Journal Article

‘Blood and treasure’: exiting the Great Depression and lessons for today

Kris James Mitchener and Joseph Mason

in Oxford Review of Economic Policy

Published on behalf of The Oxford Review of Economic Policy Ltd

Volume 26, issue 3, pages 510-539
Published in print January 2010 | ISSN: 0266-903X
Published online January 2010 | e-ISSN: 1460-2121 | DOI: http://dx.doi.org/10.1093/oxrep/grq025
‘Blood and treasure’: exiting the Great Depression and lessons for today

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  • Economic Development and Growth
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Although avoiding the policy mistakes of the 1930s helped define how policy-makers responded to the 2007–8 financial crisis and ensuing recession, policy applications to the recovery phase are less well understood. We draw on the experience of the US in the 1930s to shed light on exit strategies—movements back to institutional conditions associated with steady-state growth, including stable inflation and broadly non-interventionist credit- and capital-market policies. We describe how policy responses to the deflation and banking crises of the 1930s coloured the exit policy debate after the Great Depression. We show that a full exit from the Great Depression, defined as the point at which interventionist credit- and capital-market policies and institutions were wound down did not occur in the 1930s. It took until the 1950s for this to occur and for the Federal Reserve to regain its independence and return unfettered to its longer-run objectives.

Keywords: exit strategy; monetary policy; credit policy; lender of last resort; Great Depression; G21; N22; E44

Journal Article.  16255 words.  Illustrated.

Subjects: Economic Development and Growth ; Public Economics ; Political Economy ; Public Policy

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