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Sweden and the Great Depression

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EmbraceLiberty posted on Thu, May 17 2012 7:50 PM

Hello Forum,

   During a debate at my college, a Keynesian professor claimed that Keynesian economic policy as well as abondoning the gold standard were the reasons for Sweden escaping the Great Depression so fast. Do we have anything to refute this?

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Jargon replied on Fri, May 18 2012 12:26 AM

Unfortunately I can't find much history of the GD outside of the U.S., unless it's written by John Kenneth Galbraith (yech). Anyways, there was no country that was on the gold standard at the time of the GD except for USA. European countries were on the Gold Exchange Standard, which is basically the Pound Standard. Britain would hold gold as reserves, but all other countries would hold Pounds as reserves. Britain also disallowed the domestic redemption of notes for gold. So basically the only function that gold had in this period in Europe was the redemption of notes between Britain and its monetary vassal states. Not much of a gold standard as the inhibitive mechanisms of the gold standard like 'outflow' are greatly hampered when the access to gold is restricted to the politicos. I think your professor is being pretty dishonest about the 'gold' standard.

Sweden was on the Pound standard. The british state-finance people tried to bring the pound back in at an overvalued rate after WWI at $4.86 when it should have been somewhere between $3-4. They did this so they could inflate the crap out of it to help exports and still have a decently valued pound. They had problems with 'liquidity shortages' and ultimately sowed the seeds of destruction with their inflationary spree from '25-'29. It is plausible to me that when the Swedes left the Pound for their own currency, it was more stable and less forced which would facilitate a quicker recovery without the simultaneity of deprecation and over-valuation. That being said, I am wholly ignorant on Sweden's monetary history and therein lies the problem of this post. You might also want to check if Sweden had a large influence of trade unions, putting floors underneath labor prices, another big problem for Britain.

That being said, your question is a good one and if you find a better answer post it back in this thread so I can read it. 

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