2. Leaving the gold standard shortened the depression for most countries
In 1931 Great Britain abandoned the gold standard, followed shortly thereafter by Japan, Norway and Sweden, in order to protect their gold reserves, and all of them ceased exchanging gold for bank notes. The United States remained on the gold standard through the Hoover Administration, an act which was in part responsible for the protectionist policy of the tariffs. According to a 2010 economic study published in the Journal of Economic History, remaining on the gold standard exacerbated the depth of the depression and increased its length. “The length and depth of a country’s economic downturn and the timing and vigor of its recovery is related to how long it remained on the gold standard. Countries abandoning the gold standard relatively early experienced relatively mild recessions and early recoveries. In contrast, countries remaining on the gold standard experienced prolonged slumps”, the report read.
The abandonment of the gold standard allowed for the devaluation of currencies across the globe (for those nations which abandoned it). Those nations which remained on the gold standard, such as the United States in the early years of the Great Depression, were forced to decrease the money supply in order to prevent the outflow of gold, which led to deflation, meaning domestic prices declined. Farmers in particular found that their crops were of less value, and due to the tariffs they had less markets in which to sell them. Lower prices for goods caused manufacturers to lay off workers and in many cases close plants entirely. In 1931 a credit crisis in Germany and Austria led to Hoover suspending Germany’s reparation payments from the First World War, which deepened the international financial crisis as banks around the world faced collapse.