mlemax

I’ve read your book The Midas Paradox (well, most of it) and I still don’t get your gold market approach. For the early part of the crisis (until the dollar was floated in 1933) you focus on the gold reserve ratio. But the way I see it is that this approach only makes sense as a proxy for for the quantity of base money. I mean certainly just the fact that the central banks got more gold, with the quantity of money unchanged, doesn’t mean that there will be any deflation (in the short run). And you also talk about central banks “increasing” their demand for gold: but since they are on the gold standard aren’t they supposed to only passively cover for the difference between private supply and demand of gold (as in the Barro’s model, if I understood it correctly). The only way that I see that they can increase their demand for gold in any meaningful sense is if they implement deflationary policies (i.e., reducing the amount of the supply of base money), which make gold worth more in comparison to other goods, which will increase the supply and reduce the private demand of it, so more of the newly mined gold should flow to the central bank. In short, to me it seems that it all boils down to the supply of money. What am I not getting here?

P.S.: In the book you dismiss, without much consideration, the hypothesis that Hoover’s high wage policy contributed to the crisis. I would just like to know what do you think about research that tries to show that link, in particular Ohanian’s 2009 paper.

Thanks Scott, I think I understand it better now. I'll have to find time to re-read your book to see if I truly get it.

BTW, I was wondering this when I read the book: what exactly do you mean by the Canadian monetary policy at that time? Because the canadian central bank was established in 1935 and as far as I know there was no similar institution back then.

Could you qoute the relevant passage (or just the beginning of it), I have the Kindle version of the book so I'm not sure exactly what page 25 is supposed to be.

Thanks!

Thanks for answering, Scott. I'm not sure what you mean by "dual media of account", I mean all the prices were listed in dollars and most people probably had no idea about the relative value of gold. You say that money was endogenous, but I think this does not hold for the short run (or even medium run, as in France for example). Can a change in the gold ratio that is purely a consequence of a change in the central bank's holdings of gold (if we assume sterilizations of gold flows) and not of a change in the base money supply have any effect on the price level?