Discussion of “The French Gold Stock and the Great Deflation”
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Transcript of Discussion of “The French Gold Stock and the Great Deflation”
Discussion of “The French Gold Stock and the Great Deflation”
James D. Hamilton
University of California, San Diego
Consider an economy with a single produced good (potatoes)
• aggregate price level = P dollars per potato
• relative price of gold = R potatoes per ounce of gold
• dollars per ounce of gold =
dollars potatoes dollars
potato ounce of gold ounce of gold
P RPR
Gold standard: dollars per ounce of gold (PR) is fixed
If relative price of gold (R) goes up, price level (P) must fall
dollars potatoes dollars
potato ounce of gold ounce of gold
P RPR
Monthly wholesale prices 1923-1926
0
50
100
150
200
250
1923 1924 1925 1926 1927
France
US
UK
Monthly wholesale prices 1923-1926
0
50
100
150
200
250
1923 1924 1925 1926 1927
France
US
UK
Belgium
Hyperinflations in Germany, Austria, Poland, Russia, Hungary
1931: European financial distress
• Failure of Austria’s Credit-Anstalt
• Bank runs in Hungary, Czechoslovakia, Romania, Poland, Germany
Depositors outside Berlin bank, 1931
Source: Hamilton (1988)
Private discount rates in Belgium, Switzerland, and France
Source: Hamilton (1988)
Yields on short-term U.S. Treasury securities
Can gold standard restore confidence out of chaos?
• If government not trustworthy without a gold standard, do you trust it to follow a gold standard?
• Britain-- no
• France and U.S.-- yes, but at a cost
Source: Bernanke and James (1991)