ABSTRACT
In the summer of 1928 the world economic system was subjected to a major destabilising shock emanating from the USA. The mounting speculative boom in the domestic economy and the efforts of the Federal Reserve Board in attempting to restrain it by raising interest rates, resulted in a severe cutback in the volume of American foreign lending to the primary producers on the periphery of the international economy and also to Europe.1 Dependent upon a sustained inflow of foreign capital to maintain external equilibrium the debtor countries were forced to draw on their limited reserves of gold or foreign exchange in order to close the widening gap in their payments balances.2 As a solution to temporary difficulties this was an acceptable reaction but the burden of adjustment to externally generated deflationary pressure was rendered impossibly onerous by a second blow to international equilibrium. Once again it stemmed from the USA and took the form of a downturn in the level of domestic economic activity in the summer of 1929. The collapse of the American boom was to initiate the most severe economic depression in modern history and to destroy the delicate mechanism of an international economy already subject to destabilising forces.3
