<P> In some cases, deflation can be hard on sectors of the economy such as agriculture, if they are deeply in debt at high interest rates and are unable to refinance, or that are dependent upon loans to finance capital goods when low interest rates are not available . Deflation erodes the price of commodities while increasing the real liability of debt . Deflation is beneficial to those with assets in cash, and to those who wish to invest or purchase assets or loan money . </P> <P> More recent research, by economists such as Temin, Ben Bernanke, and Barry Eichengreen, has focused on the constraints policy makers were under at the time of the Depression . In this view, the constraints of the inter-war gold standard magnified the initial economic shock and were a significant obstacle to any actions that would ameliorate the growing Depression . According to them, the initial destabilizing shock may have originated with the Wall Street Crash of 1929 in the U.S., but it was the gold standard system that transmitted the problem to the rest of the world . </P> <P> According to their conclusions, during a time of crisis, policy makers may have wanted to loosen monetary and fiscal policy, but such action would threaten the countries' ability to maintain their obligation to exchange gold at its contractual rate . The gold standard required countries to maintain high interest rates to attract international investors who bought foreign assets with gold . Therefore, governments had their hands tied as the economies collapsed, unless they abandoned their currency's link to gold . Fixing the exchange rate of all countries on the gold standard ensured that the market for foreign exchange can only equilibrate through interest rates . As the Depression worsened, many countries started to abandon the gold standard, and those that abandoned it earlier suffered less from deflation and tended to recover more quickly . </P> <P> Richard Timberlake, economist of the free banking school and protégé of Milton Friedman, specifically addressed this stance in his paper Gold Standards and the Real Bills Doctrine in U.S. Monetary Policy, wherein he argued that the Federal Reserve actually had plenty of lee - way under the gold standard, as had been demonstrated by the price stability policy of New York Fed governor Benjamin Strong, between 1923 and 1928 . But when Strong died in late 1928, the faction that took over dominance of the Fed advocated a real bills doctrine, where all money had to be represented by physical goods . This policy, forcing a 30% deflation of the dollar that inevitably damaged the US economy, is stated by Timberlake as being arbitrary and avoidable, the existing gold standard having been capable of continuing without it: </P>

How did agriculture lead to the great depression