"... because men contrive, out of nothings, tragedies...."

There is tragedy in the world because men contrive, out of nothings, tragedies that are totally unnecessary—which means that men are frivolous.

—Henry de Montherlant, La Rose de Sable

(Epigram to The Monetary Sin of the West)



There remains a widespread myth that the gold standard had some role in triggering the Great Depression. 

And also there remains a myth among some on the right that FDR does not deserve credit for having brought about the lifting of the Great Depression in the United States.  

Let us lay both myths to rest.

It is of exceptional interest to read what the great Jacques Rueff had to say about this very matter in 1971.

From The Monetary Sins of the West, available to be freely downloaded in PDF form, courtesy of the Mises Institute:

F.R. Are you in favor of the pre-1931 gold standard, where all parities were constantly stable?

J.R. I am not in favor of floating exchange rates. I am not in favor of daily changes of parity. But when you have had very exceptional situations you may need exceptional policies to clean up the past. Let us take a positive example. It is what President Franklin D. Roosevelt did in raising the price of gold in 1934—and I would like my friends in Washington to keep that in mind. It is often said that what we want to avoid is the return of the trouble and the mischief of the gold standard in the twenties. But if you take the balance sheets of the central banks you will see that the mischief was not the mischief of the gold standard but the mischief of the gold-exchange standard. The evolution of the balance sheets of the central banks is exactly the same, exactly parallel in the years 1927, 1928, and 1929 to what it is now, and it is the collapse of this system in 1931 that was responsible for the depth of the depression.

F.H. But one of the countries that saw the biggest constriction imposed by the gold standard was, of course, Britain—which held no foreign exchange in its reserves. And, as we have always recognized, Britain at this time suffered precisely because of the harsh and inflexible disciplines of the gold standard, which you now want to restore.

J.R. Let me tell you that you touch a point on which I have quite a few personal recollections. In 1930 I was financial attache in the French Embassy in London, and in that capacity I was responsible for the deposits of the French Treasury with British banks. They were the direct result of eight years of the gold-exchange standard, because we had kept the pounds sterling in London, as my colleagues in New York had kept in the American market the dollars that had been pouring into the French Treasury from 1927 onward. Then, in 1931, the failure of the Austrian Creditanstalt caused successive waves of repatriations; and it was this collapse of the gold-exchange standard that, without any possible doubt, transformed the depression of 1929 into the Great Depression of 1931.

The gold standard is not a symbol, a romantic notion, or an anachronism.  As one of the gold standard's greatest proponents of the 20th century, Jacques Rueff understood by direct participation in the world monetary system it was "this collapse of the gold-exchange standard that, without any possible doubt, transformed the depression of 1929 into the Great Depression of 1931."

And as for the lifting of the Depression?:

The consequences of the collapse, if we allow it to happen, would be tragic. We can foresee them with certainty, if we observe the familiarity that exists, mutatis mutandis, between what is happening now and what happened in the years 1928-1933.

Let us not forget, as regards the latter, the sterling crisis, the attempts made to find a solution through internal deflation, the political difficulties which led to the formation of a national coalition government under Ramsay Macdonald, the whole culminating in the devaluation of the pound in 1931.

Let us not forget either the tremendous disaster of the Great Depression, carrying in its wake countless sufferings and wide-spread ruin, a catastrophe that was brought under control only in 1934, when President Roosevelt, after a complex mix of remedies had proved unavailing, raised the price of gold from $20 to $35 an ounce.

At that time, France, which had just completed its financial rehabilitation operation of 1928, was the last but not the least to be adversely affected. It is no mere chance that the magnitude of the rehabilitation operation carried out in 1958 provides a temporary shelter from the storm, as was the case thirty-five years ago.

Even the absurd discussions on the inadequacy of existing liquidity had their counterpart in 1928 and 1929 in the preposterous debates of the Gold Committee of the League of Nations.

Are we passively to watch the onslaught of catastrophes similar to those of the depression?

I am sure they could still be avoided, provided it is accepted that we act swiftly.


Kathleen M. Packard, Publisher
Ralph J. Benko, Editor

In Memoriam
Professor Jacques Rueff

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