It wasn't the U.S. returning to the Gold Standard after WW-I, it was Great Britain. The UK over-priced their Pound relative to gold.
The results were predictable -- those with Pounds and common sense redeemed their Pounds for gold, quickly exhausting UK gold reserves. Germany was also cleaned out due to WW-I reparation payments.
America and France had greatly ample gold reserves. In response, Federal Reserve Chair Benjamin Strong and Bank of England's Montague Norman proposed a "solution" whereby the U.S. and France would provide gold to Germany and Great Britain in exchange for bonds from these nations.
Charles Rist, Governor of the Bank of France (and my Granddad's cousin), told them the solution was for Great Britain to accept the obvious truth and lower the value of their Pound relative to gold -- and besides there was nothing in this proposal that would benefit France, and thus the Bank of France would never agree to anything so stupid.
I have heard the various details of these events over time from Charles Rist's son, who spent his career at the World Bank. Strong and Norman were in many ways little more than confidence tricksters who sincerely believed their schemes would work, just like Monetarists do today. They think they can defy gravity by proclamation -- its not possible.
Ironically, Hjalmar Schacht, head of the German central bank and whose Mother was American, absolutely refused the "solution". Unlike Rist's situation, this "solution" might have benefited Germany (gold for worthless paper), but he found Norman and Strong to be so untrustworthy that he suspected an ulterior motive.
As Great Britain's over-priced Pound eliminated their exports, they slid into economic depression. Benjamin Strong of the Federal Reserve took many actions which impoverished America in an effort to assist Great Britain from needing to face the truth. These actions, in no small way, brought the economic depression to America's economy.
. |
