Download Coolidge Prosperity Gave America the Reserve to Weather the

Coolidge Prosperity Gave America the Reserve to
Weather the Great Depression
Robert P. Kirby
Overview
The world’s preoccupation with the millennium, Google’s emergence, 9/11,
the Fukushima Daiichi nuclear fiasco, and Europe’s current economic crisis, has
eclipsed one the world’s greatest unsolved mysteries. What caused the Great
Depression? This question remains particularly relevant just five years after
another epic-scale financial crisis nearly took down the world financial system.
But there is now an important new consensus emerging. The proof is cloaked in
statistical algorithms, formulae, and economic-speak, which makes translation
difficult, but let’s go back to the Jazz-Age Roaring Twenties to reexamine the
evidence.
Calvin Coolidge assumed the presidency of the United States on August 2,
1923 following the death of Warren G. Harding. Coolidge, together with Treasury
Secretary Andrew W. Mellon, endeavored to fulfill Harding’s 1920 campaign
promises to return the nation to “normalcy” following World War I. i Together
they engineered an era of unparalleled growth and prosperity for America.ii By
harnessing America’s financial resources, Coolidge and Mellon were successful in
making private funding available for such emerging industries as automobile
production, electricity generation, radio broadcasting, consumer products, aviation,
and real estate construction.iii Gross National Product from 1923 to 1928 grew
roughly three percent annually.iv The Coolidge administration’s success helped to
shrink the national war debt by 34 percent, enhance government efficiency, and cut
the tax burden on American citizens. v It was a moral imperative.vi By March 3,
1929, when Coolidge stepped down as president, tax rates had been slashed to less
than one-third those of wartime levelsvii and; “By 1927, 98 percent of the
population paid no income tax.” viii People had jobs and the unemployment rate
was 3.3 percent. For the first time ordinary people could afford luxuries such as
automobiles, radios, refrigerators and vacuum cleaners.ix
Within a year after Coolidge’s leaving office the United States found itself
in an economic slump. The stock markets crashed on Black Thursday, October 23,
1929 and fell 20 percent. Big banks bought stocks in an attempt to calm the
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market so that it ended the day down only six percent. The second “hurricane of
liquidation” roared on Black Monday, October 28 and the Dow was down roughly
14 percent.x Despite the October crash, the Dow for the calendar year ended down
roughly 11.9 percent.xi After that initial shock, industrial production fell 37
percent from its peak in 1929 to December 1930. The Depression had arrived.
“If the Great Depression was severe by late 1930, over the next two years it
became horrific.”xii The Great Depression was an economic period the likes of
which the world had never known. At their worst levels U.S. stocks plummeted 90
percent from their peak, industrial production declined 47 percent, real GDP fell 30
percent, deflation was 33 percent, and unemployment exceeded 24 percent. The
economy did not return to its previous levels until 1937 and to its pre-Depression
growth path until 1942 during the midst of World War II.xiii People were
devastated. Both urban and rural areas were decimated. It was the perfect storm.
The search for answers for the Great Depression was urgent. The world’s
most distinguished scholars were baffled and rolled up their sleeves to unravel the
causes and effects of the immediate crisis and construct proactive responses to
prevent such financial calamities in the future. Not surprisingly, the Depression
was a confluence of many complex monetary and political relationships in a
rapidly evolving new order. The Depression is a topic that has generated a vast
body of literature, active debate, and a variety of conclusions that have converged
to a new consensus over the past two decades. The purpose of this paper is to
revisit the Depression years in the wake of new causal revelations and to
reexamine the Calvin Coolidge presidency in the late 1920s. For those readers
wondering if Calvin Coolidge were in any way implicated in the tragedy, rest
assured, he was not.
In 1963, Milton Friedman and Anna J. Schwartz published a legendary
treatise, A Monetary History of the United States, 1867–1960, a statistical study of
the monetary factors in the business cycle, which provided new data and
perspective to previous research. Milton Friedman won the Nobel Prize for his
pioneering work in economics. Friedman and Schwartz made the case that the
economic collapse of 1929–1933 was the product of the nation’s monetary
mechanism gone wrong. Money was not a passive player in the events of the
1930s, “the contraction is in fact a tragic testimonial to the importance of monetary
forces.”xiv They determined that serious errors were made by the U.S. Federal
Reserve System in executing monetary policy prior to and during the Great
Depression. Those policy mistakes were central to its onset, severity, and duration.
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Friedman and Schwartz theorized that the death in October 1928 of
Benjamin Strong, governor of the New York Federal Reserve Bank and perhaps
the most respected banker in the United States, set off a power struggle for control
of U.S. monetary policy as Coolidge was preparing to leave office. This led to
decisions by the Federal Reserve that catapulted America into the Great
Depression.xv
In the spring of 1928 until the crash in October 1929, the Federal Reserve
tightened credit to deter speculation on Wall Street. By July 1928, the discount
rate had been raised in New York to 5 percent, the highest since 1921, and the
System’s sharply reduced holdings of government securities tightened monetary
policyxvi and choked off the economy. According to Friedman, “The major
contraction from 1929 to 1933 was caused primarily by the failure of the Federal
Reserve System to follow the course of action for which it was set up. But instead
of preventing it, they facilitated it.”xvii
More recently, research has progressed beyond the narrow monetarist
answer proposed by Professor Friedman. Disciplined econometric models and
analyses, conceived by such contemporary economic scholars as Ben S. Bernanke,
of Princeton and current Chairman of the U.S. Federal Reserve, Barry
Eichengreen, University of California, Christina D. Romer, University of
California, Peter Temin, MIT, James D. Hamilton, University of Virginia, and
others, reference the publications of scores of economists. These contributions
take the understanding of the Great Depression to a new level. The challenge
begins.
Over the ensuing half-century supporters of the Friedman-Schwartz theory,
known as “monetarists”, clash with other distinguished economists who are unable
to accept certain of the monetarist’s conclusions. Notably, Peter Temin, in 1976,
cautions that there is insufficient data from which to draw firm conclusions and
asserts that political and non-monetary factors were involved as well.xviii The
controversy provokes new and more sophisticated models until, in 1992, Barry
Eichengreen develops a compelling theory that the world’s method for balancing
international finances had been inextricably changed by World War I.
Gold, the only acceptable currency between nations in the olden days,
evolved into a “gold standard” which pegged the values of various currencies to
gold. To make the system work Britain stepped up to become the international
lender of last resort, and with the credibility and cooperation of the world’s central
bankers, the system supported world trade for more than a century.
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Prior to World War I, almost all nations, but most importantly Britain,
France and Germany, defended their currencies by linking them to gold. World
War I changed that as the fragile strands of confidence broke down. The gold
standard which was suspended during the war was being laboriously reconstructed.
The advent of evolving world social pressures introduced tension and politics into
the historic protocol. Central bankers lost their independence in balancing the
payment settlements between their nations, which in turn eroded credibility and
international cooperation.
World War I devastated the physical and monetary infrastructure of Europe.
Currency valuations in Europe were fragile, chaotic, and psychologically driven.
The war put the United States in a different weight class—the 800 pound gorilla.
