Comment by Gibbon1
21 hours ago
Seriously WTF?
The hyper inflation was in the aftermath of WWI when Germany's economy was broken by 4 years of war. An it was austerity at the beginning of the 29 financial crisis that brought on deflation and collapse. Followed by the election of Hitler. In the US the same thing resulted in the election of FDR and the end of Republican dominance for two generations.
The claim that 'austerity' resulted in the Great Depression is nonsense. I don't know of serious economist who actually believes that. Its the opposite actually, deflation causes some governments to adopt austerity, specifically governments who can't control their money. See Adam Tooze argument why Germany didn't want to leave the gold standard: https://www.youtube.com/watch?v=9Alx_JDpQio
The reality is, no matter if the German government had increased or decreased spending, the Great Depression was bigger then Germany and would have impacted Germany either way.
The deflation happened because of the massive accumulation of gold by the central banks of France and the US. France and the US manipulated the gold standard.
And the Financial crisis of 1929 wasn't really the bad part, that was a stock collapse. But this doesn't make a great depression, stock went down more in 1987 then in 1929.
The situation in 1929 caused many problems in the US horrifyingly organized banking system (that's its own topic) and further restricted the money supply. The Smoot–Hawley Tariff Act lead to banks collapsing in Europe and continued the restriction of the money supply.
The countries that left the gold standard early were more successful then those that left later. Economist like R. G. Hawtrey (one of the most famous economists at the time) spend literally 10 years warning people that this would happen because the Post-WW1 gold standard was so flawed. Had they listened to him, there might have still been some amount of stock collapse in 1929 but the real issue was not the 1929 stock collapse, but rather the 1930/1931 deflation.
So 'austerity' has nothing to do with it really, its only a background character.
Countries that stayed on the gold standard were practicing austerity bunky.
During a massive global downturn many did austerity. Partly because not every country can just infinity take on more debt. You also have to understand that in that time, debt was used as a political weapon, France didn't want to take on debt, because its debt was used by the US against France diplomatically both in 1919 and 1923, France wanted to prevent that from happening again.
You could stay on the gold standard and do austerity or not. Or you could leave it and do austerity or not. All these four are options and different country picked differently for various reasons.
The US under Hoover and FDR first practiced limit stimulus under gold and then left, and continued stimulus even more so. Actually they always did both as tariffs can be seen as type of tax, but that's debatable. And FDR was of the 'throw spaghetti at the wall and hopefully something works' type.
Germany stayed and did austerity. They couldn't leave the gold standard as it would make it even hard to pay back debt. Adam Tooze pointed this out on his commentary on "Golden Fetters". If somebody would have lent them a lot more money if they had wanted to do a massive stimulus program is questionable, the terms would have been harsh. So its understandable they didn't want even more high interest debt.
Its also the case that those that left the gold standard instantly saw the situation get better and therefore saw less need for austerity. So that plays into it as well. The US had its fast historical growth in industrial out put ever the few month after it left gold (that then collapsed the NRA was adopted). So Britain who left gold early recovered better and didn't have to be as extreme.
That said, in the minds of many at the time the gold standard and prudent physical policy were linked. In Japan for example, balanced books and gold were seen 'womanly' a true warrior didn't give a shit, just go and steal that shit. So you tended to have liberal and centrist being pro austerity and pro gold standard. While right wingers hated gold standard (its internationalism) and wanted massive military spending. They didn't care about debt because they would simply take over and steal everything.
But this is just historical coincidence. Being pro fiscal spending and pro gold is a perfectly reasonable position that some at the time held. It just not how politics happened to break down in most of the world.
I actually am on the 4th side where I think (depending on country) leaving gold and doing some amount of austerity or at least re-appropriate spending and taxes is reasonable (remember raising taxes on the rich is austerity as well).