Chapter Seventeen.qxp
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Conclusion
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1933–37 within a depression. This first inflationary depression in history was the forerunner of the inflationary recessions (or “stagflations”) endemic to the post-World War II period. Worried about excess reserves piling up in the banks, the Fed suddenly doubled reserve requirements in 1937, precipitating the recession-within-a-depression of 1937–38. Meanwhile, since only the United States remained on even a partial gold standard, while other countries moved to purely fiat standards, gold began to flow heavily into the United States, an inflow accelerated by the looming war conditions in Europe. The collapse of the shaky and inflationary British-created gold exchange standard during the depression led to a dangerous world of competing and conflicting national currencies and protectionist blocs. Each nation attempted to subsidize exports and restrict imports through competing tariffs, quotas, and currency devaluations. The pervasive national and regional economic warfare during the 1930s played a major though neglected role in precipitating World War II. After the war was over, Secretary of State Cordell Hull made the revealing comment that war did not break out between the United States and any country with which we had been able to negotiate a trade agreement. It is also a fact that, with very few exceptions, the countries with which we signed trade agreements joined together in resisting the Axis. The political lineup follows the economic lineup.1
A primary war aim for the United States in World War II was to reconstruct the international monetary system from the conflicting currency blocs of the 1930s into a new form of international gold exchange standard. This new form of gold exchange
1Cordell Hull, Memoirs (New York: Macmillan, 1948), vol. 1, p. 81.
See in particular, Murray N. Rothbard, “The New Deal and the International Monetary System,” in L. Liggio and J. Martin, eds., Watershed of Empire: Essays on New Deal Foreign Policy (Colorado Springs, Colo.: Ralph Myles, 1976), pp. 19–64.