“The U.S. balance of payments position was greatly strengthened relative to the
war-torn nations of Europe. In the mid- 1920s, the financial accounts of other
countries were tremendously ‘balanced’ by favorable long-term capital outflows
from the U.S.” Despite good intentions the major nations had inadvertently
cobbled together a magnificent house of cards. “If U.S. lending was interrupted,
the underlying weakness of other countries suddenly would be revealed. As
countries lost gold and foreign exchange reserves, the convertibility of their
currencies into gold would be threatened. Their central banks would be forced to
restrict domestic credit, their fiscal authorities to compress public spending, even if
it threatened to plunge their economies into recession.”xix
In 1992, Eichengreen explains, “This is what happened when U.S. lending
was curtailed in the summer of 1928 as a result of stringent Federal Reserve
monetary policy. Inauspiciously, the monetary contraction in the United States
coincided with a massive flow of gold to France, where monetary policy was tight
for independent reasons. Thus, gold and financial capital were drained by the
United States and France from other parts of the world. Superimposed on already
weak foreign balances of payments, these events provoked a greatly magnified
monetary contraction abroad. In addition these events caused a tightening of fiscal
policies in parts of Europe and much of Latin America. This shift in policy
worldwide, and not merely the relatively modest shift in the United States,
provided the contractionary impasse that set the stage for the 1929 downturn. The
minor shift in American policy had such dramatic effects because of the foreign
reaction it provoked through its intersection with existing imbalances in the pattern
of international settlements and with the gold standard restraints.”xx It was the
straw that broke the camel’s back.
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The downturn that began in the United States in the late summer or early
autumn of 1929 was already evident elsewhere and had been for as long as 12
months. The nations of Europe and Latin America were perilously threatened by a
convertibility crisis. So long as governments remained unwilling to devalue they
were forced to draw back. Reflation under the gold standard was impossible
without the cooperation of the other countries.xxi As nations either “sterilized”
gold (accumulated “non-monetized” gold in excess of requirements) or left the
gold standard, the “money multiplier” worked in reverse to constrict the world’s
money supply, which exacerbated the destabilization.xxii
It has been a tortuous road to reach consensus about the cause of the
Depression amid the paucity of consistent hard data worldwide, the complexity of
conflicting theories, and emerging equations and science of macroeconomics. This
new body of research on the Depression focusing on the operation of the
international gold standard (Choudhri and Kochin, 1980; Eichengreen, 1984;
Eichengreen and Sachs, 1985; Hamilton, 1988; Temin, 1989; Bernanke and James,
1991; Eichengreen, 1992) provides new evidence that both reinforces and expands
the monetarists’ beliefs. xxiii There are still refinements to be made and lessons to
be learned, but perhaps the most important link to the solution is most credibly
expressed by Ben S. Bernanke in 2000: “The new gold standard research allows
the assertion … that monetary factors played an important causal role, both in the
worldwide decline in prices and output and their eventual recovery.” xxiv He
identifies the most significant recent development as a change in the focus of
Depression research from a traditional emphasis on events in the United States to a
more comparative approach that examines the experiences of many countries
simultaneously. He further states that, “To an overwhelming degree, the evidence
shows that countries that left the gold standard recovered from the Depression
more quickly than countries that remained on gold.”xxv No account of the Great
Depression would be complete without an explanation of the worldwide nature of
the event and of the channels through which deflationary forces spread among
countries. The comparative perspective substantially improves the ability to
identify the forces responsible for the world depression. xxvi
There is strong evidence suggesting that the Coolidge presidency “was a
period of high prosperity and stable economic growth. An enormous construction
boom rebuilt American cities. The automobile reshaped American life. The bull
market in stocks mirrored soaring American optimism about the future.”xxvii By
the end of Coolidge’s presidency the real market fundamentals were strong.
Productivity and employment were high. Unemployment was 3.3 percent (with a
low of 1.8 percent in 1926). Factory payrolls were up. Production between 1920
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and 1929 grew 3.1 percent annually. Total factor productivity grew 3.7 percent.
Corporate profits and dividends were at record high levels. This was outstanding
economic performance—performance that justified stock market optimism.xxviii
The nation was at peace and had confidence in its government. It was a vital
period. Almost all Americans were enjoying the prosperity of the day. The future
looked bright and exciting. Coolidge embodied the nation’s confidence in the
future. He was the one president that delivered on his promises. His practical and
straightforward decisions were trusted and represented stability.
The Coolidge administration experienced two recessions, in 1924 and 1927,
and the Federal Reserve System deftly mitigated them. Friedman and Schwartz
commend the Federal Reserve during the Coolidge years for its astute decisions
which shaped emerging open-market operations and introduced modern economic
policy-making. “[The recessions] both were so mild that many if not most of
those who lived and worked at the time were unaware that they had happened. …
The close synchronism produced much confidence within and without the system
that the new monetary machinery offered a delicate yet effective means of
smoothing economic fluctuations, and that its operators knew how to use it toward
that end. That confidence was accompanied and in turn strengthened by
refinement of the monetary tools available [and] greater understanding of their
operation.”xxix They later explain, “An active, vigorous, self-confident policy in
the 1920s was followed by a passive, defensive, hesitant policy from 1929–
1933.”xxx
The Coolidge administration returned the U.S. economy to normalcy
following World War I. The reduced national debt together with a stable and
growing economy gave America the financial wherewithal to weather a collapse.
As a safe haven, the U.S. had accumulated three-eighths of the world’s gold supply
but had no prudent method of recycling its reserves. The major powers had not yet
realized that the size, complexity, and interdependence of its economies had
diminished the gold standard’s power to stabilize the monetary regime and, in fact,
had destabilized it.
The Great Crash of October 1929
Documenting the timing and severity of the Great Depression in the United
States and abroad is more straightforward than explaining what caused the
collapse.
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Christina D. Romer describes the U.S. economy as “clearly cooling off”xxxi
in the summer of 1929 and that the major factor influencing monetary policy
during 1928 and 1929 was most decidedly the escalating stock market. James D.
