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Debates on issues about the economy, growth, inequality, fiscal responsibility, and financial crises frequently reduce to debates about money. Moreover, debates about money often reduce to the soundness of money, meaning the ability of a unit of currency to retain its value. Eventually, discussions about soundness touch on the classic era of the gold standard. The aims of this note are to (1) describe the mechanism of the international monetary system known as the gold standard during the time that it had the greatest influence on the global economy; (2) place the gold standard in context with other systems that preceded and followed it; and (3) dispel some enduring misconceptions.

Market lore recounts a host of fabled asset price bubbles: the Dutch tulip bubble of the 1630s, the South Sea and Mississippi bubbles of 1720, the dot-com bubble of the late 1990s, and the global real estate bubble of the mid-2000s. One survey reported the occurrence of some 60 bubbles since the 17th century. Despite their apparent prevalence, asset price bubbles are a challenging theoretical and empirical concept. The aims of this note are to: explore the concept of an asset price bubble; consider some tell-tale signs of a bubble from the standpoints of economic theory, empirical research, and market lore; survey evidence about the existence of bubbles; summarize theories about the causes of bubbles-especially the apparent irrationality of bubbles and the behavior of rational sophisticated investors in buying into them; and finally, highlight some of the regulatory dilemmas that bubbles present. Although the existence of the occasional asset price bubble may seem obvious to the casual observer, this note explains why bubbles are hard to identify and challenging to trade upon.

In February 1933, President Herbert Hoover reviewed the past four years of his administration. He had met a stock market crash and a recession that worsened into the Depression with actions out of the playbook of Republican "orthodoxy": balanced budgets, tax reduction, protectionism, and community relief based on volunteerism. Yet as the Depression deepened, Hoover pivoted toward policies that pushed the limits of his own philosophy: debt financing of fiscal deficits, government investment in private enterprises, social relief, debt moratoriums, and public works spending to promote employment. None of these actions had halted the worsening economic news. In November 1932, New York governor Franklin D. Roosevelt defeated Hoover in the presidential election. Now, in the interregnum before the transfer of office on March 4, 1933, economic conditions turned suddenly worse. Consumers and business leaders deferred spending until the new administration outlined its policies. Hoover sought Roosevelt's support for policies and actions to address the crisis. What should Hoover do or say to elicit that support? The answers lay in careful diagnosis of the problems and prioritization of remedies. Opinion was divided on the question of whether demand shocks or supply shocks had caused the Great Depression-each would dictate different policy actions. What was the appropriate diagnosis? What should be the remedies? The A case presents the dominant narrative; a suggested B case provides correspondence between Hoover and Roosevelt.

Student spreadsheet to case UV7887

Supplement to case UV7888 Following an A case that presents the dominant narrative around the causes and remedies for the Great Depression, this B case provides correspondence between outgoing president Herbert Hoover and president-elect Franklin D. Roosevelt. In 1933, economic conditions turned suddenly worse, and opinion was divided on the question of whether demand shocks or supply shocks had caused the Great Depression-each would dictate different policy actions. What was the appropriate diagnosis? What should be the remedies?

In the A case, UV7891, the leaders of the Federal Reserve Board (FRB) and the US Treasury confronted questions that seemed likely to shape the Federal Reserve (Fed) for years to come. What should be the Fed's role in the American economy? How should the Fed help resolve World War I's debt burden and the resulting inflation? What reforms, if any, should the monetary authorities seek? Perhaps most importantly, was the "orthodoxy" of established practices still appropriate in the world that had emerged from the war? This B case, set in April 1921, follows the continued efforts of the FRB and the newly installed Harding administration, as they fight the worsening depression.

In March 1921, the Federal Reserve Board (FRB) wrestled with setting monetary policy during a severe economic contraction, called by many a depression. FRB members disagreed over whether to respond to the depression, and if so, how. The depression had sparked a crisis of purpose and policy within the FRB. For the past six years, FRB leaders had been trying to get the Treasury to allow the Federal Reserve (Fed) to pursue "orthodox" monetary policies; but the Treasury had demanded that the Fed implement policies that would support America's war effort. The depression also stoked intense criticism of the Fed from Progressives, Populists, labor, socialists, veterans, and farmers, who charged that the Fed caused the depression, and were now agitating for change. The FRB leaders confronted questions that seemed likely to shape the Fed for years to come. What should be the Fed's role in the American economy? How should the Fed help resolve World War I's debt burden and the resulting inflation? What reforms, if any, should the monetary authorities seek? Perhaps most importantly, was the "orthodoxy" of established practices still appropriate in the world that had emerged from the war?

Supplement to case UV7884. In this B case, the actual events of the 1933 World Economic Conference are summarized, along with the actions and intentions of newly elected President Franklin D. Roosevelt, and reactions by the domestic press and the international community. It also includes the text of his remarks to the conference.

In May 1932, US president Herbert Hoover and British prime minister Ramsay MacDonald called for leaders from 65 nations to attend the World Economic Conference, scheduled to occur in the winter of 1933 after the American presidential election. Hoover turned his attention to the instructions he would have to give to the American delegation about the forthcoming conference. Arguments by pundits, critics, and Hoover's advisers fell into at least three mutually exclusive camps. Some wanted the United States to assume world monetary leadership, since the world needed a financial hegemon. Others thought the United States should simply promote better financial cooperation among nations, since the world needed cooperation more than hegemony, and hegemony was costly. The third camp wanted the United States to simply let the markets equilibrate, since even mild "cooperation" might sacrifice national self-interest without much benefit. The global economic depression presented a dire situation. All the old rules of international monetary stability had been broken. Now, what new rules should Hoover aim to promote?

