Money, Gold, and the Great Depression

With all the mayhem of the past few weeks, several Fed speeches got overlooked. The one I found most intriguing was not from Big Al; Rather, it was one of Governor Ben S. Bernanke barnburners, titled “Money, Gold, and the Great Depression” (H. Parker Willis Lecture in Economic Policy, Washington and Lee University, Lexington, Virginia):

“During the Depression years and for many decades afterward, economists disagreed sharply on the sources of the economic and financial collapse of the 1930s. In contrast, during the past twenty years or so economic historians have come to a broad consensus about the causes of the Depression. A widening of the geographic focus of Depression research deserves much of the credit for this breakthrough. Before the 1980s, research on the causes of the Depression had considered primarily the experience of the United States. This attention to the U.S. case was appropriate to some degree, as the U.S. economy was then, as it is today, the world’s largest; the decline in output and employment in the United States during the 1930s was especially severe; and many economists have argued that, to an important extent, the worldwide Depression began in the United States, spreading from here to other countries.

However, in much the same way that a medical researcher cannot reliably infer the causes of an illness by studying one patient, diagnosing the causes of the Depression is easier when we have more patients (in this case, more national economies) to study. To explain the current consensus on the causes of the Depression, I will first describe the debate as it existed before 1980, and then discuss how the recent focus on international aspects of the Depression and the comparative analysis of the experiences of different countries have helped to resolve that debate.”

Let’s have a look at a graphic depiction of the relationship between gold and the U.S. dollar over the past 4 years.

Take a look at this chart:

Note the horizontal purple lines where each chart broke out from (or broke down from). The purple circles represent the dollar peak (top) and the recent gold low (bottom).

And yes, if you think there’s something not-quite-right about reading Fed Speeches for fun, you may be on to something . . .

Sources:
Remarks by Governor Ben S. Bernanke
At the H. Parker Willis Lecture in Economic Policy, Washington and Lee University, Lexington, Virginia
March 2, 2004
Money, Gold, and the Great Depression
http://www.federalreserve.gov/boarddocs/speeches/2004/200403022/default.htm