Hamilton cites, “it would have been difficult to design a more contractionary
policy than that adopted [by the Federal Reserve] in January 1928.”xxxii After the
Great Crash in October 1929 the economy continued to fail. Between October and
December 1929 industrial production declined nearly 10 percent.xxxiii The
recession became suddenly worse and the economy steadily eroded with industrial
production falling 37 percent from its peak in 1929 to December 1930. xxxiv
U.S. industrial production tumbled 43 percent further from April 1931 until
July 1932. By 1932, the unemployment rate stood at over 24 percent. The
producer price index declined by slightly over 40 percent between July 1929 and
July 1932.xxxv As part of the decline, Friedman-Schwartz document four waves of
banking panics in the United States. The impact of these banking failures took
many forms as depositors became nervous about the safety of banks and feared
deflation. “There is little doubt that the Federal Reserve could have done
something to stop the first wave of panics in late 1930—but they failed to act. If
they had done so, they might have prevented the later panics that so decimated the
U.S. financial system.”xxxvi
“The timing and severity of the Great Depression varied substantially across
countries.” Great Britain struggled with low growth and recession during most of
the second half of the 1920s, due largely to Winston Churchill’s bold decision to
return to the gold standard with an overvalued pound. Germany entered a
downturn early in 1928 and then steadied before turning down in the third quarter
of 1929. A number of countries in Latin America fell into depression in late 1928
and early 1929. France recorded a short downturn in the early 1930s then
recovered and fell dramatically between 1933 and 1936.xxxvii Canada’s Depression
had approximately the same timing and severity as the U.S.xxxviii
In the spring of 1932, in response to the urging of Eugene Meyer, the new
chairman of the Federal Reserve Board, the Hoover administration and Congress
created legislation to form the Reconstruction Finance Corporation and to allow
government securities as eligible assets to back currency.xxxix The Federal Home
Loan Bank Act was passed. The Federal Reserve adopted a clear expansionary
monetary policy which created a noticeable recovery in real output. Industrial
production rose 12 percent in the four months between July and November 1932,
as the Dow Index hit its Depression era low of 41.22. However, this monetary
expansion ceased when Congress adjourned and the Federal Reserve returned to its
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policy of caution prior to the elections. In February 1933, the final wave of
banking panics pushed the economy back into depression. Only in April 1933 did
the American recovery begin in earnest.xl
Recovery
Romer explains, “Recovery in the United States from the Great Depression
has been alternatively described as very fast and very slow. It was very rapid in
the sense that the growth rate of real output was very large in the years between
1933 and 1937 and after 1938. … Real GNP grew at an average rate of nearly 10
percent per year in the four years between 1933 and 1937, and again in the three
years after the recession of 1937 and the United States entering World War II in
December 1941. The recovery was nevertheless slow in the sense that the fall in
output in the United States was so severe that, despite these impressive growth
rates, real GNP did not return to its pre-Depression level until 1937 and its preDepression growth path until around 1942.”xli
Contrary to conventional thinking, World War II was not the primary source
of the American recovery, as the unemployment rate was still nearly 10 percent as
late as 1941. Neither fiscal policy by the presidential administrations nor monetary
policy by the Federal Reserve System contributed measurably to the recovery.
Instead, recovery can be credited to the increase in the money supply, which was
primarily due to a gold inflow, which was in turn due to the revaluation of gold in
1933 and 1934 and a capital flight from Europe resulting from the region’s
political instability after 1934. The expansion of the monetary regime stimulated
capital goods consumption by generating expectations of future monetary ease,
inflation, and real economic growth.xlii
One may ask, then, if it took more than 70 years for the scholars to
understand the role played by the gold standard as a cause of the Depression, how
could Franklin Roosevelt have known that a devaluation of the dollar in 1933 and
1934 would ignite the recovery from the Depression?
In desperation, both Presidents Hoover and Franklin Roosevelt knew they
had to find a way to stop the deflation and get prices up. Franklin’s secretary-ofstate designate Henry A. Wallace (son of Coolidge’s secretary of agriculture, later
elected vice president of the U.S.) had argued the benefits of Britain’s 1931
devaluation but encountered universal opposition from the Secretary of Treasury,
the Federal Reserve, and the nation’s most influential private bankers. But
8
important new information was uncovered. George Warren, a former
acquaintance of Governor Roosevelt and professor of farm management at Cornell,
had chanced upon a remarkable discovery. In his 1932 exhaustive survey of 213
years of wholesale prices, Warren had found a strong correlation between world
commodity prices and the global supply of gold. When large gold discoveries
came onto the world market, global commodity prices tended to rise. Essentially,
a 50 percent increase in the price of gold (via devaluation of the dollar which
increased money supply) was no different in its effects from suddenly discovering
50 percent more of the metal. While risky, if the hypothesis were true, devaluation
could act as a powerful stimulus for getting prices up.xliii
In President Roosevelt’s celebrated “first hundred days” he bombarded
Congress with New Deal legislation, including the Agricultural Adjustment Act.
Buried in the Act was a last-minute “Thomas amendment” which allowed the
president to devalue the dollar against gold by up to 50 percent. Going off gold
was the best way to lift prices. Roosevelt’s decision rocked the financial world. xliv
The blizzard of New Deal legislation had essentially changed numerous
variables in hopes of finding something that would work. Only in retrospect was it
discovered that the devaluation had been the prime instrument of recovery while
other New Deal programs did not materially support the recovery. In 1989,
Bernanke and Martin Parkinson, of Princeton, state that, “the New Deal is better
characterized as having ‘cleared the way’ for a natural recovery … rather than as
being the engine of recovery itself.” The only aggregate-demand stimulus that J.
Bradford De Long and Lawrence H. Summers, of Harvard, thought might have
contributed to the recovery was World War II, and they concluded that “it is hard
to attribute any of the pre-1942 catch-up of the economy to the war.”xlv In 2007,
New York author Amity Shlaes also concludes that the fiscal policies during the
1930s were flawed.xlvi
Chronicling the Evidence
Anyone and everything associated with the economy came under intense
scrutiny. Solving the mystery of the Depression’s cause became the Holy Grail
for the world’s elite scholars, economists, and historians. The following pages
detail the cumulative process of identification. A listing of source material is
provided for readers who would like to explore the Depression in further detail.
9
As mentioned earlier, in 1963, Milton Friedman and Anna J. Schwartz
published A Monetary History of the United States, 1867–1960, which alleged that
the U.S. Federal Reserve System’s policy mistakes were central to the severity and
length of the Great Depression. They identified at least four distinct “exogenous”
episodes: the “antispeculative” tightening of 1928 to 1929xlvii; a contraction in
October 1931 which provoked “spectacular” bank runsxlviii; an episode in April
1932 easing of monetary policy due to Congressional pressurexlix; and the period
from January 1933 to March 1933 during the lag between President-elect Franklin
D. Roosevelt’s election and inauguration.l These “natural experiments,” in
addition to “cross sectional” evidence based on differences in exchange rate
regimes across countries in the 1930s, offer evidence of the role of monetary forces
in the Depression.
Inevitably, in the absence of any single well-defined statutory objective, conflicts
developed between discretionary objectives of monetary policy. The two most important
arose out of the re-establishment of the gold standard abroad and the emergence of the
bull market in stocks. …
The bull market brought the objective of promoting business activity into conflict
with the desire to restrain stock market speculation. The conflict was resolved in 1928
and 1929 by adoption of a monetary policy not restrictive enough to halt the bull market
yet too restrictive to foster vigorous business expansion. The outcome was in no small
measure a result of the internal struggle for power within the System which followed the
death of Benjamin Strong in October 1928. How to restrain speculation became the chief
bone of contention. … A stalemate persisted throughout most of the crucial year 1929,
which not only prevented decisive action one way or the other in that year but also left a
heritage of divided counsel and internal conflict for the years of trial that followed.
The economic collapse from 1929 to 1933 has produced much misunderstanding
of the twenties. The widespread belief that what goes up must come down and hence
also that what comes down must do so because it earlier went up, plus the dramatic stock
market boom, have led many the suppose that the United States experienced severe
inflation before 1929 and the Reserve System served as an engine of it. Nothing could be
further from the truth. By 1923, wholesale prices had recovered only a sixth of their
1920-21 decline. From then until 1929, they fell on the average of 1 percent per year. …
The stock of money, too, failed to rise and even fell slightly during most of the
expansion—a phenomenon not matched in any prior or subsequent cyclical expansion.
Far from being an inflationary decade, the twenties were the reverse.li
“Benjamin Strong, more than any other individual, had the confidence and
backing of other financial leaders inside and outside the System, the personal force
to make his own views prevail, and also the courage to act upon them.” lii Friedman
elaborates, as recently as 2000, that, “in [his] considered opinion, had Benjamin
10
Strong lived two or three more years, the nation may very well not have had a
Great Depression. … They [Federal Reserve System] did know better.”liii
Friedman and Schwartz’s postulate inspired contemporary economists to
build on its findings. New econometric research rigorously tests and enriches the
theories of cause and effect.
