It’s days like today that I regret giving up blogging. What’s bad for my 401k, and bad for America, and bad for Europe, and bad for Asia, is great news for my blog. I could have done the following sort of post:
1. Well it least it’s all out in the open now
About a year ago Krugman dismissed the notion that fiscal stimulus might fail because of being offset by monetary policy. He said something to the effect that Bernanke would never do such a thing. I have been arguing for many months that the Fed is doing exactly that. That all this talk about exit strategies and refusal to offset past deflation with higher inflation, is equivalent to a tight money policy. As Woodford and Eggertsson keep saying, what matters for today’s AD is expectations of future monetary policy. But for some reason my arguments fell of deaf ears. For some strange reason most economists insist on viewing the nominal short term rate as the indicator of monetary policy. The Fed wasn’t “doing anything,” so how could they be tightening policy?
Well at least it is all out in the open now. The Fed raised the discount rate and within minutes the S&P futures plunged 9 points. Here’s the reaction last night in Asia:
LONDON (AP) — World markets fell Friday after the U.S. Federal Reserve unexpectedly raised interest rates for emergency bank loans, triggering fears that regular borrowing costs could also move higher soon, slowing the recovery in the world’s largest economy.
. . .
Earlier in Asia, Hong Kong’s Hang Seng stock index led decliners, diving 528.13, or 2.6 percent, to 19,894.02 while Japan’s Nikkei 225 stock average dropped 212.11, or 2.1 percent, to 10,123.58.
“As the dollar strengthens, we see less appetite for riskier assets such as Asian stocks.” said Jit Soon Lim, head of equity research for Southeast Asia for Nomura in Singapore. “We’re bullish on the region’s economic growth, but bearish on risk.”
“As the dollar strengthens” Why that must be wonderful news for Europe! After all, the zero-sum game economists keep telling us that we would be helped by a stronger yuan, so why shouldn’t Europe be helped by a stronger dollar (and yuan by implication)? Odd that the European markets didn’t rise on the news.
When I arm wrestle with my 10-year old daughter I start out with a fairly limp wrist, and then gradually increase the pressure as I feel her pushing harder. Our two hands remain motionless over the table, my pressure exactly calibrated to offset hers. She gets frustrated, and I can’t blame her. And I can’t blame Obama if he is feeling frustrated right now. The Fed has a nominal target in mind, and dog-gone-it they are going to do whatever it takes to prevent the economy from overshooting that nominal target. The harder Obama and Congress push, the harder they’ll push back.
Anyone still think that a second stimulus bill would help?
Update: I forget to mention the last time the Fed raised the discount rate after 24 months of steady job loses—October 1931. Bernanke is an expert on that event, it might be nice for someone to dig up what he had to say about it.
2. The invincible markets hypothesis
Then there is talk (here and here) of a new type of inefficient markets hypothesis; Rajiv Sethi calls it the invincible market hypothesis. I don’t buy it, nor do I think the more famous anti-EMH types would either. The claim is that markets are efficient, but they are also so irrational that there is no way for investors to take advantage of that fact. This implies that the gap between actual price and fundamental value doesn’t tend to close over time, but rather follows a sort of random walk, drifting off toward infinity.
As far as anti-EMH theories go, I prefer the views of people like Shiller. He argues that markets are somewhat inefficient, but also partly efficient. Thus if fundamentals suggest the P/E should be 15, when it falls below 10 you should allocate more of your portfolio to stocks, and if it is above 25 you should put more into bonds. After all, stocks always tend to drift back toward the average P/E in the long run. So Shiller claims his theory does allow you to do better than buy and hold. I don’t think Shiller’s right about the EMH, but I do agree with him that if the anti-EMH position is correct, it must have investment implications. If not, then the anti-EMH model would be worthless, and should be ignored. BTW, Sethi argues Shiller might be right in the long run, but may be wrong in the short run. I don’t buy that distinction. If Shiller’s right then the anti-EMH position has useful investment implications, even for short term investors, and markets aren’t “invincible.”
Here’s part three of my chapter on the first year of the Depression, looking at the three big shocks of 1930:
4.f The June 1930 Stock Market Crash
We have already seen that the 1929 tariff debate may have had an adverse impact on stock prices. In 1930 the tariff debate re-emerged with even greater intensity, and this time the impact on stock and commodity markets was unmistakable. By mid-1930 fears of political paralysis in Washington were replaced with worries about the international repercussions of the enactment of a higher tariff. And now there was evidence that investors were concerned about not just the potential impact of Smoot-Hawley on trade, but also on the prospects for monetary cooperation.
