(I'll be out of town until 4/12, so I won't be blogging. Can you live without me?)
A fascinating 1997 paper by Barry Eichengreen and Peter Temin argues that the gold standard caused the Great Depression. (Well, at least that the gold standard 'mentalite' was part of a set of factors that caused the Depression.) Eichengreen (UC Berkeley) and Temin (MIT) are top-notch economists; each has published a slew of articles on economic history. They represent the mainstream orthodox neoclassical-Keynesian synthesis on this point.
In this view, which is really more Keynesian than classical, sound money tends to tie the hands of government during a recession. Sound money is 'inelastic', you see, and cannot be made to do what government officials want it to do. The government often wants the impossible: lots of spending, while at the same time cutting taxes.
Eichengreen and Temin's paper is good to read alongside Murray Rothbard's America's Great Depression. (Freely available in its entirety at the previous link). Rothbard essentially argues the opposite: it was the rapid expansion of bank credit during the 1920s which caused the inevitable contraction in the money supply as banks rushed to cover; the government's response in the form of stimulus made things far worse by lengthening the time of adjustment.
5 comments:
The 1997 paper link doesn't work, it appears need access code. fortunately, i was able to find it through Peter Temin's website at http://econ-www.mit.edu/files/1233. thank you for the info.
" lots of spending, while at the same time cutting taxes", I think that distorted government's role in getting two curl back to equilibrium. In our case today is "lots of spending, while at the same time increasing tax", do you agreed with the tax increase to boost revenue?
Thanks for the link of "America's great depression, We can live without you while you're gone since the book is 348 pages long.
No, I'd say increasing taxes is the wrong move during a recession or depression. Since government expenditures tend to be unproductive in the sense that they are not designed to produce a surplus, they cannot stimulate the economy, which has reached this point because of too much unproductive activity (finance, insurance, retail, etc.)
Fixed the link, it should work now.
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