In 1970, Lester V. Chandler, of Princeton, finds that when deflation started
in 1930, farmers were hit hard by sharply lower commodity prices and were among
the first to default which sent undiversified rural banks into failure. While
numerous small banks had failed during the 1920s, the unique conjunction of
undiversified banking and a particularly large increase in agricultural indebtedness
made the financial panics in the United States both more severe and more
persistent than in other countries.liv
In 1976, Peter Temin dissects the arguments of earlier hypotheses and is
underwhelmed, arguing that “the economic collapse itself has suffered a form of
intellectual neglect … economists have left the study of the Depression to others.”
He concludes that both the money and spending hypotheses have serious flaws and
that insufficient data supports them.lv Needless to say, in 1977, Temin’s critique
receives harsh criticism itself from other economists.lvi
Friedman and Schwartz (1963) explained that the general economic
contraction was worsened by the difficulties of the banks by reducing the wealth of
bank shareholders and, most importantly, by leading to a rapid fall in the supply of
money. In 1983, Bernanke adds that nonmonetary factors were at work as well.
The disruptions of 1930 to 1933 reduced the effectiveness of the financial sector as
a whole. The nontrivial costs of intermediation, that of market-making and
information-gathering services, increased and borrowers (especially households,
farmers and small firms) found credit both expensive and difficult to obtain. The
effects of this credit squeeze on aggregate demand helped convert the severe but
not unprecedented downturn of 1929–30 into a protracted depression.lvii
In 1985, Eichengreen and Jeffrey D. Sachs, of Harvard, suggest that
currency depreciation in the 1930s was clearly beneficial for the initiating
countries. They then establish that foreign repercussions of individual
devaluations did have “beggar-thy-neighbor” effects. However, if devaluation
were taken by the group of countries as a whole, adopted even more widely, and
coordinated internationally, it would have hastened economic recovery from the
Great Depression.lviii
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In 1987, James D. Hamilton argues that monetary policies could not have
been the only reason for the 1929–1930 downturn; “the magnitude of the stock
market crash and the initial collapse of industrial production suggest that even
before the first banking crisis of November–December 1930, the U.S. was facing a
more serious recession than in 1921.” He concludes that, “a model that stresses
the destabilizing consequences of unanticipated deflation, increased real service
costs of outstanding nominal debts, and the real effects on the financial system of
the banking panics seems needed to understand the contribution of monetary policy
to the events after 1930.” lix
In 1988, he describes how the precarious status of government debts and
international finance during the 1920s rendered a gold standard vulnerable to the
volatility that made the 1931 downturn more severe.lx
In 1989, Temin takes a position that: “The origins of the Great Depression
lie largely in the disruptions of the First World War. Its spread owes much to the
hostilities and continuing conflicts that were created by the Treaty of Versailles.”
He refers to Churchill’s concept of a “Thirty Years’ War”lxi and argues that the
“interwar” economy was subject to major deflationary shocks. He assigns a
primary role to tight money policy in the late 1920s, which was due to the
adherence of policymakers to the ideology of the gold standard.
Temin maintains that an important element of the Depression was its
international character. The major industrial countries were highly interdependent.
“Stories that deal only with one country have trouble finding causes for the
Depression commensurate with its severity. The origins of the Depression lay in
the interaction of exchange rates and international capital movements. Its
continuation lay in the transmission of its currency crises and banking panic. … It
was hard for any single country to expand on its own.”lxii
Temin’s argument mirrors concerns expressed by British macroeconomist
John Maynard Keynes, who in 1919 predicted World War II.lxiii Keynes advised it
was no longer a net benefit for countries such as Britain to participate in the gold
standard as it ran counter to the need for domestic policy autonomy.lxiv
In 1990, Romer explores the dichotomy that economists often impose
between the Great Crash and the Great Depression and states the case that the
downturn in real output began in August 1929 and accelerated dramatically after
the collapse of stock prices. Romer argues that the crash caused consumers to
12
become temporarily uncertain about future income and choose to delay current
spending on durable goods. This decline in spending then drove down aggregate
income.lxv
In 1991, Bernanke and Harold James investigate the waves of bank failures
during 1930 to 1933 that culminated in the shutdown of the banking system (and of
a number of other intermediaries and markets in March 1933). Notably an
apparent attempt at recovery from the 1929 to 1930 U.S. recession was stalled at
the time of the first banking crisis (November 1930 to December 1930) and
degenerated into a new slump during the mid-1931 panics.lxvi There may have
been a feedback loop through which banking panics, particularly those in the U.S.,
intensified the worldwide deflation.lxvii
They further conclude that recent research on the causes of the Great
Depression has largely blamed that catastrophe on the international gold standard.
They affirm Temin’s (1989) findings that the gold standard’s “rules of the game”
made an international monetary contraction and deflation almost inevitable.
Bernanke and James acknowledge Eichengreen and Sachs’ (1985) evidence that
countries that abandoned the gold standard and the associated contractionary
monetary policies recovered from the Depression more quickly than countries that
remained on gold. The close correspondence (across both space and time) between
deflation during the late 1920s and early 1930s strongly suggests a monetary
origin. The relationship between deflation and nations’ adherence to the gold
standard shows the power of that system to transmit contractionary monetary
shocks. High correlation between deflation (falling prices) and depression (falling
output) helps illustrate the mechanisms by which deflation may have induced
depression in the 1930s.lxviii
In 1991, Harold Bierman, Jr., of Cornell, views the Great Depression from
the investment perspective. He revisits stock market prices and analyzes the
profitability and dividend policies of corporations, as well as margin buying,
probability, and short selling. During 1928 the price earnings ratio for 45
industrial stocks increased from approximately 12 to approximately 14. It was
over 15 in 1929 for industrials and then decreased to 10 by the end of 1929.
(Government bonds in 1929 yielded 3.4 percent and industrial bonds were yielding
5.1 percent.)
