ABSTRACT
This chapter examines characteristics and causes of American business cycles in the era before the First World War – the “prewar” era – especially the years from 1879 on, which represent a distinct monetary regime. In January 1879, the U.S. Treasury began to redeem legal-tender currency in gold at a fixed rate, placing the U.S. within the international gold-standard system that had developed in the 1870s (Meissner 2005). Unlike most large gold-standard countries, the U.S. had no central bank. In 1914, the American monetary regime changed in two ways: the international gold standard broke down as other countries suspended gold convertibility, and the U.S. gained a central bank in the Federal Reserve system.