In April 1930, US Treasury Secretary Andrew Mellon reviewed recent stock market events as he prepared to enter a meeting of the Federal Reserve Board, which he chaired. In September and October 1929, the US stock market had fallen about a third, and then recovered somewhat. In response to the turmoil, the Federal Reserve (Fed) had lowered the discount rate in five steps from 6% to 3.71%, and market rates of interest across a range of debt securities had followed. Now, given the recovery in the stock market, Mellon wondered what further guidance to give to the Fed, and what actions to recommend to the president and to Congress. What were the lessons of the recent market turmoil? What policies should the Fed pursue? Answers to such questions depended on agreement about the issues to be resolved. Advice streamed in from business, politicians, the press, and pundits of all kinds, and hinged on interpretations of the recent turmoil, which ranged from a standard cyclical correction to an international crisis. This case presents the events leading up to the Great Depression and explores a range of responses and interpretations by participants, contemporary observers, and scholars of economics and history.

Supplement to case UV7544. From 1721 to 1723, John Law hovered near to France, hoping to receive a message from the regent to return and repair his system. Throughout his exile, Law maintained an amicable relationship with the regent and always hoped to return to France. Meanwhile, the French political pendulum continued to swing to the right, in favor of the financial system of the ancient regime. In short, the new regime deconstructed Law's system: institutions closed, monopolies redistributed, and government debts renegotiated or repudiated. The government sharply limited the granting of corporate charters and development of the banking industry.

Student spreadsheet for cases UV7544 and UV7548.

John Law had fled to safety in Brussels, Belgium, in December 1720. His furtive exit from France confirmed for many people that he was a criminal. Yet only months before, he had been hailed as a financial genius and the second most powerful person in France. In four years, he had managed to refinance the nearly bankrupt government of France and in the process created new markets, institutions, and securities. Then a bubble and crash in France's markets turned public opinion against him. In advance of petitioning for a return to Paris, Law needed to prepare a defense. To sustain a return, he would need to assert that the collapse of the Mississippi Company bubble was a matter of external circumstances and bad luck rather than mismanagement or fraud. On what circumstances could he pin the rehabilitation of his reputation?

In 1822, the directors of the Second Bank of the United States contemplated the election of a new president of the bank. The policies of the new president would either continue those of the retiring incumbent, which had contracted the nation's money supply, restoring the bank's stability after a panic but also stoking outrage across the United States, or deviate from them to support national economic development by providing more credit and a sound paper currency usable throughout the country. The case frames the contest for control of the Second Bank that would ultimately determine the bank's role in the American economy. The case presents opportunities for financial analysis of the health and performance of the Second Bank, for assessment of the governance and management of the bank, and for consideration of the timing of a change in strategy regarding the bank.

Supplement to case UV7532. In October 1720, John Hanger, governor of the Bank of England (BoE), and his fellow directors confronted the imminent collapse of the South Sea Company (SSC). The SSC directors urgently appealed to the BoE for funds to prevent collapse. Should the bank rescue the SSC? The answer to this question hinges upon an assessment of the origins of the market bubble, Britain's strategy of creating trading monopolies, the development and role of the new BoE, and Britain's jockeying to be a major power. The B case presents an epilogue.

Student spreadsheet for cases UV7532 and UV7536.

In October 1720, John Hanger, governor of the Bank of England (BoE), and his fellow directors confronted the imminent collapse of the South Sea Company (SSC). The SSC directors urgently appealed to the BoE for funds to prevent collapse. Should the bank rescue the SSC? The answer to this question hinges upon an assessment of the origins of the market bubble, Britain's strategy of creating trading monopolies, the development and role of the new BoE, and Britain's jockeying to be a major power.

In 1878, President Rutherford B. Hayes must decide whether to sign the Bland-Allison Act and commit the United States to minting silver coins and thus return to a bimetal standard of currency. At issue is whether to grow the nation's money supply to sustain its galloping rate of economic development, or to constrain the money supply growth to enable the country to return to the international gold standard at the pre-Civil War parity to the British pound. National sentiment immediately after the war had been on the side of currency deflation, but the Panic of 1873 marked a turn in sentiment toward inflation. These cases focus on how and why that turn occurred, and its consequences.

Supplement to case UV7525. In 1878, President Rutherford B. Hayes must decide whether to sign the Bland-Allison Act and commit the United States to minting silver coins and thus return to a bimetal standard of currency. At issue is whether to grow the nation's money supply to sustain its galloping rate of economic development, or to constrain the money supply growth to enable the country to return to the international gold standard at the pre-Civil War parity to the British pound. National sentiment immediately after the war had been on the side of currency deflation, but the Panic of 1873 marked a turn in sentiment toward inflation. These cases focus on how and why that turn occurred, and its consequences. The B case provides an epilogue.

Set in November 1896, the case describes the views of the two leading candidates for US president, William Jennings Bryan and William McKinley, along with those of three other figures: J. P. Morgan, Mary Elizabeth Lease, and Eugene Debs. The task for the student is to assess the role of money and financial crises in the evolving political landscape-these five people reflect policy positions across the political spectrum. The main controversy in the case is whether only gold, or both gold and silver, should back the dollar, an issue that has been simmering for about a quarter-century and that is resolved in the election of 1896.