| Abstract | This paper offers a reinterpretation of the influence on China’s economy and its departure from the silver standard of U.S. Silver purchases. Recently, China in the Great Depression is described in light of a model of free banking under a commodity standard by some researchers. The interpretation is that China’s money supply had not decreased in the model, which made china suffered little in the Great Depression. It was true prior to U.S. Silver purchases, however, we believe that U.S. Silver policy caused the outflow of China’s silver, leading to severe deflation and economic recession, and eventually forced China off silver and onto a fiat standard. China in the Great Depression provided a “natural experiment” for the research of the causes of the Great Depression. It further validates that money matters in the exacerbation and contagion of the Depression, which provides us with a reference in dealing with the current worldwide economic recession. |