Working Paper: NBER ID: w26085
Authors: Sebastian Edwards
Abstract: In this paper I analyze the process leading to the abandonment of the gold standard in the U.S. in1933, and the devaluation of the dollar in 1934. I argue that most changes of monetary regime have an impact on contracts. In this specific case, contracts that were written in terms of gold, or “gold equivalent,” were rewritten in paper dollars. Congress did this on June 5 1933, when it abrogated the “gold clause” retroactively. The Supreme Court validated the move in February 1935. The result was a very large transfer of wealth from creditors to debtors. I use daily data on commodity prices to investigate the extent to which these policies contributed to ending deflation. I find that commodity prices reacted strongly to the announcement of policy changes, and to legal procedures involving contracts. These results are consistent with the “change in regime” hypothesis of Sargent.
Keywords: Monetary Policy; Great Depression; Gold Standard; Commodity Prices; Legal Contracts
JEL Codes: B22; F31; F33; N1; N82
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Announcement of abandoning the gold standard (F33) | Increase in corn prices (Q11) |
| Announcement of abandoning the gold standard (F33) | Increase in cotton prices (Q11) |
| Announcement of abandoning the gold standard (F33) | No significant impact on rye prices (F69) |
| Announcement of abandoning the gold standard (F33) | No significant impact on wheat prices (F69) |
| Joint resolution annulling the gold clause (N22) | No statistically significant effect on commodity prices (Q02) |
| Announcement of gold buying program (E60) | Increase in corn prices (Q11) |
| Announcement of gold buying program (E60) | Increase in cotton prices (Q11) |
| Announcement of gold buying program (E60) | Increase in wheat prices (Q11) |
| Official devaluation of the dollar (F31) | Increase in cotton prices (Q11) |
| Official devaluation of the dollar (F31) | No significant impact on rye prices (F69) |
| Official devaluation of the dollar (F31) | No significant impact on wheat prices (F69) |
| Legal proceedings concerning the gold clause (K41) | Decrease in commodity prices (Q02) |
| Supreme Court ruling on gold clause (N22) | Increase in commodity prices (Q02) |