The stock market rose throughout early 1930 and on April 17th peaked at a level 48.0 percent above its post-crash low. Then, between April 17th and June 4rd the market fell 7.4 percent. After June 4th the decline in the market accelerated sharply with the Dow falling 19.7 percent between June 4rd and June 18th. And as shown in figure 4.1, commodity prices, which had been stable in the spring of 1930, also broke sharply after June 4th.
Many in the financial community attributed these declines to the enactment of the Smoot-Hawley tariff in mid-June. But why would stock prices have been adversely affected by a tariff that was designed to aid big business? And why would commodity prices decline if tariffs have the effect of reducing aggregate supply? One possibility is that the tariff was viewed as a factor reducing the likelihood of international cooperation on monetary issues. The CFC warned that the tariff might overturn peace policies, and predicted “there may be a general tariff war as a prelude to a military war”. News stories discussing the possibility of a European war increases dramatically during 1930, reflecting an environment where monetary policy coordination would be much more difficult.
As with the October 1929 crash, the June 1930 stock market decline was associated with a major tariff fight in the U.S. Congress. To a far greater extent than during the 1929 crash, however, the press (rightly in my view) attributed the June 1930 stock market decline to the tariff bill. And compared with the October crash, during June 1930 the press focused less on the tariff’s domestic political impact, and more on its international repercussions.
As the seriousness of the Depression became more apparent during 1930, opposition to the tariff increased among the public, the press, and even many business groups. The May 10th CFC(p. 3247) reported that 1028 economists had signed a “document without parallel in American history” urging that Hoover not sign the tariff bill. The document concluded with a warning that “A tariff war does not furnish good soil for the growth of world peace.” In the weeks preceding the passage of Smoot-Hawley opposition poured in from numerous trade associations including bankers, retailers, and textile producers, as well as from major exporters such as Ford and General Motors.
 See the CFC, 4/5/30, p. 2297. They issued a similar warning as early as 11/30/29, p. 3379.
Hoover had shown great skill in leading the American aid efforts in Europe after the First World War and Europeans viewed Hoover as the “one big man in American public life who is sufficiently acquainted with the European mentality to anticipate the dangers which the new tariff holds for American trade abroad.” Thus European opinion initially may have underestimated the likelihood of the tariff becoming law. As passage became more likely during early June the press noted a sharp escalation in threats of trade reprisals from overseas.
The June 12th NYT (p. 24) reported that European opinion was having some effect on protectionists such as Senator Reed (who was attending the London Naval Conference.) But Reed decided to support the tariff, and next day the NYT headline indicated “Stocks Break and Rally Throughout the Day; Traders Lay Declines to Reed Tariff Stand.” Two days later they headlined the market reaction to the bills passage; “Stock Prices Sag on Passage of Tariff; Viewed as Wall Street’s Disapproval of Bill.” The vote was so close that (arch-protectionist) Senator Grundy was not able to vote against the bill in protest of its not being even more protectionist. They also noted (p. 9N) that both the tariff and falling commodity prices were adversely affecting the stock market.
Although it was considered likely that the President would in fact sign the bill, there was definitely some doubt regarding Hoover’s intentions. His reputation as an internationalist, the opposition of Treasury Secretary Mellon, and his own statements that he would take a fresh look at the issue all served to create some uncertainty. In a controversial decision, he had pointedly refused to get involved in the drafting of what was clearly the most important legislation of the 71st Congress.
On Sunday, June 15th, Hoover announced his intention to sign the tariff bill. The next day commodity prices plunged and the Dow fell by 5.8 percent, the largest decline of 1930. The NYT described the mood on Wall Street:
“There was a feeling of discouragement that extended to all of the speculative markets. Everywhere the disposition was to lay the blame at the doors of Congress. Loud lamentations against the tariff bill were heard throughout the financial district. Traders, gathered in the customers’ rooms of brokerage houses, berated the administration and Congress. One disgruntled person posted a placard in a brokerage house reading, ‘A Business Administration—the Only Party Fit to Rule?’” (June 17, 1930, p. 1)
Although one should be cautious in accepting the views of traders, these stories suggest that at the very least there had been some uncertainty regarding Hoover’s intentions. Furthermore, the view that the tariff had adversely impacted Wall Street was not restricted to the NYT.
