By Benjamin M. Anderson
In the turbulent years among passage of the Federal Reserve Act (1913) and the Bretton Woods contract (1945), the peoples of the Western global suffered international Wars, significant and several other minor overseas monetary panics, a virus of forex devaluations and debt repudiations, civil wars, and revolutions. in addition they loved a decade of unheard of prosperity and a decade of exceptional melancholy and deflation. additionally they observed the start of a interval of lengthy, world-wide inflation.
No interval in historical past may perhaps serve higher as a case research for the research of utilized financial coverage. From his vantage element as economist for the Chase new york financial institution and editor of the Chase fiscal Bulletin, who participated in a lot of what he files, Dr. Anderson right here describes the climactic occasions of a turbulent era.
Arthur Kemp is Professor Emeritus of Economics at Claremont McKenna College.
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Additional info for Economics and the Public Welfare
When the Stock Exchange reopened in December, the opening prices (partly pegged) averaged 120, and they averaged 120 again in February, 1915. Then began a very rapid rise in the boom of the "War Babies," led by Bethlehem 27 The War Prosperity Steel, and this average reached 185 in October, 19 I 5. The stock market was reactionary until July of the following year, 1916, when another strong upward move led up to the peak price of October, 1916, this time under the leadership of General Motors. The peak price for· the 50 stocks was 195 in the closing prices of September and October, though in between higher levels were reached.
Wages and Prices. Commodity prices at· wholesale rose a good deal more rapidly than wages per hour during the war boom,· though wages caught up with commodity prices in the postwar boom and remained far above commodity prices in the crisis and depression which followed in 1921 and 1922. The following table exhibits this. 1 12 5. 5 19 2 •8 1920 229 2142°4 19 21 19 22 180 2°3·5 226·7 143·3 14 2 •0 * Chase Economic Bulletin, Apr. 13,1937, p. 30. Security Prices, 1914-1918. Prices of securities, on the other hand, began to rise long before the average of commodities began to rise.
The expansion was based (a) on the incoming gold, and (b) on the reduction in reserve requirements which the Federal Reserve Act of 1913 had provided. Concentration of Gold in Federal Reserve Banks. The Federal Reserve authorities were much impressed with the danger of the great influx of gold, and took measures to get the gold concentrated in the Federal Reserve banks. The original theory involved in this was perhaps not very clear, but in 19 I 6 and in early 1917 there was a very definite practical consideration that we might be involved in war, and'that it was important that the gold of the country be concentrated in a central reservoir as a basis for war finance.