banking and the business cycle

[...]... to the causes and relevant phases of the cycle beginning in the United States in 1922 and ending with the Great Depression It is at the same time 1 "The Problem of Business Cycles," in the Skandinaviska Kreditaktiebolaget Quarterly Report, January, 1933, p 3 INTRODUCTION 3 devoted to the formulation of a theory of business cycles— for "the present crisis is, in fact, a crisis also for the entire theory... structural, and the equilibrium theories Hence the theoretical portion may be denoted an eclectic theory of the business cycle The views of those who argue that the cycle is a "purely monetary phenomenon," of those who hold that those "real" phenomena connected with the alterations in the structure of production are the root causes, and of those who are devotees of the equilibrium theory of business cycles,... a synthesis or combination of these three main theories The monetary or bank credit theory occupies first rank in the • Ibid., p 3 »Cassel, G., The Theory of Social Economy (New York: Harcourt, Brace & Co., 1932), p 538 3 Strategic Factors in Business Cycles, p 6 4 BANKING AND THE BUSINESS CYCLE chain of causation and explains the origin of the boom; the structural view, with its emphasis upon the. .. laborers their whole product or enough of the whole product of industry to enable them to buy the things they have produced." The present apparent need is not for the propagating of novel theories, but rather for the orienting and synthesizing of extant knowledge The special objective of this volume is an integration of views of the business cycle frequently considered as conflicting the monetary, the structural,... makers, etc., and as they in turn deposit the checks in their (other) banks, the 1 See Phillips, op cit., Ch I l l ; and see Hayek, F A., Monetary Theory and the Trade Cycle (New York: Harcourt, Brace & Co., 1932), Ch IV 18 BANKING AND THE BUSINESS CYCLE bank which originally bought the bonds tends to part company with cash—but that cash reappears as new, excess, reserve, for some other bank (or group... inquire rather fully into the character and nature of post-War developments within the banking system of the United States prior to 1929, particularly from 1922 onwards The striking and farreaching changes which were developing in the structure and operation of the American banking system were intimately connected in a causal fashion with the development of the investment boom and with the origins of the. .. changes in the structure of production and the disequilibrium between saving and investment, explains the underlying character of the boom; and the equilibrium theory is necessary to describe the depression proper and to explain its severity and persistence All three theories in combination give a more nearly complete understanding of the whole cycle than can any single or more particularistic view The central... primarily a central banking phenomenon, it will also be desirable to attempt to unravel some of the changes caused in the structure, organization, and operation of the American banking system by the establishment of the central banking system represented by the Federal Reserve System The special character of the depression is traced to the hyper-elasticity of the Federal Reserve System, and to the operation... unions, and employers Furthermore, the enormity of the stock market crash itself, involving such a large percentage of the population in its ruins, contributed to the severity of the depression Lastly, the fact that in no previous depres- 10 BANKING AND THE BUSINESS CYCLE sion had there been such a wholesale destruction of bank credit, attributable in large part in this instance to the entanglement of the. .. upon the banking system operative in the United States prior to 1914 served both to shape and to accelerate the course of inflation It made possible the method of financing the War that was adopted in this country (without the necessity of suspending the gold standard), and it also assisted in making possible the financial assistance lent the Allied Powers after the United States entered the War The . monetary, the structural, and the equilibrium theories. Hence the theoretical portion may be denoted an eclectic theory of the business cycle. The views of those who argue that the cycle is a. Factors in Business Cycles, p. 6. 4 BANKING AND THE BUSINESS CYCLE chain of causation and explains the origin of the boom; the structural view, with its emphasis upon the changes in the structure. 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