Banking and the Business Cycle

The task that is attempted in this book is a contribution to an understanding of the banking and financial events of the War and post-War period as the underlying causes of the Great Depression in the United States. There were many causes which contributed to this collapse; among others, mention might be made of misguided tariff policy, war debts, monopolistic practices. Our failure to accord certain non-monetary phenomena special treatment is not to be construed as disregarding their influence; we have preferred to focus attention upon those causes which we believe to be predominantly basic.

There is good reason for this belief. In no previous depression have all of the same non-monetary phenomena been present; in no previous depression have the monetary phenomena been absent. The financial mistakes of the past two decades are not dissimilar to those of England during and following the Napoleonic Wars, and the inflation of the Civil War and the depression of the ’seventies bear striking resemblance to the recent upheaval; the follies of the ages are repeated again and again. It is a melancholy fact that each generation must relearn the fundamental principles of money in the bitter school of experience. The inflationists, it would seem, we always have with us. It is nevertheless a duty of economists to devote attention to periodic reiteration of the ancient truths of monetary science; it is necessary to make as familiar as possible the workings of the financial machinery if further errors are to be avoided in the future. It is to the mismanagement of the monetary mechanism that most of our recent troubles are chiefly ascribable. And with the juggernaut of another inflationary boom already upon us, emphasis upon the monetary causes of the last depression, to the neglect of others, is not only warranted but needful if progress toward an understanding of business cycles is to be expected.

The scope of this study we have endeavored to explain fully in the introductory chapter. It remains for us here to indicate our obligations to those who have aided in one way or another in the constructive part of the work. Theorists in the field of business cycle causation owe a permanent debt of gratitude to the work of Robertson, Hayek, and Keynes; ours will be sufficiently obvious in the pages which follow, but we would emphasize it at this point. Our purpose has been in large part that of developing the underlying theoretical portion of their works into an explanation of the depression in this country. Of American economists writing before the event, Dr. B. M. Anderson, Jr. and Professor H. Parker Willis were perhaps most conversant with the nature of the post-War banking developments leading up to the 1929 panic, and our own knowledge has been enriched by their analyses. Professor Ralph A. Young’s study for the National Industrial Conference Board, The Banking Situation in the United States, proved an invaluable guide. Finally, Professor T. E. Gregory has unknowingly aided in smoothing several knotty points.

We are indebted to Professor James Washington Bell of Northwestern University and to Dr. Howard Bowen of the State University of Iowa for direct and personal interest while the work was in preparation. Professor Bell read the manuscript in entirety, and made suggestions as to organization and placement of emphasis which have been incorporated. Dr. Bowen was an interested and friendly critic during the earliest stages, and aided in clarifying several theoretical questions, especially in Chapter V. But no amount of acknowledgment to others can shift responsibility for any faults which may inhere in the volume.

C. A. P.

T. F. M.

R. W. N.

February 28, 1937