[ Pobierz całość w formacie PDF ]
states, but this was a trivial difference. The loans to the states were
to be made by the RFC at 3 percent on the basis of need as
requested by the respective governors. The RFC was authorized to
lend up to $300 million for this purpose. Grants were quickly made
to Alabama, Georgia, Illinois, Montana, North Dakota, Ohio,
Utah, Louisiana, and Oregon. The RFC hired a staff of social
workers, headed by Fred Croxton, to administer the program.
The states, too, expanded their relief programs. While total
state expenditures for emergency relief was $547 thousand in
1930-1931, they totaled $57 million in 1931 1932, and $90 mil-
lion in fiscal year 1933. New York, New Jersey, and Pennsylvania
led in relief expenditures, Pennsylvania financing much of its aid
by a newly-imposed sales tax. All in all, total public relief in 120 of
the nation s leading urban areas amounted to $33 million in 1929,
$173 million in 1931, and $308 million in 1932.22
THE INFLATION PROGRAM
One thing Hoover was not reticent about: launching a huge
inflationist program. First, the administration cleared the path for
the program by passing the Glass Steagall Act in February, which
(a) greatly broadened the assets eligible for rediscounts with the
Fed, and (b) permitted the Federal Reserve to use government
bonds as collateral for its notes, in addition to commercial paper.23
turned to the federal government. They included the chief executives of Armour,
Wilson, Cudahy, International Harvester, Santa Fe Railroad, Marshall Field,
Colgate Palmolive Peet, Inland Steel, Bendix, U.S. Gypsum, A.B. Dick, Illinois
Bell Telephone, and the First National Bank. Bernstein, The Lean Years: A History
of the American Worker, 1920 1933, p. 467.
22
See A.E. Geddes, Trends in Relief Expenditures, 1910 1935 (Washington,
D.C.: U.S. Government Printing Office, 1937), p. 31.
23
The defenders of the Glass Steagall Act might protest that the Act fitted
the quantitativist policy of considering total quantity rather than quality of assets,
and therefore that an Austrian economist should defend the measure. But the
point is that any further permission for government to lend to banks, whether
quantitative or qualitative, is an inflationary addition to the quantity of money,
and therefore to be criticized by the Austrian economist.
302 America s Great Depression
The way was now cleared for a huge program of inflating reserves
and engineering cheap money once again. Furthermore, Eugene
Meyer, Jr. was now Governor of the Federal Reserve Board, and
Ogden Mills had replaced the more conservative Andrew Mellon
as Secretary of the Treasury. At the end of February, 1932, total
bank reserves had fallen to $1.85 billion. At that point, the FRS
launched a gigantic program of purchasing U.S. government secu-
rities. By the end of 1932, total reserves had been raised to $2.51
billion. This enormous increase of $660 million in reserves in less
than a year is unprecedented in the previous history of the System.
If the banks had kept loaned-up, the money supply of the nation
would have increased by approximately $8 billion. Instead, the
money supply fell by $3.5 billion during 1932, from $68.25 to
$64.72 billion at the end of the year, and with the bank deposit
component falling by $3.2 billion.
The monetary history of the year is best broken up into two parts:
end of February end of July, and end of July end of December. In
the first period, total reserves rose by $213 million. The entire
securities-buying program of the Federal Reserve took place dur-
ing this first period, security holdings rising from $740 million at
the end of February to $1,841 million at the end of July, an enor-
mous $1,101 million rise in five months. Total controlled reserves
rose by $1,000 million. This was offset by a $290 million reduction
in bank indebtedness to the Fed, a sharp $380 million fall in the
total gold stock, and a $122 million rise in money in circulation, in
short, a $788 million reduction in uncontrolled reserves. For
open-market purchases to be pursued precisely when the gold
stock was falling was pure folly, and endangered public confidence
in the government s ability to maintain the dollar on the gold stan-
dard. One reason for the inflationary policy was the huge Federal
deficit of $3 billion during fiscal 1932. Since the Treasury was unwill-
ing to borrow on long-term bonds from the public, it borrowed on
short-term from the member banks, and the Federal Reserve was
obliged to supply the banks with sufficient reserves.
Despite this great inflationary push, it was during this half year
that the nation s bank deposits fell by $3.1 billion; from then on,
they remained almost constant until the end of the year. Why this
The Hoover New Deal of 1932 303
fall in money supply just when one would have expected it to rise?
The answer is the emergence of the phenomenon of excess
reserves. Until the second quarter of 1932, the nation s banks had
always remained loaned up, with only negligible excess reserves.
Now the banks accumulated excess reserves, and Currie estimates
that the proportion of excess to total bank reserves rose from 2.4
percent in the first quarter of 1932, to 10.7 percent in the second
quarter.24
Why the emergence of excess reserves? In the first place, Fed
purchase of government securities was a purely artificial attempt to
dope the inflation horse. The drop in gold demanded a reduction
[ Pobierz całość w formacie PDF ]