 CFC, 5/17/30, p. 3467.
The June 21st issue of the Economist (p. 1378) called the signing a “tragi-comic finale to one of the most amazing chapters in world tariff history” and suggested that “fear of its economic consequences at home and abroad was mainly responsible for the heaviest slump of the year in Wall Street.” Passage of the tariff was also associated with declines in foreign markets, including the German bonds that had recently been issued to finance the war reparations. Over the next several years, these bonds would play an increasing role in the U.S. stock market. A June 18th NYT headline reported that “Peril To War Debts Seen In Our Tariff.”
To summarize, we know that political battles over the tariff were the major news story during both the October 1929 and the June 1930 stock market declines. During the 1929 crash the probability of passage decreased and the political discord in the Republican Party increased throughout late October and early November. During the June 1930 decline these two factors were almost exactly reversed. The probability of passage increased steadily and the bill ceased to be a source of domestic political turmoil after receiving Hoover’s signature. Between 1929 and 1930 Smoot-Hawley metamorphosed from a domestic political problem to an international macroeconomic problem.
Smoot-Hawley demonstrates the difficulty of quantifying the impact of a political event on the stock market. Even were it possible to estimate the changing subjective probability of passage over time, these probabilities will not fully capture the way in which perceptions of the meaning of the event change over time. For instance, Kindleberger (1973) argued that adverse market reactions to the signing of the tariff bill in June 1930 reflected perceptions that Hoover had shown a lack of leadership. It could be argued that a similar lack of leadership was demonstrated in 1929 by Hoover’s failure to mobilize Republican insurgents in support of the bill.
4.g The German Elections and the 1930 Banking Panic
In the 3 months after the Smoot-Hawley crash the Dow rose by nearly 10 percent and then plunged 19.7 percent between September 13th and October 11th, 1930. Commodity prices followed a similar pattern. After rising 2.9 percent between July 29th and September 16th, the Annualist Index of Commodity Prices (AICP) declined by an equal amount over the last two weeks of September. These declines coincided with political disturbances in Brazil, and more importantly, in Germany. Wigmore (1985) suggested that gains by extremist parties in the German elections might have contributed to the decline in the U.S. stock market.
During 1930 the German economy had been particularly hard hit by the worldwide depression. In the September 14th elections the communists gained 22 additional seats while the number of fascist (Nazi) seats soared from 12 to 107. Since the fascists had campaigned against the concept of German “war guilt” in general, and more specifically against the Young Plan, the surprisingly large gains made by Hitler’s party were viewed with alarm, particularly in Paris. These gains weakened the position of moderates such as Foreign Minister Briand (who had negotiated the French withdrawal from the Rhineland.)
The response of the stock market to the election itself was fairly mild with the Dow declining by 1.5 percent. In the September 16th NYT (p. 3) it is possible to find both pessimistic assessments, “League Is Uneasy Over German Vote,” as well as more optimistic reports, “Bankers Minimize Reich Fascist Gain—See Reparation Agreement Safe.” Many observers expected Hitler to become more responsible as he got closer to power. The NYT (p. 34) admitted that the German elections “had some conceivable financial implications” and that the drop in reparations bonds was to be expected, but also suggested that such a drop “can scarcely be imagined to reflect [the] belief of serious people that the reparations treaties and contracts are forthwith to be torn up.”
Hopes that Hitler would moderate his views were dashed during late September as he made one inflammatory statement after another. The September 20th NYT (p. 7) reported that German stock and war bond prices fell on “Disquieting rumors of political disturbances in Germany.” The September 26th NYT (p. 11) noted that “Hitler’s Outburst Stirs British Press,” and the following issue observed that:
“Herr Hitler’s speech was a keen disappointment to thousands of French liberals who had hoped the Fascist chief would come rapidly to realize that the economic prosperity and international relations of his adopted country depended foremost upon the confidence of other nations. His extreme utterances of yesterday, however, have destroyed these hopes and increased the fears for the future.” (NYT, 9/27/30, p. 6)
 The Economist (9/20/30, p. 511) called the results a “surprise.”
