“Our Monetary ills Laid to Puritanism”

Douglas Irwin has been so nice to send me an article from the New York Times from November 1 1931. It is a rather interesting article about the Swedish monetary guru Gustav Cassel’s view of monetary policy and especially how he saw puritanism among monetary policy makers as the great ill. I had not read the article when I wrote my comment on Calvinist economics, but I guess my thinking is rather Casselian.

The New York Times article is based on an article from the Swedish conservative Daily Svenska Dagbladet (the newspaper still exists).

Professor Cassel claims that overly tight US monetary policy in the early 1930s is due to two “main ills”: “deflation mania” and “liquidation fever”.

NYT quote Cassel: “The deeper psychological explanation of this whole movement..can without doubt be found in American Puritanism. This force assembled all its significant resources in what was considered a great moral attack on the diabolism of speculation. Each warning against deflation has stranded on fear on the part of Puritanism that a more liberal monetary policy might infuse new vigor in the spirit speculation.”

It isn’t it scary how much this reminds you about how today’s policy makers are scared of bubbles and inflation? I wonder what Gustav Cassel would tell the ECB to do today?

Maybe here would just say: “That the deflation has meant the ruin of one business after another and forced many banks to suspend payments is a matter that little concerns the stern Puritan”…”on the contrary, it is highly approves proper punishment of speculation and thorough cleaning out of questionable business projects. It totals disregards the fact that deflation in itself by degrees adversely affects the finances of any enterprise and forces even sound business to ruin”. 

Wouldn’t it be a blessing if Cassel was around today to advise central bankers? And that they actually would listen…but of course if you are a puritan or what I termed a believer on Calvinist economics then you don’t have to listen because all you want it just doom and pain to punish all the evil speculators.




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  1. Cassel wasn’t perfect though. He opposed Sweden leaving the gold standard. He didn’t think money could work without some anchor to something with ‘real’ value. But he seemed to change his mind quickly when he noticed that it did work.

    I did see him blaming France and USA for hoarding gold before the Great Depression. I wonder how many economists did that at the time.

  2. Lars
    The guys in power today have all that information on hand! But it´s “relegious conviction” that keeps them from understanding it. Worse of all is Bernanke, a serious student of the period.In his case it´s not “RC” but a narrow-minded focus, to the exclusion of almost all else, on the “credit view”

  3. Peter, I think Cassel was in favour of the gold standard as long as all countries played by the rules. France and the US did not and thereby caused the Great Depression. Hawtrey did hold a similar view as Cassel, but it was the minority view of the times.

    Marcus, you are as always right and I agree Bernanke’s problem is to a large extent that he has a credit view of the Great Depression and not a monetary view. Therefore, he never favoured real QE, but rather a credit injection.

  4. Here’s a quote in Swedish:

    “Söndagen den 20 september 1931 beslöt england att överge guldmyntfoten; Riksbanken höjde diskontot från 4 till 5 procent. nyheten tycks ha tagit de svenska tidningsredaktionerna och då särskilt SocD på sängen. tonläget i rapporteringen var över lag allvarsamt och för Sveriges del lugnande eller manande till lugn. Riksbankschef ivar Rooth deklarerade på tisdagen att banken avsåg att hålla fast vid guldet.

    Nationalekonomernas åsikter spretade i olika riktningar. cassel (1931a) ansåg att händelsen var en världsekonomisk olycka och att Sverige med all kraft måste försvara kronans koppling till guldet.”

    Click to access pv_2011_1_Carlson.pdf

  5. Benjamin Cole

     /  October 21, 2011

    Excellent post—there is something of a puritanical or peevish moralism to the crowd that speaks of inflation as theft, or debasing the currency. That we must all suffer to preserve the currency is a strain of thought deeply embedded in the gold-nut crowd.

    This is a type of asceticism that has run through mankind for centuries.

    Of course, the argument is made more powerful as there are times when inflation is a threat. But not now.

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