Gold sterilization and the recession of 1937–1938

Irwin, Douglas A.

doi:10.1017/s0968565012000236

Cited by 20 publications

(6 citation statements)

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“…As pointed out by Romer (1992), Irwin (2012), and Hausman (2015) it is less clear that fiscal policy, and the veterans' bonus in particular, can account for the 1937-1938 recession. The key problem is the magnitude of the bonus.…”

Section: Discussionmentioning

confidence: 99%

Fiscal Policy and Economic Recovery: The Case of the 1936 Veterans' Bonus

Hausman

2016

American Economic Review

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Conventional wisdom has it that in the 1930s fiscal policy did not work because it was not tried. This paper shows that fiscal policy was tried in 1936. The veterans' bonus of 1936 paid 2 percent of GDP to 3.2 million veterans; the typical veteran received a payment equal to per capita income. Multiple sources, including a household consumption survey, show that veterans spent the majority of their bonus. Point estimates of the MPC are between 0.6 and 0.75. Spending was concentrated on cars and housing in particular. (JEL E21, E32, E62, N32, N42) The gov't last week paid a soldiers' bonus of over two billion and as a result the veterans have been buying cars, clothing, etc. Streets are crowded and the highways are jammed with new cars. It begins to look like old times again. -Benjamin Roth's diary, June 25, 1936 (Roth 2009, p. 172)In most years of the 1930s, increases in government spending were matched by increases in taxes. 1936 was an exception. 1 Over Franklin Roosevelt's veto, congress 1 The seminal reference is E. Cary Brown (1956), who analyzes movements in the full employment deficit over the 1930s. Brown (1956, pp. 863-866) famously concludes that "Fiscal policy, then, seems to have been an unsuccessful recovery device in the 'thirties-not because it did not work, but because it was not tried." This quote is often given in isolation, ignoring Brown's statement that there was significant spending in 1931 and 1936, when the government paid veterans (Brown 1956). Brown may also underestimate the size of the veterans' bonus in 1936. He says that the bonus was $1. 4 billion in 19364 billion in (Brown 1956. This is the dollar value of the bonds issued to veterans that were cashed (see Section IB). The more appropriate measure of the bonus for comparison to other tax and transfer programs is the amount given to veterans. This was $1.8 billion. The magnitude of the bonus in 1936 is what leads me to argue that, contra Brown's statement, fiscal policy was tried in the 1930s, at least in 1936.

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Section: Discussionmentioning

confidence: 99%

Fiscal Policy and Economic Recovery: The Case of the 1936 Veterans' Bonus

Hausman

2016

American Economic Review

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“…But the officials were all too in earnest. To avert the risk of inflation, the Fed took advantage of powers granted it by the 1935 Banking Act to double banks' reserve requirements, while the Treasury for its part began to sterilise gold inflows (Irwin, 2012). Inflation, sure enough, never broke out.…”

Section: Monetary Policymentioning

confidence: 99%

The fiscal and monetary response to COVID‐19: What the Great Depression has – and hasn't – taught us

Selgin

2021

Economic Affairs

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Although some regard the New Deal of the 1930s as exemplifying an aggressive fiscal and monetary response to a severe economic crisis, the US fiscal and monetary policy responses to the COVID‐19 crisis have actually been far more substantial – and, so far, much more effective in reviving aggregate spending. Although many fear that these responses, and the large‐scale increase in bank reserves especially, must eventually cause unwanted inflation, the concurrent sharp decline in money's velocity has thus far more than offset any inflationary effects of money growth, while forward bond prices reflect a general belief that inflation will remain below 2 per cent for at least another decade. Notwithstanding the growth of the Fed's balance sheet, Fed authorities can always check inflation by sufficiently raising the interest return on bank reserves. Nonetheless, recent developments have heightened the risk of ‘fiscal dominance’ of monetary policy at some point in the future.

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“…15 Other scholars who have emphasized the role of the devaluation include Eichengreen and Sachs (1986), Eichengreen (1992), Bernanke (2000), Bernanke and James (1991), Temin (1991), Mundell (2000), and Irwin (2012). It is not possible to do justice to the copious literature on the Great Depression; see, however, Bordo, Choudhri and Scwhartz (2002), Bordo and Kydland (1995), Meltzer (2003), De Long (1990), Wigmore (1987), and Calomiris and Wheelock (1998).…”

Section: Key Datesmentioning

confidence: 99%

Change of Monetary Regime, Contracts, and Prices: Lessons from the Great Depression, 1932-1935

Edwards¹

2019

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I thank Michael Poyker for his assistance. I have benefitted from conversations with Ed Leamer, Al Harberger, George Tavlas, and an editor of this Journal. I thank the participants of the 23d Conference on Macroeconomic Analysis and International Finance, Rethymno, Crete, 2019. This paper draws partially on my keynote speech at the conference. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

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Gold sterilization and the recession of 1937–1938

Cited by 20 publications

References 26 publications

Fiscal Policy and Economic Recovery: The Case of the 1936 Veterans' Bonus

Fiscal Policy and Economic Recovery: The Case of the 1936 Veterans' Bonus

The fiscal and monetary response to COVID‐19: What the Great Depression has – and hasn't – taught us

Change of Monetary Regime, Contracts, and Prices: Lessons from the Great Depression, 1932-1935

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