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The Interwar Years: 1918-1939

The International Monetary System. The Interwar Years: 1918-1939. Russell Ethan Reiter. Major Issues of the Period. Gold Speculation Inflation Policy Debate Fixed, floating, pegged…will anything work? Serious Decisions=Serious Consequences Dominos. The Economic Environment.

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The Interwar Years: 1918-1939

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  1. The International Monetary System The Interwar Years: 1918-1939 Russell Ethan Reiter

  2. Major Issues of the Period • Gold • Speculation • Inflation • Policy Debate • Fixed, floating, pegged…will anything work? • Serious Decisions=Serious Consequences • Dominos

  3. The Economic Environment • The International Monetary System: 1918 • Aftermath of World War One • Productive capacity drastically reduced • Labor forces reduced • Government spending • High Inflation • Case in Point: Germany

  4. Sequence of Events • Inflationary War Finance • Britain’s Return to Gold • The Great Depression • Devaluation

  5. Gold • Pros • Cons • The Gold Standard • Departure and return

  6. Speculation • Economic Inequality • Asset Prices • Snowball Effect • Black Tuesday • Crisis of confidence • The wealth effect

  7. Inflation • A Dollar Today… • To Make Matters Worse • Interest Rates • Economic growth

  8. Policy Debate • Exchange Rates • Contractionary vs. Expansionary Fiscal Policy • Death and taxes • International Collaboration

  9. Serious Decisions=Serious Consequences • Bad Decisions • Pursue tight money policy • High unemployment • Restrict international trade • Fewer exports, smaller incomes

  10. DominosA Self-Reinforcing Cycle • Instability Leads to Lack of Confidence • Social instability (unequal distribution of wealth) • Economic instability • Which Leads to Low Demand and High Interest Rates • Which Leads to Low Investment • Which Leads to Low (or Zero) Economic Growth • High unemployment • Low wages • Which Leads to Instability

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