THE CHINESE SILVER STANDARD ECONOMY AND THE 1929 GREAT DEPRESSION (1).pdf

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1、AustralianEconomicHistoryReview,Vol.43,No.2July2003ISSN0004-8992THECHINESESILVERSTANDARDECONOMYANDTHE1929GREATDEPRESSION†BC-L*JJ-SG*NationalTsingHuaUniversityand†Directorate-GeneralofBudget,AccountingandStatistics,TaiwanItisoftenargu

2、edthatthesilverstandardinsulatedtheChineseeconomyfromtheGreatDepressionthatprevailedinthegoldstandardcountriesduringtheperiod1929–1935.Usingeconometrictestingandcounterfactualsimulations,thisarticleshowsthatifChinahadbeenonthegoldstandard(oronthegold-exchangest

3、an-dard),thebalanceoftradeofthissemiclosedeconomywouldhavebeenameliorated,butthegeneralpricelevelwouldhavedeclinedsignificantly.Duetolimitedstatistics,twoimportantvariables(GDPandindustrialproduction)arenotincludedintheanalysis,butthegeneralargumentthatthesilver

4、standardwasalifeboattotheChineseeconomyremainsdefensible.PROPOSITION‘Thegoldstandardofthe1920ssetthestagefortheDepressionofthe1930sbyheight-eningthefragilityoftheinternationalfinancialsystem.Thegoldstandardwasthemechanismtransmittingthedestabilizingimpulsefromth

5、eUnitedStatestotherestoftheworld.Thegoldstandardmagnifiedthatinitialdestabilizingshock.Itwastheprin-cipalobstacletooffsettingaction.Itwasthebindingconstraintpreventingpolicymakersfromavertingthefailureofbanksandcontainingthespreadoffinancialpanic.Forallthesereaso

6、ns,theinternationalgoldstandardwasacentralfactorintheworldwideDepression.Recoveryprovedpossible,forthesesamereasons,onlyafterabandoningthegoldstandard.’(Eichengreen1992:xi)Otherstudies,suchasEichengreenandSachs(1985),Hamilton(1988)andBernankeandJames(1991)suppo

7、rtthisview.This‘goldenfetters’hypothesisgivesthegoldstandardamajorroleinthecausationandtransmissionofthe1929GreatDepression(Temin1993:87).Theworldgoldstandardsystemprevailedbetweenthe1870sandtheearly1930s.Itcanbeunderstoodasequivalenttoafixedexchangerateregimeth

8、attiedgold*Allstatisticaldatausedinthispaperareavailablefromtheauthorsuponrequest.FinancialsupportfromNationalScienceCouncil(Taiwan)undercontractNSC88-2415-H-007-005isgratef