There were good reasons for thinking that the stock market was not
obviously overvalued in 1929 and the crash was not inevitable. Bierman explains
why the prevailing “war on speculation” was not constructive in reinforcing
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general confidence. The economic fundamentals were strong. He feels that the
stock market crash resulted more from the misjudgments and bad decisions of
good people than the evil actions of a few profiteers. There were solid reasons for
buying stock in October 1929, but the market sentiment soon shifted from
optimism to pessimism, and the negative psychology of the market became more
important than the underlying economic facts.lxix
Irving Fisher, of Yale, the most prominent American economist of the time
and worth $10 million—all of it in the stock market—declared in 1929, “Stock
prices are not too high, and Wall Street will not experience anything in the nature
of a crash.” On Tuesday, October 15, 1929, he further stated, “Stocks have
reached what looks like a permanently high plateau.”lxx
In 1992, Eichengreen formalizes his thesis entitled, Golden Fetters: The
Gold Standard and the Great Depression, 1919–1939, which documents the
catastrophe of the global Depression phenomenon. The gold standard is
conventionally portrayed as synonymous with financial stability, but precisely the
opposite is true. He describes why the interwar gold standard worked so poorly
when its prewar predecessor had worked so well.lxxi
Echengreen states that the problems with the operation of the gold standard
and the unprecedented rise in unemployment compounded and reinforced one
another. The downward spiral of output and employment in 1929 exacerbated the
difficulty of operating the gold standard. But, a point came where the collapse of
output and employment had proceeded so far that the gold standard could no
longer be supported. Once its provisions were finally removed from the
international scene, economic recovery could commence.lxxii
Eichengreen goes on to confirm that Benjamin Strong’s influence proved
pivotal in developing confidence in the sensitive, intricate, coordination with the
other central bankers. Because of the U.S.’s position as a large creditor nation,
Strong’s judgment, skill, and insight were critical in making trusted decisions that
helped achieve the U.S. fiscal and monetary policy objectives, but at the same time
facilitated other countries to achieve theirs as well. Strong, the former president of
Bankers Trust and inside member of the Wall Street elite, had established tight
working relationships with the heads of the other central banks, especially
Montagu Collet Norman of the Bank of England, Hjalmar Schacht of Germany’s
Reichsbank, and Aime Hilaire Emile Moreau of Banque de France.lxxiii
14
It is noteworthy that Strong fully appreciated the downside for tightening
credit as a tool for controlling speculation in the stock markets.lxxiv As described
by Chandler in 1958, Strong stated:
I think the conclusion is inescapable that any policy directed solely to forcing
liquidation in the stock loan account and concurrently in the prices of securities will be
found to have a widespread and somewhat similar effect in other directions, mostly to the
detriment of the healthy prosperity of this country.lxxv
Andrew Mellon likewise said privately: “When the American people change
their minds, this speculative orgy will stop but not before.”lxxvi
Eichengreen addresses the critical evolution and fiscal impact of
unemployment, wages, work hours, and other social issues. Unions and more
socialized governments gave a stronger voice to the growing clamor for social
change and materially influenced the decisions of the world’s central banks and
policymakers. No understanding of the Great Depression would be complete
without recognizing the huge influences of unemployment and labor unrest.lxxvii
In 1992, Romer illustrates that the rapid rates of growth in real output in the
mid- and late 1930s were largely due to conventional aggregate-demand stimulus,
primarily in the form of monetary expansion. Her calculations suggest that any
self-correcting response of the U.S. economy to low output was weak or
nonexistent in the 1930s.
There is cause to believe that aggregate-demand developments, particularly
monetary changes, were important in fostering the recovery from the Great
Depression. Money supply grew at an unprecedented average of nearly 10 percent
per year between 1933 and 1937 and at an even higher rate in the early 1940s.
This was primarily due to a gold inflow, which in turn resulted from the
devaluation of the dollar during 1933 and 1934 and to a capital flight from Europe
because of political instability after 1934.lxxviii
In 1993, Romer states that while adherence to the gold standard was
probably not the main factor behind the change in U.S. monetary policy in 1928, it
was a crucial factor in determining the response of other countries. She reemphasizes that net exports, which accounted for just 2 percent of the total decline
in real GNP, had little impact on the U.S. economy.lxxix While the Smoot-Hawley
Tariff may not have been a major factor in causing the Depression, the very
discussion of it could very likely have undermined confidence and contributed to
the subsequent stock price declines and the Great Depression.lxxx
15
In 2000, Ben S. Bernanke writes: The new gold standard research allows the
assertion that monetary factors played an important causal role, both in the
worldwide decline in prices and output and their eventual recovery.lxxxi He
describes the most significant recent development was the change from a
traditional emphasis on events in the United States to a more comparative approach
that examines the experiences of many countries simultaneously. Further he
writes: “First, while … shocks to the domestic U.S. economy were a primary cause
of both the American and world depressions, no account of the Great Depression
would be complete without an explanation of the worldwide nature of the event,
and of the channels through which deflationary forces spread among countries.
Second, by effectively expanding the data set from one observation to twenty,
thirty, or more, the shift to a comparative perspective substantially improves our
ability to identify … the forces responsible for the world depression. Because of
its potential to bring the profession toward agreement on the causes of the
Depression … I consider the improved identification provided by comparative
analysis to be a particularly important benefit of that approach.”lxxxii
Bernanke continues that a reasonable compromise position, adopted by
many economists, was that both monetary and nonmonetary forces were operative
at various stages. “Nevertheless, conclusive resolution of the importance of money
in the Depression was hampered by the heavy concentration of the disputants on
the U.S. case—one data point.
“Since the early 1980s, however, a new body of research on the Depression
has emerged which focuses on the operation of the international gold standard
during the interwar period. … Methodically, as a natural consequence of their
concern with international factors, authors … brought a strong comparative
perspective into research on the Depression … with implications that extend
beyond the question of the role of gold standard. … The new gold standard
research allows the assertion with considerable confidence that monetary factors
played an important causal role, both in the worldwide decline in prices and output
and their eventual recovery.”lxxxiii
In 2002, Bernanke honors Milton Friedman in Chicago: “The brilliance of
Friedman and Schwartz's work on the Great Depression is not simply the texture of
the discussion or the coherence of the point of view. Their work was among the
first to use history to address seriously the issues of cause and effect in a complex
economic system, the problem of identification. Perhaps no single one of their
‘natural experiments’ alone is convincing; but together, and enhanced by the
subsequent research of dozens of scholars, they make a powerful case indeed.
16
“What I take from their work is the idea that monetary forces, particularly if
unleashed in a destabilizing direction, can be extremely powerful.” lxxxiv
Did Calvin Coolidge know that the crash was coming?
On January 7, 1933, following the death of President Coolidge, Will Rogers,
the humorist and political observer, wrote these simple but profound words:
Here is a thing do you reckon Mr. Coolidge worried over in late years? Now he
could see further than any of these politicians. Things were going so fast and everybody
was so cuckoo during his term in office, that lots of them just couldent possibly see how
it could ever do otherwise than go up. Now Mr. Coolidge dident think that. He knew that
it couldent. He knew that we couldent just keep running stocks and everything else up
and up and them paying no dividends in comparison to the price. His whole fundamental
training was against all that inflation. Now there was times when he casually in a speech
did give some warning but he really never did come right out and say, ''Hold on there,
this thing cant go on! You people are crazy. This thing has got to bust.''
But how could he have said or done that? What would have been the effect?
Everybody would have said, "Ha, what’s the idea of butting into our prosperity? Here we
are going good, and you our President try to crab it. Let us alone. We know our
business."
Now here is another thing too in Mr. Coolidge's favor in not doing it. He no doubt
ever dreamed of the magnitude of this depression. That is he knew the thing had to bust,
but he dident think it would bust so big, or be such a permanent bust. Had he known of
the tremendous extent of it, I'll bet he would have defied hell and damnation and told and
warned the people about it. …
Now on the other hand in saying he saw the thing coming, might be doing him an
injustice. He might not. He may not have known any more about it than all our other
prominent men. But we always felt he was two jumps ahead of any of them on thinking
ahead.lxxxv
Setting the Record Straight
So there you have it. The Federal Reserve System overrode the objections
of the chronically ailing Governor Benjamin Strong. Despite clear signals of
softness in the U.S. economy in the summer of 1928, the System continued to
17
tighten credit to curtail “speculation” on the New York stock markets. This action
unwittingly unleashed the very domino effect envisaged by Strong. A resulting
shift in policy worldwide, and not merely the relatively modest shift in the United
States, then provoked the contractionary impasse that set the stage for the 1929
downturn. The minor shift in American policy had such dramatic effects because
of the foreign reaction it provoked through its intersection with existing imbalances
in the pattern of international settlements, as well as with the gold standard
constraints. These events caused a tightening of fiscal policies in parts of Europe
and much of Latin America. Superimposed on already weak foreign balances of
payments, these events provoked a greatly magnified monetary contraction
abroad.lxxxvi That set the stage for the Great Depression.
