I was asked….
How accurate do you consider this statement about the gold standard and the Great Depression (from wikipedia):
Economic studies have indicated that just as the downturn was spread worldwide by the rigidities of the Gold Standard, it was suspending gold convertibility (or devaluing the currency in gold terms) that did most to make recovery possible.[40][41] What policies countries followed after casting off the gold standard, and what results followed varied widely.
Every major currency left the gold standard during the Great Depression. Great Britain was the first to do so. Facing speculative attacks on the pound and depleting gold reserves, in September 1931 the Bank of England ceased exchanging pound notes for gold and the pound was floated on foreign exchange markets.
Great Britain, Japan, and the Scandinavian countries left the gold standard in 1931. Other countries, such as Italy and the United States, remained on the gold standard into 1932 or 1933, while a few countries in the so-called “gold bloc”, led by France and including Poland, Belgium and Switzerland, stayed on the standard until 1935–1936.
According to later analysis, the earliness with which a country left the gold standard reliably predicted its economic recovery. For example, Great Britain and Scandinavia, which left the gold standard in 1931, recovered much earlier than France and Belgium, which remained on gold much longer. Countries such as China, which had a silver standard, almost avoided the depression entirely. The connection between leaving the gold standard as a strong predictor of that country’s severity of its depression and the length of time of its recovery has been shown to be consistent for dozens of countries, including developing countries. This partly explains why the experience and length of the depression differed between national economies.[43]
Keep in mind that I am tired and I have not looked up any facts to refresh my memory. Having said all of that, the above Wikipedia quote seems accurate enough. But it is also a prime example of how something can be true and also be irrelevant.
So, yes, the length of time spent on the gold standard is a strong predictor (looking backwards) of which countries suffered the most from the Great Depression. But would they have suffered any less if they had left the Gold standard earlier? That is a question that can still be argued.
The question to consider is this…
Why were some countries slower to leave the Gold standard then others?
Were they just stupider then the other countries? Or did they have reasons?
And if they had reasons, might it not be possible that they were good reasons?
If they had good reasons, might it not be possible that countries who stayed on the gold standard longer might have fared worse then other countries no matter what action they took regarding their currency?
Like I said, I am tired and don’t have a lot of time. But let me give you an example of what I am trying to get at.
Let us say that you are the US. Let us say that you lent a lot (and I mean a lot) of dollars to Germany after World War I. And let us say that you are faced with pressure from your manufacturing base to devalue, but your banks really don’t want you to devalue because that will mean that they will not recover the full value of their loans from the Germans.
Which course of action do you choose?
Either way, you are going to take a hit.
There is more to this story then just that, of course. You also need to consider what would happen if everyone devalued at once. You also need to understand where the cost of the benefits of devaluation are coming from and who the beneficiaries are.
But hopefully I have made my basic point. And that is that sometimes something can be true, but also tell you next to nothing at the same time.