This archived content originally appeared at, the predecessor site to, and does not carry the sponsorship of the Cato Institute.

The hobbyhorse rides again

The latest issue of the Cato Papers on Public Policy has an article by Douglas Irwin of Dartmouth focusing on the behavior of the French government and central bank during the Great Depression (video here; paper forthcoming in a conference volume here, but the latest issue doesn’t seem to be on sale yet and mine is apparently an advance copy).

Irwin and the discussants of his paper (Charles Calomiris of Columbia and James Hamilton of the University of California-San Diego) avoid what to me is the heart of the matter: the Bank of France and the Federal Reserve were central banks. Blaming the Great Depression solely on “the gold standard” does not make sense because it does not explain why the gold standard worked pretty well before World War I. That, as regular readers will know, is one of my hobbyhorses about economists’ usual treatment of the gold standard. The gold standard, or any other internationally shared standard of rigid exchange rates, transmits monetary disturbances across borders in a way that floating exchange rates do not, but whether those disturbances occur depends heavily on what kinds of monetary systems exist within the participating countries. (Floating exchange rates also transmit disturbances across borders, as we know from abundant experience, but the way they transmit disturbances is different.)

Free banks have no incentive to build up the huge, noninterest-earning gold reserves that the Bank of France accumulated during the Great Depression, and I am aware of no historical case where free banks accumulated gold on such a scale, relative to the size of the economy and over so short a period, as the Bank of France did. It is hard to see how the Depression could have happened had the United States and France still had free banking, as they did in some form earlier in their history.

Another complaint: in an article and two comments focusing on France (though with some discussion of the United States), there is not a single reference to any publication in French, and only a couple references to publications that have been translated from French. It’s like writing a paper about the United States and not citing anything published in English. French is still the second language of scholarship, far behind English now in general but certainly not as regards the study of France itself. Economists who are native speakers of English don't know any better, to their shame, but historians do, and economic historians should try to combine the virtues rather than the flaws of both disciplines.