Wednesday, June 23, 2010

Why Gold Went Up During the Great Depression

Gary North gets it:
By 1932...Unemployment was at 20%. Prices were down at least 25%. Over 6,000 banks had failed. There was no sector of the economy that was flourishing except gold mining, which had the benefit of a price floor set by law.

And he gets the future:
Americans look at their struggling adult children or grandchildren, and they conclude, "They will not have it as good as we did." This is the first generation of Americans to conclude this. This is a change of monumental proportions.


  1. Wenzel,

    What did gold do in terms of other currencies, such as European currencies, which may or may not have been tied to gold at the time, in whole or in part?

  2. If you are trying to find an easy answer to see if gold performed well against foreign currencies during the GD, as opposed to it just going up because of FDR's prop, you can't becaus ethere would have been arbitrage going on between gold, the dollar and other currencies.

    Further, many currencies went off the gold standard and had tremendous fluctuation which makes it impossible to determine any empirical cause and effect relationship between gold and currencies. It's all deductive theorizing, my man.

  3. Wenzel,

    Gold was considered money at and up to that point in time in history. Doesn't deductive reasoning tell us that money appreciates in purchasing power during a deflation, when total money supply is contracting?

  4. Think about it. It tells us the opposite about gold.

    Deflation of fiat money causes the purchasing power of the fiat money to increase (even against gold)

  5. Wenzel,

    Would the analysis change in the absence of legal tender laws? In other words, if people were able to exchange gold as money rather than sell gold to buy fiat currency which they could then use to pay debts?