By October 1st the NYTfront page was dominated by ominous news headlines; “Hindenburg Backs Dictatorship Plans For Fiscal Reform” . . . “Hitler Warns President . . . Hints That Revolt Would Follow Indefinite Closing of German Parliament” . . . “Briand Hits At Foes Trying To Oust Him . . . Answers Appeal for German Moderation—Reich Fears Loss of Briand” . . . “Stock Prices Break”. Although there were many contemporaneous press reports linking declines in German financial markets, and to a lesser extent other European markets, to the political turmoil in Germany, there were relatively few stories linking these disturbances to the U.S. stock market. Fortunately, movements in the price of German war reparations bonds, the so-called Young Plan bonds, offer an excellent proxy for German political problems.
There can be little doubt that the sharp declines in the Young Plan bonds in the weeks following the German elections were caused by the fear of a repudiation of the Young Plan. These declines were not associated with any general decline in government bond markets (the prices of U.S. and French government bonds did not decline) and thus the decline was presumably attributable to market perceptions of an increased default risk. Between September 13th and September 30th, 1930, the price of Young Plan bonds declined 8.1 percent, with most of the decline occurring on the four news days discussed above. During this period the Dow increased on 3 of the 4 days that the price of Young Plan bonds increased and declined on 9 of the 10 days that the price of Young Plan bonds declined. A regression of the (first difference of the log of the) Dow on the (first difference of the log of the) price of Young Plan bonds (DLYPB), during the period from September 13 to September 30, shows a positive and significant relationship:
Dow = -.008 + .549*YoungBondPrice R2 = .225 DW = 2.69 (4.1)
And, since these markets closed at different times, the R2 statistic would be expected to understate the actual correlation.
The increased probability of default on the Young Plan bonds could have affected the market for a variety of reasons. For instance the September 27th CFC (p. 1982) reported that “Hoover Counts on Funds—Allies Interest Payments Needed to Permit Continuance of Reduction in Tax Rate.” The fact that the Dow would soar after Hoover’s debt moratorium proposal of 1931, however, suggests that the impact of German political difficulties on the U.S. markets was due more to their perceived effect on the prospects for international cooperation, rather than any impact they might have had on U.S. fiscal policy. And the concurrent decline in commodity prices indicates that this anticipated lack of cooperation may have had monetary implications. By October 24th the NYT (p. 33) was warning that the “singular change in the international gold movement that came with Germany’s ‘Fascist’ scare has postponed the check to the French bank’s acquisition, which was thought a month ago to be near at hand.”
 See, for example, the Economist (9/27/30, p. 583, and 10/4/30, p. 612) and the NYT (9/29/30, p. 33).
 September 15, 19, 25, and 30.
The crisis in Germany seemed to precipitate a general worsening of the political situation in Europe during the last three months of 1930. As prices and output continued to fall throughout the world, there was increasing discussion of the need to address the “maldistribution of gold” through policy coordination by the major central banks. Unfortunately, the banking panics that began in November 1930 led to increased currency hoarding, which neutralized the effect of slightly more expansionary policies initiated by key central banks. This marks a key turning point in this narrative. The first year of the Depression, like the 1920-21 depression, was a pure monetary policy shock. After October 1930, the worsening economy led to increased private hoarding of cash and then later gold. These factors also tended to raise the value of gold, which meant that the fundamental nature of the problem remained the same–a shortfall of nominal spending, or aggregate demand. But the root causes became much more complex.
As early as September 1930 some economists were already blaming the Depression on French gold hoarding. After the closure in early November of the important Oustric Bank, as well as several other French banks, the French demand for currency increased and large quantities of gold began flowing from England to France. U.S. stock and commodity prices declined on October 31stwhen news of the impending failure of the Oustric Bank was first made public.
During November banking problems spread to the U.S., and the Dow fell 3.3 percent on Monday, November 17th following the failure of more than 50 southern banks. Temin (p. 51) called the first banking panic of the Depression a “minor event”, because it was somewhat localized in nature. But there can be no doubt currency hoarding increased dramatically in November and December 1930. (In the U.S., as in France, this increase was entirely concentrated in large denomination notes.) Because of the high gold backing of the U.S. dollar and French franc, this increase in currency demand translated into a large increase in the demand for gold. Thus the bank failures also impacted foreign stock markets and commodity prices. The AICP, which had risen slightly between September 30 and October 28th, fell 3.5 percent between October 28th and November 18th.
 See the September 16, 1930, NYT, p. 38.
