| This study opens with a theoretical argument--buttressed with empirical evidence--that the Depression of 1929-1932 was caused by a price deflation whose effects were absorbed in profit contraction, bankruptcies, and unemployment.; The real value of gold was above historic averages during most of the two decades before 1914, which led to an adequate supply; after 1920, it was near an historic low, which brought a gold shortage. The interwar gold standard thus exerted deflationary pressure from its inception, and this was the underlying cause of price declines after 1928.; Currency stabilizations in Germany, Britain and France are discussed in the context of this gold shortage. Beginning with the Genoa Conference of 1922, the Bank of England sought coordinated management of limited international reserves; the Reichsbank, the Bank of France, and the Federal Reserve cooperated only in part, or not at all. The French Monetary Law of 1928 led to a vast movement of gold to France, where much of it was sterilized. This was the most important proximate cause of the ensuing systemic deflation. The British return to prewar parity, a huge movement of non-monetary gold to India, the reparation controversy, the Wall Street boom and crash, the Smoot-Hawley tariff and the central European banking crisis of 1931, are treated in the context of this systemic deflation.; The key French figures were Emile Moreau, the Governor of the Bank of France, and Raymond Poincare, the premier and finance minister; both came to power in 1926. Both pursued domestic economic objectives, while neglecting the systemic consequences of their decisions regarding reserves and the French price level.; Methodologically, the study combines analysis and critique of the theoretical views of Keynes, Cassel, Rist, Hawtrey and others with a narrative informed by evidence from U.S., French and British archives and other primary sources. |
