Mark Toma’s *Monetary Policy and the Onset of the Great Depression*

by on March 20, 2014 at 12:08 am in Books, Economics, History | Permalink

The subtitle is The Myth of Benjamin Strong as Decisive Leader.  Here is a summary from the book’s back cover:

Monetary Policy and the Onset of the Great Depression challenges Milton Friedman and Anna Schwartz’s now-consensus view that the high tide of the Federal Reserve System in the 1920s was due to the leadership skills of Benjamin Strong, head of the Federal Reserve Bank of New York. In this new work, Toma develops a self-regulated model of the Federal Reserve, which stands in contrast to a conventional discretionary model. Given the easy redemption of dollars for gold and the competition among Reserve banks, the self-regulated model implies that the early Fed could control neither the money supply nor the price level. Exploiting an untapped data set, later chapters test the thesis of self-regulation by focusing on the monetary decisions of individual Reserve banks.

The micro-based evidence indicates that “Reserve banks really did compete” – and that Benjamin Strong as decisive leader during the 1920s is a myth. This finding, with its emphasis on monetary policy in the years leading up to the Great Depression, will be of interest to scholars, students, and sophisticated lay readers with an interest in macroeconomic and monetary economic policy issues, specifically to those with an interest in economic history.

I have not read it yet, but it is sure to be controversial.

Ray Lopez March 20, 2014 at 7:55 am

I love this kind of revisionist history. It makes sense if economic systems are, short term, random (with perhaps an upward bias or downward bias if good/bad policies adopted, as in capitalism vs communism). Also Fischer Black more or less said the Fed is irrelevant, and reacts to the market rather than steers the market. That said, “don’t fight the Fed” is a hoary maxim, perhaps true, perhaps not.

Tom March 20, 2014 at 8:53 am

At $104.50 the only people reading it will be econ professors who get the book for free.

tom mullaney March 20, 2014 at 9:45 am

$104.50 ! Surely they jest.

Albigensian March 20, 2014 at 1:20 pm

75 years after the Great Depression ended, there doesn’t seem to be any real consensus among economists on its major causes- or on whether the contemporary remedies to fix it did more harm than good.

There seems to be a general consensus on a few things- for example, that protectionism made things worse. And that banking systems had to be kept alive, somehow.

But even on Keynsian “pump-priming” there seems to be plenty of dissent.

It just seems surprising, and disappointing. It may be the biggest economic event of the 20th century, yet no reasonably complete consensus on its causes, and on what remedies were (or could have been) effective?

Art Deco March 21, 2014 at 8:07 am

75 years after the Great Depression ended, there doesn’t seem to be any real consensus among economists on its major causes- or on whether the contemporary remedies to fix it did more harm than good.

1. The catastrophically rapid implosion ceased in the summer of 1932 when the Reconstruction Finance Corporation began pumping funds into commercial enterprises and shortly after the Federal Reserve undertook open market operations.

2. The economy began to recover immediately and rapidly in the spring of 1933 when steps were undertaken to contain an ongoing banking crisis and when the currency was devalued. The same happened in Britain in the Fall of 1931.

I’d say there ought to be a consensus on some points.

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