Admittedly, there were factors at work that might have led to a normal
downturn in the business cycle in 1928 and 1929—overexpansion in the 1920s,
lower consumption and other signs of softness in the domestic economy, and an
overly zealous run-up in prices on the stock markets celebrating President
Hoover’s election. Hoover’s personality and style were very different.lxxxvii For
numerous reasons the diminishing optimism and confidence in the future prospects
of America in 1929 led to recession and eventually to the Great Crash. Very
possibly the Federal Reserve’s actions could have significantly minimized the
effects of recession.
In hindsight, could Coolidge possibly have anticipated the role and
limitations of the new gold standard in the interwar period and proactively taken
corrective measures? Coolidge’s top legislative priority was to normalize the U.S.
economy. The Coolidge era “marked the greatest peacetime involvement in world
affairs in American history.”lxxxviii Coolidge had not the slightest hesitation about
returning to the pre-war international gold standard regime. The economy was
thriving. The nation’s ample gold reserves stood ready to underwrite continued
growth. The gold standard had been officially recognized by Congress in the Gold
Standard Act of 1900. It was the law of the land. At the end of the war, it was
determined that the dollar price of gold be maintained at its prewar level. No
major politician in the U.S. questioned the gold standard in the 1920s as the best
method for inspiring trust, stability, and discipline in the system. Coolidge had
lived through financial panics and swings in business cycles and understood the
vital importance of maintaining stability. Other nations were enviously pursuing
their return to gold.
President Coolidge had no jurisdiction over the stock exchanges in the cities
throughout America—the two largest of which, in New York City, were chartered
18
in New York and subject to the laws of the State of New York. Coolidge had no
approval authority over the Federal Reserve System. Its authority was derived
from statutes enacted by the U.S. Congress and the System was subject only to
Congressional oversight. Coolidge worked easily within that framework, though,
as he judged people by the consequences of their acts.lxxxix Benjamin Strong’s
experience and skill in dealing with the intricacies of international monetary policy
were clearly recognized. Coolidge relied on Strong’s unique ability to strike the
delicate balance of encouraging economic growth and price stability in the United
States while propping up the financial reconstruction of Europe.
Europe was in shambles. The peace treaties following World War I left a
burdened world economy still recovering from the effects of war with a gigantic
overhang of international debts.xc The major powers were hopelessly devastated
by the war and especially Germany, France, and Belgium had been plagued with
fragile and volatile currencies.xci There was universal agreement among bankers
that the link to gold was the best defense in the downward spiraling value of
money.
No world leader was aware of the more subtle monetary nuances in the
world’s changing social order. Britain, France and Germany established exchange
rates to suit their internal social, labor, and political agendas with little
coordination or regard for the wider system.xcii While the efforts of the United
States were substantial, they could not overcome Europe’s dysfunctional
governments. The United States was unable to prevent the vying nations from
wrangling for self-interest, autonomy, and position; the “beggar-thy-neighbor”
solution. The world could not fathom the cumulative contractionary impact that
the U.S. and France’s “sterilizing” funds (“non-monetized” gold in excess of
requirements) had in undermining the effectiveness of the entire regime. France’s
gold reserves increased astonishingly from seven percent of the world’s supply in
1926 to 27 percent in 1932. (France’s cover ratio rose from 40 percent in
December 1928 to nearly 80 percent in 1932—the legal minimum was 35 percent.)
The U.S.’s gold dropped from 45 percent to 34 percent of the world’s supply
during this period. The “money multiplier” worked in reverse and had a
significant contractionary effect on the world’s money supply. xciii
During the Coolidge presidency, the “Dawes Plan” restructured Germany’s
war reparation payments which led to an immediate, though interim, German
recovery. The U.S. wrote down the French war-debt by 60 percent to $1.6 billion
in the spring of 1926. Loans to other European nations were restructured and
cancelled. War debts festered as a political sore but never posed an economic
19
problem.xciv The U.S. arranged large loans to facilitate Britain’s return to the gold
standard. In aggregate the U.S. banks loaned over $15 billion dollars. (To grasp
the significance of this exposure, adjusted for the relative size of economies, that
debt would equate to over three trillion dollars today.xcv) These virtually unsecured
loans to Europe far exceeded America’s $4 billion in gold reserves. Even that was
not enough for the seemingly insatiable needs of the debtor nations.
Benjamin Strong felt it was in the United States’ interest to use its huge
resources to help rebuild a fractured Europe. Coolidge agreed with that principle.
As the gold standard evolved in the new era, it became a straitjacket that restricted
capital from flowing back to an illiquid, under-financed Europe. Like a child
outgrowing its shoes, the world needed a new fit. Following the Great Crash a
visionary leader like Strong could very likely have found a way to counteract the
global deflation. (For instance, at Bretton Woods in 1944, Maynard Keynes
suggested a less rigid regime with “pegged but adjustable” rates that allowed
flexibility for countries as their economic circumstances changed.) Instead, due to
the rigidity of their central banking, the major powers failed one by one. Even the
U.S. was battered enough by 1933 that it devalued its currency by 40 percent,
which jump-started recovery from the Depression. Breaking with the gold
standard was the key to economic survival.
The failure of international monetary conferences in the 1870s, 1920s, and
1970s exemplifies the inability to reaching agreements to shift the monetary
system from one trajectory to another. Monetary regimes evolve at their own
momentum. Reforming them constitutes a collective endeavor.xcvi “…[I]t is a
mistake to believe that a gold standard is an institutional arrangement that can by
itself correct for a lack of monetary and fiscal discipline.”xcvii It is unrealistic to
assume that even a president of the United States at that time could have
anticipated the cascading events that led to the Depression and have had the power
to change the world monetary regime in time to avert it.xcviii
One could argue that Coolidge could have proactively set up a safety net in
anticipation of possible unemployment and bank defaults. However, the Coolidge
economy was stable and growing. Preparing for a worldwide Great Depression
during a time of exceptional prosperity did not rank as a high national priority. Job
creation resolved unemployment concerns; banks were generally well financed.
The Federal Reserve System and open market operations worked effectively and
had been strengthened and refined by their successful use.
The Presidential Conference on Unemployment in 1921 led to a successful
20
plan that emphasized local and community solutions. A Bureau of Unemployment
was created to partner private and voluntary organizations with local, state, and
federal agencies to resolve inequities in economic conditions. Coolidge stressed
personal savings, caution, and the importance of “the things that are unseen”—
spiritual, moral, cultural, and religious ideals; character.xcix The president was
elected by an overwhelming majority of Americans that mandated selfdetermination, personal freedom, a free enterprise system, and limited government.
To give individuals more freedom to make their own choices, Coolidge reduced
taxes. It was that freedom that fueled the Coolidge prosperity.
Perhaps Coolidge could have done a better job in dealing with agricultural
issues. High prices for agricultural commodities, combined with readily available
mortgage financing, had ignited a “land boom” in farm states during World War I.
