November 1932: Hitler, FDR and European central bankers
The headline of most stock markets reports yesterday said something like "Stocks: Worst Thanksgiving Drop Since ’32". That made me think - what really happened in November 1932? As is the case this time around European worries dominated the financial headlines back in November 1932. The first of two key events of November 1932 was the German federal elections on November 6 1932. We all know the outcome - Hitler's National Socialist Germans Workers' Party (NSDAP) won a landslide victory and got 33.1% of the vote. As the Communist Party won 16.9% the totalitarian parties commanded a firm majority - what at the time was called the "negative majority". This eventually led to the formation of Hitler's first cabinet in January 1933. The second key event of November 1932 of course was the US presidential elections. Two days after the German in elections Franklin D. Roosevelt won the US presidential elections defeating incumbent president Herbert Hoover on November 8 1932. FDR of course in 1933 took the US of the gold standard, but also introduced the catastrophic National Industrial Recovery Act (NIRA). Going through the New York Times articles of November 1932 I found a short article on the gold standard in which it said the following: "Governors of Europe's central banks who met today (November 13 1932) at the Bank of International Settlements expressed the unanimous opinion that the gold standard was the only basis on which the world economic situation could be bettered" Obviously we today's know that the failed gold standard was the key reason for the Great Depression and especially European central bankers' desperate attempt to save the failed monetary regime created the environment in which Hitler and his nazi party was able to win the German elections in November 1932. What would have happened for example if Germany had been given proper debt relief, the European central banks had given up the gold standard and the French central bank had stopped the hoarding of gold? Had I been a Marxist I would had been extremely depressed today because then I would had believed in historical determinism. Fortunately I think we can learn from history and avoid repeating past mistakes. I hope today's European central bankers share this view and will learn a bit from the events of November 1932. If European central bankers this time around decide not to learn from events of 1932 then they might be interested in learning about the dissolution of the Austro-Hungarian currency union in 1919. Then they just have to read this excellent paper by Peter Garber and Michael Spencer.