Question

After the experience of the 2008 crisis, is it still reasonable to attach so much ‘blame’ to the gold standard for the severity of the Great Depression?

Answer 1

It is not reasonable to blame gold standard for the great depression and its severity, rather it was the policy inaction and flawed assumption that supply is going to create its own demand, that led to the great depression. When supply was not consumed and output decreased, then unemployment increased and AD decreased further. At this moment, the government should act proactively with stimulus package to revive the economy, but the government acted very late and great depression took place. It can be observed that government came of over $787 Billion package during 2008 crisis and over $3 Trillion in recent crisis due to COVID-19. But, such action did not happen in 1930s great depression. So, economy suffered a lot at that time. Gold standard was not responsible for its happening.