The Great Depression, however, was a different story. At first, the economic tactics of the First World War were not applied to this particular catastrophe. At the start of that war, the Canadian government knew it was about to face a need for a staggering amount of money. The idea of a government spending its way out of a depression, however, was still a foreign notion to all but advanced economic thinkers. And unlike at the beginning of the First World War in 1914, at the start of the Great Depression in 1929, governments didn’t foresee an immediate need for large sums of money. But that soon changed.
In 1931, exporting gold from Canada was prohibited. As well, banks and the government together persuaded citizens to refrain from exchanging their cash for gold. It was promoted as a patriotic duty, but its main purpose was to protect gold reserves to prop up unstable banks. Nobody said it out loud, but Canada had once again gone off the gold standard. The United States went off it that same year as part of President Franklin D. Roosevelt’s “New Deal” economic recovery plan. Both countries stayed off the standard until after the Second World War.
The post-war fate of the gold standard
As the Second World War ended, 44 nations met in Bretton Woods, New Hampshire, to establish the post-war economic relations of Western countries. The Bretton Woods Agreement pegged currencies of the participating nations to the US dollar, which would, in turn, be backed by the United States’ enormous holdings of gold. The gold-backed US dollar offered needed stability to the unstable currencies of countries in economic ruin, flattening the playing field for international exchange rates. This avoided the sort of instability, inflation and social unrest that plagued Europe following the First World War—all of which led, ultimately, to the Second World War. Citizens still couldn’t exchange their bank notes for gold, but this was the gold standard in a broad form.
