed, no country exhibited significant economic recovery while remaining on the gold standard’. The gold standard is thus seen to have been an initial cause of the crisis, which was then, according to these authors, aggravated by the lack of adequate public policies, bank runs, or increased protectionism. With the exception of Yeager (1976), who emphasizes the exchange rate cause like pre-Keynesian authors such as Gustav Cassel, other modern takes on the Great Depression either are built on Keynes explanation (Eichengreen and Mitchener 2003; Laidler 2003), or on the Rothbard explanation (Garrison 1999; White 20
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