Land values were driven to unsustainably high levels. Following the war, demand
for agricultural products plummeted. Lower prices, farm automation, high local
taxes, and productivity enhancements combined to create severe economic
problems on American farms.c
Coolidge twice vetoed the McNary-Haugen Farm Bill, in 1927 and again in
1928, because he felt it fixed prices and was unconstitutional.ci Coolidge favored a
longer-term, more orderly, and scientific free-market solution utilizing farm
cooperatives and providing credit facilities. He endorsed programs that would help
the small farms and not just the large one-crop farms and special interests. He
eschewed the temporary relief of burdensome government supply-and-demand
management through a complex scheme of acreage allotments, loan levels, price
supports, and export subsidies that would encourage greater overproduction.cii
The Coolidge prosperity created millions of jobs for farm workers leaving
the farms, thereby easing the way for America’s exceptional agricultural
productivity that led to American dominance in world agribusiness. Commodity
prices had risen during 1928 and farmers, with the exclusion of wheat farmers,
fared better.
In the final analysis, the Coolidge administration deserves high praise for its
role in transforming the U.S. economy to one of prosperity. The reduction in the
national debt from $22.3 billion in 1923 to $16.9 billion in 1929—in 2009 dollars
and adjusted for the sizes of the economies this would be equivalent to a debt
reduction of $1.08 trillion todayciii—was only possible with a rigorous blend of: 1)
courageous cuts in federal government spendingciv and 2) strategic cuts in tax rates
21
to jump-start the economy and attract the private investment capital needed by
cash-starved industries seeking to serve the needs of a pent-up marketplace. Paul
Johnson opined, “The Coolidge Prosperity was huge, real, widespread though not
ubiquitous, and unprecedented. It was not permanent—what prosperity ever is?”cv
The Federal Reserve during the Coolidge administration successfully
pioneered and refined open-market operations which mitigated the impact of the
1924 and 1927 recessions. The skillful coordination with the Federal Reserve,
together with disciplined fiscal decision-making, inspired the nation’s confidence
and helps define the presidency of Calvin Coolidge.
Coolidge prosperity created the stable platform and reserve from which
America ultimately survived the Depression. It provided the base from which the
country was able to employ its powerful agricultural and industrial complex. That
strength ultimately allowed America to help re-establish world peace.
While devastating, as Andrew Mellon noted on his 80th birthday in 1935, the
Depression would prove a mere "bad quarter of an hour" in the glorious history of
American finance.cvi And so it did.
I am deeply grateful to Roger Brinner for his directional advice and much needed
pointers. I thank Amity Shlaes for her encouragement and assistance in rejuvenating this
important field of study. I am especially indebted to Jerry L. Wallace, Roby Harrington III,
David E. Hudson, David R. Serra, and members of the Kirby family, Jean, Peter, and Rob, who
have patiently read drafts and offered significant editorial guidance. Any assumptions, errors,
and conclusions, however, are strictly my own.
Bridgewater, VT. November 2, 2012cvii
Robert P. Kirby is a former business executive and former Chairman of the Board of Trustees of
the Calvin Coolidge Memorial Foundation from 2009 to 2011.
i
Calvin Coolidge, First Annual Message to the Congress, December 6, 1923. http://www.calvincoolidge.org/message-to-congress.html
ii
Amity Shlaes, “Silenced Cal and His Economy,” The New England Journal of History, Vol. 68, No. 2, Spring
2012, pp. 3–11. http://www.calvin-coolidge.org/silenced-cal-and-his-economy.html
iii
Andrew W. Mellon, Taxation: The People’s Business, New York: Macmillan, 1924.
22
iv
Harold Bierman, Jr., The Great Myths of 1929 and the Lessons to be Learned, Westport, CT.: Greenwood Press,
1991, p. 41.
v
Amity Shlaes, “Silenced Cal and His Economy,” The New England Journal of History, Vol. 68, No. 2, Spring
2012, pp. 3–11. http://www.calvin-coolidge.org/silenced-cal-and-his-economy.html
vi
Joseph J. Thorndike, "A Tea Party for Calvin Coolidge?” The New England Journal of History, Vol. 68, No. 2,
Spring 2012, p. 86. http://www.calvin-coolidge.org/tea-party-for-calvin-coolidge.html
vii
Ibid., p. 83.
viii
Robert H. Ferrell, The Presidency of Calvin Coolidge, Lawrence, KS: The University Press of Kansas 1998, pp.
170, 171.
ix
Robert Sobel, Coolidge: An American Enigma, Washington, DC: Regnery Publishing, Inc., 1998, p. 278.
x
Liaquat Ahamed, Lords of Finance: The Bankers Who Broke the World, New York: Penguin Group, 2009, pp.
354–56.
xi
Harold Bierman, Jr., The Great Myths of 1929 and the Lessons to be Learned, Westport, CT: Greenwood Press,
1991, pp. 31–34.
xii
Christina D. Romer, “The Nation in Depression”, Journal of Economic Perspectives, Vol. 7, Number 2, Spring
1993, p. 29.
xiii
Christina D. Romer, Encyclopedia Britannica, December 20, 2003.
http://elsa.berkeley.edu/~cromer/great_depression.pdf
xiv
Milton Friedman and Anna J. Schwartz, A Monetary History of the United States, 1867–1960, Princeton, NJ:
Princeton University Press, 1963, p. 300.
xv
Ibid. pp. 296–298.
xvi
Ben S. Bernanke, Conference to Honor Milton Friedman, University of Chicago, Chicago, November 8, 2002.
(http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021108/default.htm#f3
xvii
Milton Friedman, WorldNet, March 19, 2008. http://www.pbs.org/fmc/interviews/friedman.htm
xviii
Peter Temin, Did Monetary Forces Cause the Great Depression? New York: W. W. Norton, 1976.
xix
Barry Eichengreen, Golden Fetters: The Gold Standard and the Great Depression 1919–1939, New York:
Oxford University Press, 1992, p. 12.
xx
Ibid., pp. 12, 13.
xxi
Ibid., pp. 15–20.
xxii
Douglas A. Irwin, “Did France Cause the Great Depression?” National Bureau of Economic Research Working
Paper 16350, September 20, 2010. http://www.cato.org/multimedia/events/french-gold-sink-great-depression
xxiii
Ibid., p. 7.
xxiv
Ibid., p. 7.
xxv
Ibid., p. 8.
xxvi
Ibid., p. 5.
xxvii
Milton Friedman and Anna J. Schwartz, A Monetary History of the United States, 1867–1960, Princeton, NJ:
Princeton University Press, 1963, p. 296.
xxviii
Harold Bierman, Jr., The Great Myths of 1929 and the Lessons to be Learned, Westport, CT: Greenwood Press,
1991, pp. 31–34.
xxix
Milton Friedman and Anna J. Schwartz, A Monetary History of the United States, 1867–1960, Princeton, NJ:
Princeton University Press, 1963, p. 296.
xxx
Ibid., p. 411.
xxxi
Christina D. Romer, “The Nation in Depression,” Journal of Economic Perspectives, Vol. 7, Number 2, Spring
1993, p. 26.
xxxii
James D. Hamilton, “Monetary Factors in the Great Depression,” Journal of Monetary Economics, 19, March
1987, pp. 145.
xxxiii
Christina D. Romer, “The Nation in Depression,” Journal of Economic Perspectives, Vol. 7, Number 2, Spring
1993, p. 29.
xxxiv
Ibid., p. 29.
xxxv
Ibid., pp. 32, 33.
xxxvi
Ibid., p. 33.
xxxvii
Christina D. Romer, Encyclopedia Britannica, December 20, 2003.
http://elsa.berkeley.edu/~cromer/great_depression.pdf
23
xxxviii
Ben S. Bernanke and Ilian Mihov, “Deflation and Monetary Contraction in the Great Depression: An Analysis
by Simple Ratios,” Essays of the Great Depression, Princeton, NJ: Princeton University Press, 2000, p. 115.
xxxix
Liaquat Ahamed, Lords of Finance: The Bankers Who Broke the World, New York: Penguin Group, 2009, p.
