Is France to blame for the Great Depression?
- By Joshua E. KeatingJoshua E. Keating was an associate editor at Foreign Policy.
In trying to explain the Great Depression, economists from Milton Friedman to Ben Bernanke have traditionally focused on the roles of U.S. monetary policy and the gold standard.
According to their version, when the Federal Reserve raised interest rates in 1928, it triggered a massive influx of gold into the United States. Rather than monetizing that gold, the Fed essentially sat on it, forcing prices around the world to fall.
But what many overlook, according to economist Douglas Irwin of Dartmouth College, is that France was doing the same thing — and to a far greater degree. Between 1926 and 1932, France’s share of world gold reserves skyrocketed from 7 percent to 27 percent, while the U.S. share actually fell. In the worst years of the Depression, France removed about 11 percent of the world’s gold stock from circulation. According to Irwin, this came at the exact moment when gold was most needed to counteract the deflation that plunged the global economy into nearly a decade of depression.
And all this time we’ve been blaming Wall Street.