This is a valuable book on an often-neglected episode in U.S. economic history: the 1933 U.S. default on government debt. This episode is not only of obvious interest to historians of the 1930s, it also has much to teach current economists and policymakers about sovereign debt crises. It is often asserted that defaulting on government debt inevitably leads to economic crisis and to difficulties issuing new debt. Edwards’ book shows that this need not be true; in 1933, the U.S. defaulted, and this default had few negative effects.

The book proceeds largely chronologically from 1932 through 1935. Edward starts the book with a description of the perilous state of the U.S. economy in 1932–1933 and the ideas of Roosevelt’s advisors (the so-called Brains Trust) on how to address the Depression. While much of this history has been recounted elsewhere, Edwards’ account is lucid and economically astute, rightly emphasizing the role of agriculture in Roosevelt’s thinking about the Depression. Roosevelt’s desire to raise crop prices determined both agricultural policy (e.g., the Agricultural Adjustment Act) and exchange rate policy.

Facing pressure from Congress and eager to experiment with all possible means to raise crop prices, Roosevelt took the United States off the Gold Standard on 19 April 1933. Devaluation succeeded at raising crop prices (Temin and Wigmore Reference Temin and Wigmore1990; Hausman, Rhode, and Wieland Reference Hausman, Rhode and Wieland2018), but led to a dilemma similar to that faced by many emerging markets in recent decades. Just as devaluation increases the burden of foreign currency denominated debt in emerging markets, it threatened to lead to widespread bankruptcies in the United States if so-called gold clauses were enforced.

Gold clauses were a standard feature of public and private debt contracts; they stated that the lender had the right to be repaid in gold. This meant, for instance, that a borrower who received a loan for $100 in March 1933 when the official price of gold was $20.67 an ounce would have to pay back a principal of ($100 / 20.67) × 35 = $169 in March 1934 when the official price of gold was $35 an ounce. To avoid the catastrophic consequences of such an increase in debt values, in early June 1933, the Roosevelt administration voided the gold clause in all public and private contracts.

The core of the book traces out the legal and economic ramifications of this decision. Unsurprisingly, holders of both public and private bonds sued to recover the full dollar amount promised by gold clauses (i.e., $169 for every $100). These cases arrived at the Supreme Court in early 1935. On 18 February 1935, the Supreme Court issued a 5–4 decision, ruling that the government could abrogate the gold clause in private contracts. The Court ruled that the government could not do the same for its own, public debt. This adverse decision for the administration was, however, without consequence, since the Court ruled that deflation during the Depression meant that no damages were owed to holders of public debt whose gold clauses were not honored.

In a speech presenting the dissent, Justice James Clark McReynolds declared: “Shame and humiliation are upon us now. Moral and financial chaos may be confidently expected” (p. 178). This is not far off from the prediction of many standard sovereign debt models. Yet Edwards shows that both after the initial voiding of the gold clauses in June 1933 and after the subsequent Supreme Court upholding of this action in February 1935, there is no evidence of negative effects on output or investment. Subsequent to these events output and investment rose; after February 1935, government and corporate bond yields fell. Edwards attributes the lack of a negative reaction to the fact that market participants viewed default as excusable, as a necessary response to the crisis of the Depression.

What would have happened if the Supreme Court had not upheld the abrogation of the gold clause? Here Edwards’ extensive work in the archives pays off; a document in Henry Morgenthau’s papers at the Franklin Roosevelt presidential library details the administration’s contingency plan. Among other actions, Roosevelt considered issuing a proclamation temporarily banning debt repayments in excess of the nominal dollar amount owed. It is hard to disagree with Edwards’ conclusion that an adverse Supreme Court decision would have caused a constitutional crisis.

At 207 pages, a virtue of this book is its conciseness. Inevitably, however, this means that some questions are left for future work. Among others, one wonders what alternatives were open to the Roosevelt administration to encourage recovery without abrogating the gold clause. (Edwards raises this question; he does not have the space to fully answer it.) But this is no criticism; the best books point the way to future authors. I expect Edwards’ book to inspire good work both on the 1930s and on debt defaults more generally.