439.
xl
Christina D. Romer, “The Nation in Depression,” Journal of Economic Perspectives, Vol. 7, Number 2, Spring
1993, p. 34.
xli
Ibid., pp. 34, 35.
xlii
Ibid., pp. 34–37.
xliii
Liaquat Ahamed, Lords of Finance: The Bankers Who Broke the World, New York: Penguin Group, 2009, pp.
459, 460.
xliv
Ibid., pp. 459–461.
xlv
Christina D. Romer, “What Ended the Great Depression?” Journal of Economic History, Vol. 52, Number 4,
December 1992, pp. 758–759.
xlvi
Amity Shlaes, The Forgotten Man: A New History of the Great Depression, New York: HarperCollins, 2007.
xlvii
Milton Friedman and Anna J. Schwartz, A Monetary History of the United States, 1867–1960, Princeton, NJ:
Princeton University Press, 1963, p. 289.
xlviii
Ibid., p. 317.
xlix
Ibid., p. 324.
l
Ibid., p. 389.
li
Ibid., pp. 297, 298.
lii
Ibid., p. 412.
liii
Milton Friedman, WorldNet, March 19, 2008. http://www.pbs.org/fmc/interviews/friedman.htm.
liv
Lester V. Chandler, America’s Greatest Depression, 1929–1941, New York: Harper and Row, 1970, pp. 53–66.
lv
Peter Temin, Did Monetary Forces Cause the Great Depression? New York: W. W. Norton & Company, 1976.
lvi
Arthur E. Gandolfi and James R. Lothian, “Did Monetary Forces Cause the Great Depression? A Review Essay,”
Journal of Money, Credit and Banking, Ohio State University Press, Vol. 9, No. 4, November 1977, pp. 679–691.
lvii
Ben S. Bernanke, “Nonmonetary Effects of the Financial Crisis in the Propagation of the Great Depression,”
American Economic Review, 73, June 1983, pp. 257–76.
lviii
Barry Eichengreen and Jeffrey D. Sachs, “Exchange Rates and Economic Recovery in the 1930s,” Journal of
Economic History, December 1985, Vol. 45, No. 4, pp. 925–46.
lix
James D. Hamilton, “Monetary Factors in the Great Depression,” Journal of Monetary Economics, 19, March
1987, pp. 167, 168.
lx
James D. Hamilton, “Role of the International Gold Standard in Propagating the Great Depression,” Contemporary
Policy Issues, Vol. VI, April 1988, p. 67.
lxi
Winston S. Churchill, The Second World War: The Gathering Storm, Vol. 1, Boston: Houghton Mifflin, 1948, p.
xiii.
lxii
Peter Temin, Lessons from the Great Depression, Cambridge, MA: M.I.T. Press, 1989, pp. 83, 84.
lxiii
John Maynard Keynes, The Consequences of Peace, London: Macmillan, 1920.
lxiv
John Maynard Keynes, A Tract on Monetary Reforms, London: Macmillan, 1924.
lxv
Christina D. Romer, “The Great Crash and the Onset of the Great Depression,” Quarterly Journal of Economics,
August 1990, pp. 570–624.
lxvi
Ben S. Bernanke and Harold James, “The Gold Standard, Deflation, and Financial Crisis in the Propagation of
the Great Depression: An International Comparison.” In Hubbard, R. Glenn, ed., Financial Markets and Financial
Crises. Chicago: University of Chicago Press for NBER, 1991, pp. 35–68.
lxvii
Ibid.
lxviii
Ibid.
lxix
Harold Bierman, Jr., The Great Myths of 1929 and the Lessons to be Learned, Westport, CT: Greenwood Press,
1991.
lxx
Liaquat Ahamed, Lords of Finance: The Bankers Who Broke the World, New York: Penguin Group, 2009, pp.
349, 353.
lxxi
Barry Eichengreen, Golden Fetters: The Gold Standard and the Great Depression, 1919–1939, New York:
Oxford Press, 1992, pp. 3, 4.
lxxii
Ibid., p. 390.
lxxiii
Ibid., pp. 210–221.
24
lxxiv
Ibid., pp. 210–221.
Lester V. Chandler, Benjamin Strong, Central Banker, Washington, DC: Brookings Institute, 1958, p. 427.
lxxvi
Liaquat Ahamed, Lords of Finance: The Bankers Who Broke the World, New York: Penguin Group, 2009.
lxxvii
Barry Eichengreen, Golden Fetters: The Gold Standard and the Great Depression, 1919–1939, New York:
Oxford Press, 1992, pp. 390, 391.
lxxviii
Christina D. Romer, “What Ended the Great Depression?” Journal of Economic History, Vol. 52, Number 4,
December 1992, pp. 758–759.
lxxix
Christina D. Romer, “The Nation in Depression,” Journal of Economic Perspectives, Vol. 7, No. 2, Spring 1993,
pp. 28, 29.
lxxx
Harold Bierman, Jr., The Great Myths of 1929 and the Lessons to be Learned, Westport, CT: Greenwood Press,
1991, p 16.
lxxxi
Ben S. Bernanke, Essays of the Great Depression, Princeton, NJ: Princeton University Press, 2000, p 7.
lxxxii
Ibid., p. 5.
lxxxiii
Ibid., p. 7.
lxxxiv
Ben S. Bernanke, At the Conference to Honor Milton Friedman, University of Chicago, Chicago, November 8,
2002. http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021108/default.htm#f3
lxxxv
Will Rogers, The Autobiography of Will Rogers, edited by Donald Day. Copyright 1949 by Rogers Company.
Copyright renewed 1977, by Donald Day and Beth Day.
lxxxvi
Barry Eichengreen, Golden Fetters: The Gold Standard and the Great Depression, 1919–1939, New York:
Oxford Press, 1992, pp. 12, 13.
lxxxvii
George H. Nash, “The ‘Great Enigma’ and the ‘Great Engineer’: The Political Relationship of Calvin Coolidge
and Herbert Hoover,” In John Earl Haynes, ed., Calvin Coolidge and the Coolidge Era: Essays on the History of the
1920s. Washington, DC: Library of Congress, 1998, pp. 149–190.
lxxxviii
Warren I. Cohen, “America and the World in the 1920s.” In John Earl Haynes, ed., Calvin Coolidge and the
Coolidge Era: Essays on the History of the 1920s. Washington, DC: Library of Congress, 1998, pp. 233–243.
lxxxix
John Earl Haynes, Calvin Coolidge and the Coolidge Era: Essays on the History of the 1920s, Washington,
DC: Library of Congress, 1998, p. x.
xc
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