Gold, France, and the Great Depression, 1919-1932 (review)

This revisionist interpretation of the Great Depression, shifting much of the blame onto gold and France, is rigorously noninterdisciplinary. Its narrative structure belies its dense, abstract analysis of monetary policies and their consequences. Within the limitations of this style, Johnson, an economist, writes clearly and crisply and furnishes a glossary of technical terms; historians can read this book, profitably if not pleasurably. Much of the book is a running debate with leading economists of the 1920s (Gustav Cassel, Ralph Hawtrey, Irving Fisher, Charles Rist, and especially John Maynard Keynes) and with a more recent generation of economists who have tried to explain the Great Depression (Milton Friedman, Peter Temin, Charles Kindleberger, Jacques Rueff, Robert Mundell, and especially Barry Eichengreen). Although Johnson has used unpublished sources to good purpose, his account is new and valuable not because he has turned up startling new evidence but because he has retold a well-worn story with new emphasis.

Johnson argues that the gold standard worked well before 1914, not because of the magic of the classical price-specie flow mechanism or some preternatural wisdom of policymakers, but because of “an adequate and growing supply of monetary gold” (6). After World War I, the revised gold exchange standard rested uneasily on an inadequate and undervalued supply of gold. If the political leaders and heads of the central banks of the Big Four (Great Britain, Germany, France, and the United States) had adopted appropriate monetary policies, they could have raised the value of gold, eased its supply, and hence prevented the price devaluation of the late 1920s that led directly to the great Depression of 1929–1932. British and German leaders made bad choices that had modest impacts. American and French leaders’ bad choices had major impacts, and France’s Emile Moreau, as head of the bank of France, and Raymond Poincaré, as prime minister, were the most responsible of all for intensifying the deflation that became the Depression. Reduced to minor episodes in Johnson’s causal scheme are reparations and war debts, British over-valuation of the pound, the Wall Street boom and crash, the Smooth-Hawley tariff, and the fall of the Austrian Creditanstalt and the subsequent German banking crisis. Monetary policy holds center court.

In a variety of ways, France (and secondarily the United States) attracted vast amounts of gold in the late 1920s and then “sterilized” it, refusing for domestic reasons to use it to expand the domestic money supply and thereby allow an inflation that would have raised the undervalued franc to par with other major currencies and halted the inflow of gold. In a variety of ways, the sterilization of much of the world’s gold increased existing devaluation pressures everywhere and forced the world over the brink into depression. Johnson would no doubt agree that the Great Depression was fundamentally the result of underlying structural flaws in the postwar economy and the gold exchange standard, but its timing and intensity were the result of mistaken monetary policies.

Those policies flowed from economic theory and ideology, perceived national self-interest, the pressures of public opinion, and the limits imposed by politics. With the exception of economic theory, Johnson supplies only the most exiguous account of these reasons for the bad choices that caused the Depression. Historians will not be happy with the book’s total lack of anecdote, incident, or personality or with the lack of any substantial cultural, political, or historical context or explanation of the human policy choices that were, Johnson emphasizes, at the heart of the matter. This austere book is an astringent economic description and critique of the would-be’s, could-be’s and should-be’s of monetary policies in the 1920s.