Americaâs Great Depression Murray N.Rothbard

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38
See Lester V. Chandler, Benjamin Strong, Central Banker (Washington,
D.C.: Brookings Institution, 1958), p. 39 and passim. It was only on the insistence
of Warburg and Henry Davison of J.P. Morgan and Company, that Strong had
accepted this post.
39
See H. Parker Willis, The Banking Problem in the United States, in
Willis, et al., Report of an Inquiry into Contemporary Banking in the United
States, pp. 1, 31 37.
130 America s Great Depression
bills were made eligible even if drawn after the goods had been
moved.40
With the rules relaxed, purely foreign acceptances, represent-
ing goods stored in or shipped between foreign points, rose from
nothing to the leading role in Federal Reserve acceptance holdings
during the crucial 1928 1929 period. Foreign acceptance pur-
chases played a large part, especially in the latter half of 1929, in
frustrating all attempts to check the boom. Previous credit restric-
tions had been on the way to ending the inflationary boom in
1928. But in August, the Federal Reserve deliberately reversed its
tight money policy on the acceptance market, and the Board
authorized the Federal Reserve Banks to buy heavily in order to
accommodate credit needs.41 The reasons for this unfortunate
reversal were largely general: the political pressure for easier credit
in an election year, and the fear of repercussions on Europe of high
interest rates in the United States, played the leading roles. But
there was also a more specific cause connected with the foreign
acceptance market.
In contrast to older types of acceptance, the purely foreign
acceptances were bills representing stored goods awaiting sale,
rather than goods in transit between specific buyers and sellers.42
The bulk was used to finance the storage of unsold goods in Central
Europe, particularly Germany.43 How did this increase in the hold-
ing of German acceptances come about? As the result of a spec-
tacular American boom in foreign loans, financed by new issues of
foreign bonds. This boom flourished from 1924 on, reaching a
peak in mid-1928. It was the direct reflection of American credit
expansion, and particularly of the low interest rates generated by
40
See A.S.J. Baster, The International Acceptance Market, American
Economic Review (June, 1937): 298.
41
See Charles Cortez Abbott, The New York Bond Market, 1920 1930
(Cambridge, Mass.: Harvard University Press, 1937), pp. 124ff.
42
See Hardy, Credit Policies, pp. 256 57. Also Hearings, Operation of Banking
Systems, Appendix, Part C, pp. 852ff.
43
Sterling bills were also purchased by the Fed to help Great Britain, e.g., $16
million in late 1929 and $10 million in the summer of 1927. See Hardy, Credit
Policies, pp. 100ff.
The Inflationary Factors 131
that expansion. As we shall see further below, this result was delib-
erately fostered by the Federal Reserve authorities. Germany was
one of the leading borrowers on the American market during the
boom. Germany was undoubtedly short of capital, bereft as she
was by the war and then by her ruinous inflation, culminating in
late 1923. However, the German bonds floated in the United
States did not, as most people thought, rebuild German capital.
For these loans were largely extended to German local and state
governments, and not to private German business. The loans made
capital even scarcer in Germany, for the local governments were
now able to compete even more strongly with private business for
factors of production.44 To their great credit, many German
authorities, and especially Dr. Hjalmar Schacht, head of the
Reichsbank, understood the unsoundness of these loans, and they
together with the American Reparations Agent, Mr. S. Parker
Gilbert, urged the New York banking community to stop lending
to German local governments.45 But American investment
bankers, lured by the large commissions on foreign government
loans, sent hundreds of agents abroad to urge prospective borrow-
ers to float loans on the American market. They centered their
attention on Germany.46
The tide of foreign lending turned sharply after mid-1928. Ris-
ing interest rates in the United States, combined with the steep
44
The boom in loans to Germany began with the 1924 Dawes loan, part of
the Dawes Plan reparations, with $110 million loaned to Germany by an invest-
ment banking syndicate headed by J.P. Morgan and Company.
45
Schacht personally visited New York in late 1925 to press this course on the
banks, and he, Gilbert, and German Treasury officials sent a cable to the New
York banks in the same vein. The securities affiliate of the Chase National Bank
did comply with these requests. See Anderson, Economics and the Public Welfare,
pp. 150ff. See also Garet Garrett, A Bubble That Broke the World (Boston: Little,
Brown, 1932), pp. 23 24, and Lionel Robbins, The Great Depression (New York:
Macmillan, 1934), p. 64.
46
In late 1925, the agents of fourteen different American investment bank-
ing houses were in Germany soliciting loans from the German states and munic-
ipalities. Anderson, Economics and the Public Welfare, p. 152. Also see Robert
Sammons, Capital Movements, in Hal B. Lary and Associates, The United States
in the World Economy (Washington, D.C.: U.S. Government Printing Office,
1943), pp. 95 100; and Garrett, A Bubble That Broke the World, pp. 20, 24.
132 America s Great Depression
stock exchange boom, diverted funds from foreign bonds to
domestic stocks. German economic difficulties aggravated the [ Pobierz całość w formacie PDF ]

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