The world on a cross of gold A review of ‘Golden fetters: The gold standard and the great depression, 1919-1939’

For many years, the yin and yang of the debate about the causes of the Great Depression were The Monetary History of the United States, 1867-1960 by Milton Friedman and Anna Schwartz (1963), and Peter Temin’s 1976 book, Did Monetary Forces Cause the Great Depression? As all monetary economists know, in their book Friedman and Schwartz made the Depression a central case study in support of their contention that, historically, monetary instability has been a major source of fluctuations in the real economy. In their famous chapter on the ‘Great Contraction’, which was later released as a separate volume, Friedman and Schwartz attributed the collapse of production and prices in the United States particularly the disastrous 1931-33 slide to a precipitous decline in the U.S. money supply. The proximate cause of this monetary contraction was not any direct action by the monetary authorities, but rather a series of severe banking crises: Between late 1930 and early 1933, spasmodic panics induced the public to convert deposits into currency, raising the aggregate currency-deposit ratio and causing a decline in the ratio of inside money to the monetary base. Despite the largely unintended nature of the monetary contraction, however, Friedman and Schwartz placed the major portion of blame for the Depression on the shoulders of the Federal Reserve, which