Excerpt from Hicks, Trade Cycle (Part 1)
Excerpt from Hicks, Trade Cycle (p.163):
Note 1. My interpretation of the Great Depression of the twentieth century (that of 1930-4) is therefore, in broad terms, the following. I do not see that there is any adquate reason to suppose that the real boom of 1927-9 was at all an exceptional boom; if the accelerator mechanism, and nothing else, had been at work, it should not have been followed by an exceptional slump. But the slump impinged upon a monetary situation which was quite exceptionally unstable. The main cause of this instability was not the purely superficial speculative over-expansion which had occured in New York in 1928-9; its roots went much farther back. The monetary system of the world had never adjusted itself at all fully to the change in the level of money incomes which took place during and after the war of 1914-18; it was trying to manage with a gold supply, which was in terms of wage-units extremely inadequate. Difficulties in the post-war adjustment of exchange rates (combined with the vast changes which the war had produced in the creditor-debtor position of important countries) had caused the consequential weakness to be particularly concentrated in certain places; particular central banks, as for instance the Bank of England and theReichsbank, were therefore particularly incapable of performing their usual function as 'lenders of last resort'. The weakness of the Bank of England, in view of the extent of the sterling exchange standard, was especially damaging. Even in the early phases of the depression (in 1930 and early 1931) this monetary weakness was not doubt an aggravating factor; but the full dimensions of the catastrophe were only revealed when a deep monetary crisis developed, not in its 'proper' place, shortly after the downturn, but in full depression, in the summer of 1931. The real cycle was then at a point which should have been its bottom; but the new monetary disaster caused it to plunge to yet lower depths. From these depths, in view of the lagged effects of so vast a crisis, recovery was inevitably slow and difficult.
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