Found this interesting article on Brad DeLong's blog.
|Before the Great Depression none of the major industrial powers of the world pursued macroeconomic policies. Instead, they held that that government is best which governs least as far as economic policy was concerned and bound themselves with the golden fetters of the classical gold standard. A balanced budget was necessary to maintain confidence that a country would maintain its gold parity—hence no fiscal policy expansion. Under the gold standard the domestic money supply was|
determined by the ebb and flow of gold reserves—hence no, or rather little, conventional monetary policy or quantitative easing. And under the gold standard countries except for Great Britain had very limited powers to support or recapitalize their own banks: when Austria tried in 1931 it found itself faced with an immediate choice of abandoning its banking policy or abandoning the gold standard.
So a New Deal was simply not possible as long as countries remained on the gold standard during the Great Depression—only after the golden fetters were cast off could the government even try to use its monetary, fiscal, and banking policy tools to promote recovery. This constraint gives us as clear evidence as we want that the New Deal—or rather New Deals, for each major industrial country during the Great Depression had its own—mattered for recovery. We know when each of the five major
industrial countries cast off the gold standard. We know how quickly each of them recovered from the Great Depression. There is a perfect rank correlation between how early a country abandoned gold and how rapid and complete its recovery was, as this chart that I have added to from Eichengreen (1992) shows.
Such a perfect rank correlation would happen only one time in 120 if there were really no connection between a country’s adoption of a New Deal and economic recovery from the Great Depression.