Advertisement

The Great Depression

  • Giorgio PizzuttoEmail author
Chapter
Part of the Palgrave Studies in Economic History book series (PEHS)

Abstract

The fall in value of financial assets affected banks’ balance of assets and liabilities, resulting in a fall in overall availability of credit accompanied by an increase in investment in government bonds and a reduction in financing of the private sector. The Great Depression was the final phase in a credit cycle fueled initially by the central bank with an expansionary monetary policy and a reduction in interest rates and risk premiums. The effect of this was sustained growth in the real economy. The more contractionary monetary policy that followed interrupted the process of non-bank financial intermediation and caused a reduction in the value of net assets and availability of credit in the banking and non-bank sectors. New issues of stock and bonds in 1928–1929 served to finance corporations via investment banks that purchased them, initially financing themselves on the money market before reselling them publicly. The increase in interest rates reduced the profitability of this process, leading to a sell-off of financial assets and the collapse of the stock market.

Bibliography

  1. Anderson, B. (1949). Economics and the public welfare. Princeton, NJ: Van Norstrand, Inc.Google Scholar
  2. Anderson, H., Calomiris, C., Jaremski, M., & Richardson, G. (2018). Liquidity risk, bank networks, and the value of joining the Federal Reserve System. Journal of Money, Credit and Banking, 50(1), 173–201.Google Scholar
  3. Ashcraft, A., & Wiggers, T. (2012). Defaults and losses on the commercial real estate bonds during the Great Depression era (Federal Reserve Bank of New York Staff Reports 544).Google Scholar
  4. Biais, B., & Green, R. (2007). The microstructure of the bond market in the 20th century (IDEI Working Paper 482).Google Scholar
  5. Chamberlain, L., & Edwards, G. (1927). The principles of bond investment. New York: Henry Holt.Google Scholar
  6. Commercial and Financial Cronicle. (1932). A weekly newspaper representing the industrial and commercial interests of the United States.Google Scholar
  7. Covitz, D., Liang, N., & Suarez, G. (2009). The evolution of the financial crisis: Panic in the asset-backed commercial paper market (FEDS 36).Google Scholar
  8. Edwards, G. W. (1934). Liquidity and solvency of national banks, 1923–33. The Journal of Business of the University of Chicago, 7(2), 161–172.Google Scholar
  9. Edwards, G. W. (1938). The evolution of finance capitalism. New York: Longmans, Green.Google Scholar
  10. Edwards, G. W. (1942). The myths of the security affiliates. The Journal of American Statistical Association, 37(318), 225–232.CrossRefGoogle Scholar
  11. Eiteman, W. (1932, March). The economics of brokers’ loans. American Economic Review, XXII, 66–77.Google Scholar
  12. Eiteman, W. (1933). The relation of call money rates to stock market speculation. Quarterly Journal of Economics, 47(3), 449–463.CrossRefGoogle Scholar
  13. Fabricant, S. (1934). Recent corporate profits in the United States. NBER.Google Scholar
  14. Federal Reserve Bank of New York. (1929). Economic Policy Review.Google Scholar
  15. Federal Reserve Bulletin. (1930).Google Scholar
  16. Federal Reserve of New York Annual Report. (1930).Google Scholar
  17. Filkenstein, M., & Clarke, J. (1937). Mortgage banks: A study in real estate finance. St. John’s Law Review, 12(1), article 3.Google Scholar
  18. Friedman, A., & Schwarz, A. (1963). A monetary history of the United States, 1867–1960. Princeton: Princeton University Press.Google Scholar
  19. Goldsmith, R. (1958). Financial intermediaries in the American economy since 1900. Princeton: Princeton University Press.Google Scholar
  20. Hardy, C. O., & Owens, R. (1924). Interest rates and stock speculation. London: Macmillan.Google Scholar
  21. Hearings Before a Subcommittee of the Committee on Banking and Currency. (1931).Google Scholar
  22. Hearings Before a Committee on Banking and Currency. (1935). The Banking Report Act of 1935.Google Scholar
  23. Hearings Before the Committee on Banking and Currency. (1936). Stock exchange practices.Google Scholar
  24. Hollander, J. H. (1911). Bank loans and stock exchange speculation. National Monetary Commission.Google Scholar
  25. Johnson, E. (1936). The record of long term real estate securities. Journal of Land and Public Utilities Economics, 12, 44–48.CrossRefGoogle Scholar
  26. Koester, G. (1939a). Chicago real estate bonds, 1919–38: I. Corporate history. The Journal of Land & Public Utility Economics, 15(1), 49–58.Google Scholar
  27. Koester, G. (1939b). Chicago real estate bonds, 1919–38: II. Market behavior. The Journal of Land & Public Utility Economics, 15(2), 201–211.Google Scholar
  28. Kuznets, S. (1934, November). Gross capital formation (Bulletin). NBER.Google Scholar
  29. Machlup, F. (1940). Stock market, credit and capital formation. London: William Hodge.Google Scholar
  30. McGrattan, E., & Prescott, E. (2004). The 1929 stock market: Irving Fisher was right? International Economic Review, 45(4), 991–1009.CrossRefGoogle Scholar
  31. Mitchener, K. J., & Richardson, G. (2016). Network contagion and interbank amplification during the Great Depression (NBER Working Paper 22074).Google Scholar
  32. Nicholas, T., & Scherbina, A. (2013). Real estate prices during the roaring twenties and the Great Depression. Real Estate Economics, 2, 278–309.CrossRefGoogle Scholar
  33. Romer, C. D. (1990). The great crash and the great depression. Quarterly Journal of Economics, 105(3), 597–694.CrossRefGoogle Scholar
  34. Steiner, W. H. (1935). Security markets and banking and credit. In A. Bernheim & M. G. Schneider (Eds.), The securities markets. New York: Twentieth Century Fund.Google Scholar
  35. Temin, P. (1976). Did monetary forces cause the great depression? New York: W. W. Norton.Google Scholar

Copyright information

© The Author(s) 2019

Authors and Affiliations

  1. 1.University of MilanMilanItaly

Personalised recommendations