The Federal Reserve System and World War I: Designing Policies Without Precedent

2015 ◽  
Author(s):  
Ellis W. Tallman ◽  
Margaret Jacobson
Keyword(s):  
World War I ◽  
Federal Reserve ◽  
World War ◽  
Federal Reserve System ◽  
Reserve System

“We Must Deflate”: The Crime of 1920 Revisited

2016 ◽  
Vol 17 (3) ◽  
pp. 618-650
Author(s):  
CHRISTOPHER W. SHAW
Keyword(s):  
Monetary Policy ◽  
World War I ◽  
Federal Reserve ◽  
Organized Labor ◽  
World War ◽  
Political Pressure ◽  
Federal Reserve System ◽  
The Great Depression ◽  
La Follette ◽  
Reserve System

Post-World War I Federal Reserve System policy focused on reducing price levels. Faith in liquidationist ideas led Federal Reserve officials to maintain tight-money policies during the depression of 1920–1921. Farmers suffering through this economic crisis objected to contemporary monetary policy. Organized labor and leading Progressive reformer Robert M. La Follette Sr. seconded their criticism. Postwar challenges to the nation’s financial leadership and its priorities bore tangible results by producing a number of notable reforms, including modifications of Federal Reserve policy and the Agricultural Credits Act of 1923. In the absence of similar political pressure during the Great Depression, the Federal Reserve System adhered to liquidationist ideas and did not pursue monetary expansion.

A Reconsideration of Federal Reserve Policy during the 1920–1921 Depression

1966 ◽  
Vol 26 (2) ◽  
pp. 223-238 ◽  
Author(s):  
Elmus R. Wicker
Keyword(s):  
World War I ◽  
Federal Reserve ◽  
Agricultural Sector ◽  
Banking System ◽  
Railway Transportation ◽  
World War ◽  
Quick Recovery ◽  
Member Bank ◽  
Reserve System ◽  
Federal Reserve Policy

Criticism of the Federal Reserve Board for not advancing rates earlier in 1919 to halt a rampant inflation is seldom as severe or nearly as devastating as the criticism heaped upon it for not easing credit sooner during the sharp but brief depression episode of 1920–1921. After the collapse of prices in May 1920, the immediate goal of Federal Reserve policy was to prevent a widespread financial crisis by maintaining the liquidity of the banking system. Congress had created the Federal Reserve System for the specific purpose of preventing a recurrence of the financial panics that had plagued our pre-World War I monetary experience. In 1920 the Federal Reserve Banks succeeded in this task by making funds freely available at relatively high discount rates. Somewhat surprising is the fact that there was no liquidation of bank credit nor decline in the money supply during the first six months of the downswing. Loans at commercial banks continued to increase, and member-bank indebtedness continued to rise. The action taken by System officials probably warded off what might easily have been the worst financial catastrophe in our history. Unfortunately, the policy they pursued, though successful in preventing a banking crisis, was inimical to a quick recovery of business activity. Inventory decumulation, particularly in the agricultural sector, was hampered by a bumper harvest and a railway transportation bottleneck which was not eliminated until October.

“Quis Custodiet Ipsos Custodes?” The Federal Reserve System's Founding Fathers and Allied Finances in the First World War

1998 ◽  
Vol 72 (4) ◽  
pp. 585-620 ◽  
Author(s):  
Priscilla Roberts
Keyword(s):  
New York ◽  
Federal Reserve ◽  
The United States ◽  
First World War ◽  
World War ◽  
Federal Reserve System ◽  
Operational Strategies ◽  
The First World War ◽  
First World ◽  
Reserve System

The First World War presented the newly formed Federal Reserve System with issues that were crucial in defining its future institutional character and operational strategies and priorities. From 1914 to 1917 disputes over the relationship between the U.S. and belligerent European nations divided competing groups of New York bankers who had helped to create the Federal Reserve System and who otherwise shared many of the same objectives for its future purpose and functions. These divisions grew particularly acrimonious over policies concerning acceptances, a new financial instrument that could substantially affect the Allied powers' ability to obtain war funding in the United States. Despite these wartime splits, the rival financial groups, led by Benjamin Strong and Paul M. Warburg, generally concurred in assigning a higher priority to the international implications of Federal Reserve policies than to domestic consequences. Likewise, after the war both united in using the Federal Reserve System to facilitate Europe's economic recovery.

Two Notes on the Federal Reserve System

1932 ◽  
Vol 40 (3) ◽  
pp. 379-391 ◽  
Author(s):  
Karl R. Bopp
Keyword(s):  
Federal Reserve ◽  
Federal Reserve System ◽  
Reserve System
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