Although the Oustric Bank actually failed on November 6th, the failure was expected after the suspension on October 31st of trading in stocks of groups that it controlled. The Dow fell 2.5% on October 31st, and corn, wheat, and commodity prices also fell.
Recall that because of the French Monetary Law of 1928 encouraged the Bank of France to provide 100% gold backing to new currency injections, increases in French currency hoarding led to a higher French gold reserve ratio. Eichengreen (p. 254) suggested that “Gold inflows led to the growth of currency in the hands of the [French] public.” But in this case causality presumably went in the opposite direction.
The U.S. suffered an even more serious set of bank failures during December 1930. Rumors of problems at the Bank of the United States began circulating on Monday, December 8th, as desperate attempts were made to rescue the bank. The bank finally failed on December 11th and the December 13th CFC (p. 3748) blamed the failure for the 4.5 percent drop in the Dow during the first four days of the week. The AICP, which had been stable for several weeks, fell 2.9 percent between December 2nd and December 16th, and then leveled off. Although the Dow reached its lowest level of the year on December 16th, sharp price breaks continued to occur on news of major bank failures. For instance the Dow dropped 4.3 percent on December 22nd on news of the failure of the Bankers’ Trust Co. in Philadelphia. And two days later the NYT (p. 21) noted that the market broke early on December 23rd on news of the failure of the Chelsea Bank and Trust, before recovering on news of a cut in the discount rate.
Because many of the U.S. bank failures occurred when the markets were open, contemporaneous observers were able to easily ascertain their (adverse) impact on U.S. stock and commodity prices. Friedman and Schwartz have already extensively documented the impact of the failures on U.S. monetary aggregates, and Bernanke (1983) argued that bank failures might have depressed output by reducing the efficiency of financial intermediation. The evidence that European bank failures impacted U.S. markets, and vice versa, is of special interest because the gold market approach suggests that bank failures anywhere in the world should have led to increased currency demand, which would have increased the world demand for monetary gold and depressed aggregate demand.
4.h Deflation, The Gold Standard, and Policy Coordination
Despite their close correlation during most of the interwar period, there is no necessary relationship between stock and commodity prices. For instance, a severe drought in early August 1930 (a supply shock) moved stock and commodity prices in opposite directions. The August 9th CFC (p. 831) noted:
“The [stock] market now manifested weakness. It began to dawn upon the minds of traders that the grain speculation really betokened much damage to the corn crop, and thereby assumed the dimensions of a severe infliction in the agricultural world, and furthermore that a crop disaster was hardly a legitimate basis for a bull speculation in the stock market.”
But this pattern was very atypical. Throughout most of the 1930s there was a positive correlation between stock and commodity prices, presumably because there was also a strong correlation between commodity prices and industrial production. The close correlation between stock and commodity prices in figure 4.1 provides a strong indication of the primacy of demand shocks, even during a period of drought.
Another noteworthy aspect of the positive relationship between stock and commodity prices is that the financial press seemed to interpret this relationship differently in 1929 than in 1930. Because stock prices fell far more sharply than commodity prices October 1929 many analysts viewed the concurrent commodity price decline as a merely a symptom of the stock market crash. By mid-1930 the order of causality was usually reversed, with the commodity markets seen as exerting a “depressing” influence on stocks.
Those reports that attributed the decline in commodity prices to non-monetary factors such as “overproduction” saw these declines as reducing the incomes and thus the purchasing power of farmers and other producers of primary products. This interpretation often led to awkward theories of falling production being caused by overproduction. More sophisticated observers held that declines in both markets could be attributed to monetary factors:
“The drop in wheat cannot, of course be blamed entirely on the decline in stocks, anymore than the latter can be explained by the break in wheat; but each reacted on the other, and was caused largely by tightening credit. (Economist, 6/15/29, p. 1342)
Those who attributed commodity price declines to monetary factors stressed the need for cooperation among central banks. Early in 1930 Keynes already saw that “the current decline in wholesale prices for raw materials had taken on the character of a worldwide disaster” and as a “remedy for these conditions he [Keynes] sees cessation of the internecine struggle for gold stocks . . . co-operation of the Central Banks”. Military analogies were often employed. Irving Fisher argued that “Gold disarmament is just as difficult of attainment as is military disarmament. No greater problem exists today than a possible gold shortage.” Although Fisher’s preferred solution involved an increase in the price of gold, he knew that such a radical policy was politically unacceptable and also recommended that “If we are attended by deflation, the first step would be to decrease the gold reserve ratio.” The crucial importance of the gold reserve ratio may not be obvious to modern readers who have lived their whole life in a fiat money world, but it was very apparent to interwar economists like Fisher, Keynes and Hawtrey.
