Keynessandra No More: JM Keynes, the 1931 Financial Crisis, and the Death of the Gold Standard in Britain
104 Pages Posted: 19 Jul 2010 Last revised: 31 Aug 2010
Date Written: 2010
Abstract
Britain's suspension of gold convertibility in September 1931 was one of the most surprising and significant events in the history of the global financial system. Whereas London had traditionally been the center of the international gold standard, in the 1930s Britain led the world into the era of adjustable exchange rates. Previous explanations have maintained that the configuration of domestic institutions and interest groups determined Britain's response to changing international conditions. There was, however, ample domestic political will and international support to save the gold standard. Britain was actually forced to suspend convertibility because key policymakers possessed the wrong ideas about how to save the gold standard. Even after the National Government balanced the budget on the terms dictated by international financiers, the attack on sterling continued. Fixated on the budget deficit, the Bank of England overlooked sterling's 30% overvaluation and failed to make the necessary interest rate increases. When Prime Minister MacDonald consulted JM Keynes at the height of the crisis, Keynes deliberately avoided exposing the Bank’s mistake precisely because he hoped to force a suspension. The collapse of the gold standard in Britain was thus the product of the Bank's mistaken monetary policy and Keynes’s deliberate political strategy.
Keywords: Gold Standard, John Maynard Keynes, Great Depression, Monetary Policy
JEL Classification: A11, B31, F31, F33
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
The Slide to Protectionism in the Great Depression: Who Succumbed and Why?
-
Made in Germany: The German Currency Crisis of July, 1931
By Thomas Ferguson and Peter Temin
-
What Can Be Learned from Crisis-Era Protectionism? An Initial Assessment
-
Did Monetary Forces Cause the Great Depression? A Bayesian VAR Analysis for the U.S. Economy
By Albrecht Ritschl and Ulrich Woitek
-
Breaking the Fetters: Why Did Countries Exit the Interwar Gold Standard?
By Tarik Yousef and Holger C. Wolf
-
Scylla and Charybdis - Explaining Europe's Exit from Gold, January 1928 - December 1936
-
Scylla and Charybdis: Explaining Europe's Exit from Gold, January 1928 - December 1936
-
Europe's Great Depression - Coordination Failure After the First World War