The Great Depression and the Gold Standard
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This paper discusses the intertwined history of the Great Depression and the gold standard. First, the paper explores the reasons behind the Great Depression, citing bank failures and the dust bowl. Then, the paper considers US monetary policy at the time, which is considered as having created the conditions that gave rise and exacerbated the Great Depression. The paper then describes the role of the gold standard in shaping US monetary policy at this time. In fact, the paper cites the use of the gold standard, combined with mismanagement of monetary policy by the Federal Reserve Bank, as what led to the depression. The paper also addresses how FDR moved the US away from dependence on the gold standard. The paper concludes by stating that both fiscal and monetary policy must be examined in conjunction when assessing the causes of depressions and recessions in our nation's history.
From the Paper:"The Gold Exchange Standard, according to Bernanke, combined with mismanagement of monetary policy by the Federal Reserve Bank, became one of the reasons the U.S. failed to pull itself out of the economic downturn after the 1929 crash, and recession spiraled into depression. The Fed's first great error was its "the deliberate tightening of monetary policy that began in the spring of 1928 and continued until the stock market crash of October 1929" (Bernanke 2002). However, the tighter money practices occurred during what was obviously a trough in the business cycle, when more liberalized monetary policies are usually recommended, as infusing money into the economy stimulates borrowing, buying, and production. In fact, two full months before the October crash, production, wholesale prices, and personal income had fallen at annual rates of 20 per cent, 7-1/2 per cent, and 5 per cent, respectively" (Bernanke 2002). The discount rate, the rate at which banks are charged to borrow money from the central federal bank, "had been raised in New York to 5 per cent, the highest since 1921," and encouraged the nation's banks as a whole to engage in tighter lending practices (Bernanke 2002). But more than a pure upholding of the gold standard was a concern. The Fed was extremely worried about speculation on Wall Street. "The Federal Reserve had long made the distinction between 'productive' and 'speculative' uses of credit, and the rising stock market and the associated increases in bank loans to brokers were thus a major concern" hence the rise in the discount rate (Bernanke 2002). Concerned about the outflow of gold, "the system's holdings of government securities had been reduced to a level of over $600 million at the end of 1927 to $210 million by August 1928" "
Sample of Sources Used:
- Bernanke, Ben S. (2002, November 8). Remarks at the conference to honor Milton Friedman.University of Chicago, Chicago, Illinois. Retrieved June 2, 2009 at http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021108/default.htm
- Bordo, Michael D. (2008). The Gold Standard. The Econ Library. Retrieved June 2, 2009 at http://www.econlib.org/library/Enc/GoldStandard.html
- Kelley, Martin. (2009). Top Five causes of the Great Depression. About.com. Retrieved June 2, 2009 at http://americanhistory.about.com/od/greatdepression/tp/greatdepression.htm
Cite this Term Paper:
The Great Depression and the Gold Standard (2011, November 16) Retrieved March 29, 2020, from https://www.academon.com/term-paper/the-great-depression-and-the-gold-standard-148954/
"The Great Depression and the Gold Standard" 16 November 2011. Web. 29 March. 2020. <https://www.academon.com/term-paper/the-great-depression-and-the-gold-standard-148954/>