See Wigmore (1985) for a similar interpretation.
 CFC, 2/8/30, p. 903.
 CFC, 1/11/30, p. 219.
The BIS was often seen as a mechanism for achieving central bank cooperation. The April 12th CFC(p. 2502) reported “Sir Charles Addis of Bank of England, Urges Co-operation to Stabilize Gold on Scale Contemplated Through Bank for International Settlements.” And in the June 14th CFC (p. 4161) Josiah Stamp suggested that “The Bank for International Settlements is the beginning of an institution that can develop into a machine for co-ordinated and thoroughgoing control of these capricious matters,” and, “One of the first requirements towards such co-ordination and control, Sir Josiah said, is the demilitarization of finance by the scrapping of belligerent terms.”
Those in favor of monetary policy coordination included many economists and financial market participants. By November 1930 there was active consideration of a stabilization plan run by the BIS:
“World Gold Parley Considered In Paris—English Sources Report Dozen of More Nations May Take Up Distribution Problem–Berlin Said To Favor Plan—New York Banks Believed to Support It, but Solution Depends on France—Suggest Control at Basle [BIS]—Proponents Want Each Country to Contribute a Certain Proportion of Its precious Metal” (NYT, 11/18/30, p. 11.)
The strongest support for international cooperation came from England and Germany. The position of the U.S., which was hit hard by the Depression but also in possession the world’s largest gold stock, was less clear-cut. President Hoover argued “This is not an occasion for analysis of the many theories such as too little gold or the inflexible use of it.” Important congressmen including Rep. McFadden, as well as much of the Federal Reserve, were also opposed to monetary cooperation. The French had a strong economy throughout much of 1930 as well as rapidly growing gold stocks, and thus saw little need for policy coordination.
A November 1930 visit to Europe by New York Fed Governor Harrison (a key advocate of both monetary ease and greater international cooperation) was followed with great interest by the financial markets. The November 11th NYT(p. 9) noted that (Governor of the Bank of England) Montagu Norman was so anxious to continue his talks with Harrison that he boarded the liner Bremen on which Harrison was returning to New York and then in the English Channel “the 59-year-old banker climbed down the swaying ladder to a launch bobbing up and down in a choppy sea” and returned to England.
 CFC, 10/4/30, p. 2105.
Table 3.4 shows that in late 1930 and early 1931 there were modest declines in the gold reserve ratios of the United States, England, and the “Rest of World” category, suggesting that monetary policies did become more expansionary. Unfortunately, the movement toward greater ease was completely offset by the large increases in real currency demand associated with banking panics, particularly in the United States. While the Bank of England clearly did move toward monetary ease during late 1930, it is difficult to know whether the Fed was attempting a similar policy shift or whether its lower gold reserve ratio merely represented a passive response to currency injections associated with banking instability.
An additional factor inhibiting recovery was the increasing level of political discord in Europe. In commenting on the possibility of Harrison’s talks leading to a coordinated policy of easing by the major central banks, the NYT reported that “The big stumbling-block in the path of such a policy, however, is the present unsettled political position of Europe.” There would be a brief period of stability in early 1931 (accompanied by a hiatus in the ongoing economic contraction), but by the spring of 1931 the European political situation had again begun to deteriorate.
Eichengreen (p. 263) argued that the BIS was unable to coordinate monetary policy because key central banks lacked a “common conceptual framework”. If so, then the various political disturbances considered in this chapter may not have been as significant as they seemed at the time. But even if policy coordination was doomed to failure from the beginning, the public may have only gradually become aware of this fact. The prices of commodities and equities would have been lower in the late 1920s had investors known that monetary policy would be so dysfunctional during the 1930s. The political and economic crises of the 1930s were important because they gradually convinced the public that there was no “wizard behind the curtain” of international finance. And as investors began to understand that fact, expectations of future monetary growth declined, as did aggregate demand.
 See the NYT, 12/25/30, p. 16.
 Note that to argue that policy coordination would have been helpful, or even essential, in 1929, is not at all equivalent to arguing that it was an important aspect of the classical gold standard. Thus I take no position of the debate between Flandreau (1997) and Eichengreen on this issue.