I wish to thank David Laidler and three anonymous referees for very helpful comments.
Who Anticipated the Great Depression? Gustav Cassel versus Keynes and Hayek on the Interwar Gold Standard
Article first published online: 20 JAN 2014
© 2014 The Ohio State University
Journal of Money, Credit and Banking
Volume 46, Issue 1, pages 199–227, February 2014
How to Cite
IRWIN, D. A. (2014), Who Anticipated the Great Depression? Gustav Cassel versus Keynes and Hayek on the Interwar Gold Standard. Journal of Money, Credit and Banking, 46: 199–227. doi: 10.1111/jmcb.12102
- Issue published online: 20 JAN 2014
- Article first published online: 20 JAN 2014
- Manuscript Accepted: 11 OCT 2012
- Manuscript Received: 9 NOV 2011
- Great Depression;
- gold standard;
- central banks;
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 a credit-fueled 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 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 analyzed 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).