The IMF has recently revised its position on capital controls, acknowledging that they may help prevent financial crises. This column examines the effects of capital controls imposed during the Great Depression. Capital controls appear not to have been successfully used as tools for rescuing banking systems, stimulating domestic output, or for raising prices. Rather they appear to have been maintained as a means for restricting trade and repayment of foreign debts.Pretty much what Milton said;
Time-series analysis suggests that countries imposing capital controls did not actively pursue expansionary monetary policy after abandoning gold. An examination of discount-rate policy of capital-control countries suggest that, while capital-control countries did not follow France’s lead and continue to raise rates after imposing controls, they also did not pursue a discount-rate strategy similar to the US – a country which floated and then aggressively pursued expansionary monetary policy. ... the average growth rate in the money supply of capital-control countries turned positive after their imposition, but it was slower than the growth rates of either floaters or gold bloc countries once they finally abandoned. For the countries that imposed capital controls in 1931 and 1932, these findings are consistent with a large body of research suggesting that monetary policies were far too tight in the early 1930s (Eichengreen 1992, Friedman and Schwartz 1962, Temin 1989) – promoting deflation and, in some cases, contributing to the collapse of banking systems. In contrast, countries that moved to floating rates pursued expansionary monetary policies and appear to have halted further deflation and declining incomes and production.Of course, next time could be different!