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A Reconsideration of the Causes of the Banking Panic of 1930

Published online by Cambridge University Press:  11 May 2010

Elmus Wicker
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Abstract

The banking panic of 1930 has special significance for assessing the causal role of money during the Great Depression. A detailed examination of the panic-induced bank closings in November reveals that poor loans and investments in the 1920s was the principal factor contributing to the accelerated rate of bank suspensions. These findings are consistent with the. Friedman-Schwartz interpretation of the 1930 banking panic as a purely autonomous disturbance largely unrelated to the decline in economic activity. It is inconsistent with Peter Temin's conjecture that declining prices of lower-grade corporate bonds and the agricultural situation played an important causal role.

Type
Articles
Information
The Journal of Economic History , Volume 40 , Issue 3 , September 1980 , pp. 571 - 583
Copyright
Copyright © The Economic History Association 1980

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References

1 In an earlier paper, James Boughton and I examined the determinants of the currency-deposit ratio during the Great Depression. We found that both interest rates and income were statistically significant determinants of the rise in the currency-deposit ratio, a finding that contrasts sharply with the Friedman-Schwartz view that the behavior of the C/D ratio was exogenous. We concluded that the evidence suggests that there was an important feedback mechanism from the economy to the stock of money and that interest rates and income may have been significant sources of the decline in the money stock during the Great Depression. We did not, however, address the question: should bank failures be regarded primarily as exogenous or endogenous disturbances? Boughton, James and Wicker, Elmus, “The Behavior of the Currency-Deposit Ratio During the Great Depression,” Journal of Money, Credit, and Banking, 11 (11 1979)CrossRefGoogle Scholar.

2 Friedman, Milton and Schwartz, Anna J., A Monetary History of the United States (Princeton, 1963), p. 308Google Scholar.

3 Temin, Peter, Did Monetary Forces Cause the Great Depression? (New York, 1976), especially pp. 87–90Google Scholar.

4 , Temin, Did Monetary Forces, p. 93Google Scholar.

5 McFerrin, John Berry, Caldwell and Company (Nashville, 1969)Google Scholar, originally published by the Uni versity of North Carolina Press in 1939, and reissued in 1969 by Vanderbilt University Press. The role of Caldwell and Company in generating the November panic is described briefly by Gold-schmidt, R. W. (changed to Goldsmith): The Changing Structure of American Banking (London, 1933), 225Google Scholar.

6 , McFenin, Caldwell and Company, p. 119Google Scholar.

7 Ibid., pp. 14–15.

8 Ibid., pp. 121–22.

9 Ibid., p. 140.

10 Ibid., p. 233.

11 Ibid., Chapter XII.

12 Report of Bank Commissioner, State of Arkansas, 1930, p. 139.

13 , McFerrin, Caldwell and Company, p. 187Google Scholar.

14 Fred L. Garlock and B. M. Gile, Bank Failures in Arkansas, Bull. no. 315, Agricultural Experiment Station, University of Arkansas, College of Agriculture, March 1935, pp. 17 and 19.

15 Ibid., p. 35.

16 National Bank of Kentucky, Louisville, Kentucky—Brief of Reports of Examination and Actions Taken by the Office of Comptroller of the Currency. Hearings before a Subcommittee of the Committee on Banking and Currency, United States Senate, 71st. Congress, 3rd sess., S. Res. 71, pt. 5, (Washington, D.C., 1931), pp. 631–35Google Scholar.

17 National Bank of Kentucky—Brief of Reports of Examination, p. 632.

18 Ibid., p. 634.

19 , McFerrin, Caldwell and Company, p. 132Google Scholar.

20 Ibid., pp. 158–59.

21 Ibid., p. 77.

22 , Friedman and , Schwartz, A Monetary History, pp. 310–11Google Scholar.

23 , Temin, Did Monetary Forces Cause the Great Depression? p. 93Google Scholar.