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 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

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

Gold Pros Cons The Gold Standard Departure and return

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

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

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

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

Dominos A 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