1. The International Monetary System
The Interwar Years:
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. 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