What is it about?

This paper investigates the pressures on the UK and the USA to devalue their currencies against gold, respectively, in 1931 and 1933. We calculate time-series of realignment expectations for the pound and the dollar. Amongst our findings are that expectations are quite well explained by fundamental economic variables - output, inflation and money supplies. The implication is drawn that macroeconomic events, some of them directly or indirectly under the influence of the authorities, were in part responsible eventually for jolting the UK and the USA off the gold standard. Furthermore, quantitative evidence is presented supporting the view that Federal Reserve monetary policy was constrained by international considerations. That is to say, the Great Depression in the US was not the fault of the Federal Reserve as some economists have claimed.

Featured Image

Why is it important?

This piece of economic history strongly relates to present day choices over monetary regimes. A recurring refrain in US Republican circles since at least the Reagan years is that the US should return to the gold standard. This paper shows why this could be a disastrous choice. During the interwar period and up to the abandonment of the gold standard by the UK in 1931 and by the US in 1933 the respective central banks were hemmed in by the links to gold. Monetary expansion aimed at relieving rising unemployment and slowing economic growth quickly ran up against capital outflows and weakening currencies, so much so that the central banks had to curtail their low interest rate policies. Devotion to the gold standard is shown to be clearly implicated as a cause of the Great Depression.


This paper, coauthored with Ronald MacDonald and Ian W. Marsh, is part of a trilogy of papers on monetary history. The other two examine, respectively, the monetary forces that nearly knocked the US off the gold standard in 1896 and the more political-increased military spending forces that did knock France off gold in 1936. The main conclusion to be drawn from these works is that the gold standard imposes harsh constrains on national policies and, that when the going gets tough, either the gold standard or other national interests have to be abandoned.

Paul Hallwood
University of Connecticut

Read the Original

This page is a summary of: Crash! Expectational Aspects of the Departures of the United Kingdom and the United States from the Inter-War Gold Standard, Explorations in Economic History, April 1997, Elsevier,
DOI: 10.1006/exeh.1997.0668.
You can read the full text:



The following have contributed to this page