Here is a very technical paper by the “New Keynesian” school of economics http://ehes2011.com/papers/monetary_policy_autonomy_under_the_gold_standard.pdf that states the gold standard in Switzerland hampered economic recovery during the 1930s. The paper was written from the university of Zurich. If you scroll down the paper you will notice is that the paper uses very technical mathematics equations that I really don’t know. How can Austrians best tackle this paper?
- From the intro to the paper:
Real exports fall by 50% until June 1932, followed by a
weak recovery at about 60-70% of the October 1929 level. The consequence
of the decision to join the Gold Bloc in 1933 (together with Belgium, France,
Italy, Netherlands, and Poland) was that exports stayed at this level until
end of 1936. Due to the overvalued Swiss franc, the Swiss exporting sectors
profited less from the recovery of the world economy than small European
countries with a devalued currency such as the Scandinavian countries.
To which I reply, “You say that like it’s something bad.”
http://smilingdavesblog.blogspot.com/2011/07/imports-and-exports-which-one-is-good.html
The article makes the classical mercantilist assumption, that exports are in and of themselves something good, and seems to define depression for purposes of the paper as lack of exports. Big mistake.
2. We explicitly take into account the fact that Switzerland was not forced to
increase nominal interest rates during the Gold Bloc period due to the mas-
sive gold inflow starting with the German crisis in June 1931 and intensifying
after Britain went off gold.
Poor suffering Switzerland, hey?
3. …a large share of domestic prices and wages was fixed by the government.
Not only did it own the national monopoly for mail, telegram and telephone
services and the Swiss federal railway, but also began to stabilize agricultural
prices in the midst of the depression…
Exactly what causes economic suffering according to Austrians.
- One must ask, why does staying on a gold standard extend a depression according to Keynesians?
Wikipedia tells us:
The gold standard limited the flexibility of central banks’ monetary policy by limiting their ability to expand the money supply, and thus their ability to lower interest rates.
But to an Austrian expanding the money supply causes poverty [=inflation], and lower interest rates cause poverty [=malinvestments].
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Finally, the whole paper confuses correlation with causation. Not having a sound theoretical understanding of economics, it brushes right past the real cause of the continuing recession, wage and price controls, and assumes that it’s the gold standard that did it.
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Bottom line, the paper adds nothing new to the debate. The Austrian critique is of the assumptions the authors of the article have in their heads before they put pen to paper.
To place the whole thing in perspective, what if someone assumes that pirates prevent global warming. He then writes a long paper, full of intricate math, proving that had the Swiss allowed more pirates into their country in 1931, instead of 1936 as they actually did, global warming in Switzerland would not have been as bad. How can Austrians best tackle that paper?