Anticipating the Great Depression? Gustav Cassel's Analysis of the Interwar Gold Standard

Douglas A. Irwin

NBER Working Paper No. 17597
Issued in November 2011
NBER Program(s):Development of the American Economy, International Finance and Macroeconomics, Monetary Economics

The intellectual response to the Great Depression is often portrayed as a battle between the ideas of Friedrich Hayek and John Maynard Keynes. Yet both the Austrian and the Keynesian interpretations of the Depression were incomplete. Austrians could explain how a country might get into a depression (bust following an investment boom) but not how to get out of one (liquidation). Keynesians could explain how a country might get out of a depression (government spending on public works) but not how it got into one (animal spirits). By contrast, the monetary approach of economists such as Gustav Cassel has been ignored. As early as 1920, Cassel warned that mismanagement of the gold standard could lead to a severe depression. Cassel not only explained how this could occur, but his explanation anticipates the way that scholars today describe how the Great Depression actually occurred. Unlike Keynes or Hayek, Cassel explained both how a country could get into a depression (deflation due to tight monetary policies) and how it could get out of one (monetary expansion).

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Document Object Identifier (DOI): 10.3386/w17597

Published: You have free access to this content Who Anticipated the Great Depression? Gustav Cassel versus Keynes and Hayek on the Interwar Gold Standard Journal of Money, Credit and Banking Volume 46, Issue 1, February 2014, Pages: 199–227, DOUGLAS A. IRWIN Article first published online : 20 JAN 2014, DOI: 10.1111/jmcb.12102

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