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New Deal Changes in the Banking Structure and Monetary Standard

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Disciplines
  • Economics
  • Law

Abstract

New Deal Changes in the Banking Structure and Monetary Standard This PDF is a selection from an out-of-print volume from the National Bureau of Economic Research Volume Title: From New Deal Banking Reform to World War II Inflation Volume Author/Editor: Milton Friedman and Anna Jacobson Schwaartz Volume Publisher: Princeton University Press Volume ISBN: 0-691-00363-7 Volume URL: http://www.nber.org/books/frie80-1 Publication Date: 1980 Chapter Title: New Deal Changes in the Banking Structure and Monetary Standard Chapter Author: Milton Friedman, Anna Jacobson Schwaartz Chapter URL: http://www.nber.org/chapters/c11387 Chapter pages in book: (p. 3 - 75) CHAPTER 1 New Deal Changes in the Banking Structure and Monetary Standard T H E New Deal period offers a striking contrast in monetary and banking matters. On the one hand, monetary policy was accorded little importance in affecting the course of economic affairs and the policy actually followed was hesitant and almost entirely passive. On the other hand, the founda- tions of the American financial structure and the character of the mone- tary standard were profoundly modified. Both developments were direct outgrowths of the dramatic experiences of the preceding years. The ap- parent failure of monetary policy to stem the depression led to the relega- tion of money to a minor role in affecting the course of economic events. At the same time, the collapse of the banking system produced a demand for remedial legislation that led to the enactment of federal deposit in- surance, to changes in the powers of the Federal Reserve System, and to closer regulation of banks and other financial institutions. The depressed state of the economy, the large preceding fall in prices and, despite those conditions, the poor competitive position of our exports thanks to the depreciation of the pound and other currencies, all combined with the New Deal atmosphere to foster experimentation with the monetary standard. The experiments

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