Journal of Economics and Management  
  Volume 15, No. 2  
  August, 2019  
     
 

Room for Maneuver and Alternatives: A Reinterpretation of the German Crisis of 1931

 
 
 
  Kuo-chun Yeh  
 

Institute of National Development, National Taiwan University, Taiwan

 
     
  Tai-kuang Ho  
  Department of Economics, National Taiwan University, Taiwan University, Taiwan  
     
  Mengyuan Cai  
  School of Economics, Hefei University of Technology, China
 
     
 

Abstract

 





This paper revisits the German crisis of 1931, emphasizing that the cause of the crisis was borrowing in a currency that a sovereign cannot control and the resulting high level of foreign currency-denominated debt. We suggest that the deflationist policy of Heinrich Brüning was not due to gold-standard mentality, but because in a sovereign default he was forced to adopt fiscal austerity and not the other, even though such a policy was deemed to be self-defeating amid the crisis. Moreover, the much stated trade-off between the maintenance of the gold standard and the Reichsbank’s role as lender of last resort or that the banking crisis could have been voided if the Reichsbank was not committed to the maintenance of the gold standard is nothing but an illusion.


   

 

 

Keywords: Lender of last resort, sovereign default, incomplete monetary union, gold-standard mentality  

 

 

JEL classification: E58, F32, G01, N14

 


 
   

 

    Back