He was sharply criticized for making public statements about Fed direction, which he said was a "lapse in judgment. At the same time, the large banks — which would have intervened before the founding of the Fed — felt that protecting their smaller brethren was no longer their responsibility.
While it lasted, the export boom of — generated strong gains in growth had averaged nearly 4 percent annually, a rate that has never again been matched over a comparable length of time.
Moreover, most of the failing banks were relatively small and not members of the Federal Reserve System, making their fate of less interest to the policymakers. To a first approximation, industrial countries are most concerned that domestic aggregate demand be set at the level that best fosters price stability and a return to full employment at home.
After the war, in contrast, both economic views and the political balance of power had shifted in ways that reduced the influence of the gold standard ideology. Looking back now, what in your view was the actual cause?
Again, the late wave of bank failures in Philadelphia quickly burned out after deposits had moved from the lightly regulated trust banks, which had been on the leading edge of real estate lending and securities speculation, to the far better capitalized national banks.
Yet the overwhelming portion of this unprecedented contraction was in exports, inventories, fixed plant and equipment, and consumer durables. Well, we have to distinguish between the recession ofthe early stages, and the conversion of that recession into a major catastrophe.
As I have already described, the banking sector faced enormous pressure during the early s. Return to text 8. However, in much the same way that a medical researcher cannot reliably infer the causes of an illness by studying one patient, diagnosing the causes of the Depression is easier when we have more patients in this case, more national economies to study.
There is but one answer: Some viewed the Depression as the necessary purging of financial excesses built up during the s; in this view, slowing the economic collapse by easing monetary policy only delayed the inevitable adjustment. Yet the outcome was perverse: The second monetary policy action identified by Friedman and Schwartz occurred in September and October of First, the existence of the gold standard helps to explain why the world economic decline was both deep and broadly international.
Bernanke served as a member of the Board of Governors of the Federal Reserve System from to By contrast, the real cause of the Great Depression was the massive and unsustainable expansion of credit and bank lending during the Great War ofand the financial boom of Conse- quently, commercial banks were not constrained at all in their ability to make loans or generate demand deposits M1.
Both types of policies were decried--and in some textbooks, still are--as having prolonged the Depression by disrupting trade patterns while leading to an ultimately fruitless and destructive battle over shrinking international markets.
Ghosh, Jun Kim, Mahvash S. The public therefore realized that only a few more days of the panicked gold drain could cause a sharp constriction of both the hand-to-hand currency supply and the banking system overall. I have only scratched the surface of the fascinating literature on the causes of the Great Depression, but it is time that I conclude.
Cotton textile mill manufacturing, for example, surged from 56 percent of capacity in July to 97 percent in October, and mill consumption of wool nearly tripled during the same period.
Under the gold standard, the need to maintain a fixed exchange rate among currencies forces countries to adopt similar monetary policies. Finally, the reconstituted gold standard lacked the credibility of its prewar counterpart.
In Septemberfollowing a period of financial upheaval in Europe that created concerns about British investments on the Continent, speculators attacked the British pound, presenting pounds to the Bank of England and demanding gold in return.
That was certainly the case with the first significant outbreak of bank runs in November when the Caldwell banking chain collapsed. The banking crisis had highly detrimental effects on the broader economy. Indeed, the American economy had been thoroughly internationalized after August and had grown by leaps and bounds as a great export machine and prodigious banker to the world.
Instead, they struck with distinct regional incidence in the agricultural and industrial interior. Back then there had been no bank runs in the canyons of Wall Street because the great banks had largely observed time-tested standards; that is, they had been fully and adequately collateralized on their stock loans and were sitting on cash reserves up to 20 percent of deposits.
Nevertheless, the International Monetary Fund has suggested that, in carefully circumscribed circumstances, capital controls may be a useful tool. For example, the Fed could have been more aggressive in lending cash to banks taking their loans and other investments as collateralor it could have simply put more cash in circulation.
Surviving banks, rather than expanding their deposits and loans to replace those of the banks lost to panics, retrenched sharply. Bernanke has given several lectures at the London School of Economics on monetary theory and policy.
With the gold standard constraint removed and the banking system stabilized, the money supply and the price level began to rise. However, in the absence of that leadership, the worldwide monetary contraction proceeded apace.
The Federal Reserve had the power at least to ameliorate the problems of the banks. For one, the exchange rates implied by the gold valuations that countries chose for their currencies following World War I were in some cases far from the levels consistent with balanced flows in trade and payments.
Anna Bernanke and Roger W. Moreover, even if the expansionary policies of the advanced economies were to lead to significant currency appreciation in emerging markets, the resulting drag on their competitiveness would have to be balanced against the positive effects of stronger advanced-economy demand.
Leadership from the Federal Reserve might possibly have produced better international cooperation and a more appropriate set of monetary policies.Bernanke's thesis adviser was the future governor of the Bank of Israel, Commission approved a resolution on February 21 to name Exit along Interstate Highway 95 in Dillon County the Ben Bernanke Interchange.
Essays on the Great Depression. Princeton University Press. Essays on the Great Depression Ben S. Bernanke Princeton, N.J.: Princeton University Press,pp.
Economists’ fascination with the description and interpretation of the. Chairman Ben S. Bernanke. At the Department of Economics and STICERD (Suntory and Toyota International Centres for Economics and Related Disciplines) Public Discussion in Association with the Bank of England, London School of Economics, London, United Kingdom As my audience knows, on the eve of the Great Depression the exchange rates of.
Bernanke, like other economic historians, characterized the Great Depression as a disaster because of its length, depth, and consequences.
The Depression lasted a decade, beginning in. Ben Bernanke and Harold James Introduction Recent research on the causes of the Great Depression has laid much of the blame for that catastrophe on the doorstep of the international gold standard.
In his new book, Temin () argues that structural flaws of the interwar gold. "[H]aving devoted much of his career to studying the causes of the Great Depression, Bernanke was the academic expert on how to prevent financial crises from spinning out of control and threatening the general economy.Download