Gold, the Brains Trust, and Roosevelt Sebastian Edwards
The abandonment of the gold standard in April 1933 is generally considered to be the turning point in the Great Depression. After the devaluation of the dollar, the country experienced large capital inflows that were monetized by the Federal Reserve. This resulted in higher credit and helped generate an expansion in aggregate demand and, more important, a reduction in unemployment.1 According to Romer (1992, 781, emphasis added): “Monetary developments were a crucial source of the recovery of the U.S. economy from the Great Depression. . . . The money supply grew rapidly in the mid- and late 1930s because of a huge unsterilized gold inflow to the United States. . . . The largest inflow occurred immediately following Correspondence may be addressed to Sebastian Edwards, University of California, Los Angeles, and National Bureau of Economic Research, sebastian.edwards@anderson.ucla.edu. I thank María Carolina Arteaga and Alvaro García Marín for their assistance. I have benefited from comments by seminar participants at Duke’s Center for the History of Political Economy, at the University of California, Davis, and at the University of California, Berkeley. A previous version of this paper was delivered at the SECH Annual Conference, 2015. I thank Craufurd Goodwin, Barry Eichengreen, Michael Bordo, Eric Rauchway, Doug Irwin, Scott Sumner, George Tavlas, Brad De Long, and David Romer for comments. I thank two referees and the editor of this journal for very helpful comments and suggestions. 1. Scholars that have emphasized the role of the devaluation include Friedman and Schwartz (1963), Eichengreen and Sachs (1985), Eichengreen (1992), Bernanke (2000), Bernanke and James (1991), Mundell (2000), Temin (1991), and Irwin (2012). It is not possible to do justice to the copious literature on the Great Depression; see, however, Bordo, Choudhri, and Schwartz (2002), Bordo and Kydland (1995), Meltzer (2003), and Calomiris and Wheelock (1998). Tavlas (1997) analyzes monetary thinking in the early 1930s. History of Political Economy 49:1 DOI 10.1215/00182702-3777134 Copyright 2017 by Duke University Press
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