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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 pre-

Depression 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-of-

state 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

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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.

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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

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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

13

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

15

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 re-

emphasizes 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

16

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.

17

“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

18

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

19

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

20

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

21

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 self-

determination, 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

22

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.calvin-

coolidge.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.

23

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

24

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.

25

lxxiv

Ibid., pp. 210–221. lxxv

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

Liaquat Ahamed, Lords of Finance: The Bankers Who Broke the World, New York: Penguin Group, 2009, p. 501. xci

James D. Hamilton, “Comments on ‘The French Gold Sink and the Great Deflation of 1929-32,’” for Cato Papers

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