What caused the 1937 recession

  • Thread starter BWV
  • Start date
In summary, the 1937-38 recession was devastating to the US economy which had been growing for several years, but had not yet recovered from the 1929-33 recession that defined the Great Depression. The recession was caused by a combination of factors, including low confidence, government fiscal tightness, and the effects of the housing bubble. Keynesian economics represented the idea that the government should stimulate the economy in dire times, but this was not possible in the case of the 1937-38 recession.
  • #1
BWV
1,465
1,781
the 1937-38 recession was devastating to the US economy which had been growing for several years, but had not yet recovered from the 1929-33 recession that defined the Great Depression. Interesting piece here tying it to the Fed sterilizing gold inflows:

When the dollar was re-pegged to gold at $35 per oz. in January 1934, the US essentially went back on a gold standard. Gold reserves constituted 85% of the monetary base and changes in those reserves accounted for most of the changes in the monetary base. Because the US received large gold inflows in the mid-1930s, monetary policy was expansionary. This was the primary reason for the economic recovery (Romer 1992).
But when the Roosevelt administration began to worry about the potential for higher inflation, the Treasury Department decided to sterilise all gold inflows starting in December 1936. In essence, its new gold holdings were held in an inactive account rather than with the Federal Reserve, where it would have become part of the monetary base and money supply. Thus, instead of allowing the monetary base to grow with the inflow of gold, the monetary base was essentially frozen at its existing level.

http://www.voxeu.org/index.php?q=node/6965

[URL]http://www.voxeu.org/sites/default/files/image/FromAug2011/IrwinFig1(1).gif[/URL]

A link to Doug Irwin's working paper here:

http://www.dartmouth.edu/~dirwin/1937.pdf
 
Last edited by a moderator:
Physics news on Phys.org
  • #2
I too am interested in this subject. It is wrong what the American is doing sometimes. There is a mention about the Recession in the movie Zeitgeist ( if you believe what the movie declares :D)
 
  • #3
ooprea said:
I too am interested in this subject. It is wrong what the American is doing sometimes. There is a mention about the Recession in the movie Zeitgeist ( if you believe what the movie declares :D)

I've seen that Zeitgeist movie, its pretty good but the guy who made it is extremely biased. There is probably never 1 lone cause for a recession, but I would probably chalk a lot of it up to fear of debt and low confidence in the markets, which would be caused by the government being fiscally tight and raising taxes. In other words, some governments thought it to be advantageous to save money during a recession as a protective strategy. But when everybody is saving, money isn't being spent, people lose jobs and confidence, people save more, and here you have this vicious cycle.

Keynesian economics, which is cited in your link to the paper, represents the idea that the government must stimulate the economy in dire times, to encourage the flow of money and to support the country's weakening economy. A more modern example of this is the most recent recession caused by the housing bubble. The United States was in debt and funding multiple wars; they didn't have the cash reserves that they needed to stimulate the economy. Without the temporary support, the damages to the economy worsened and became harder to repair.
 

1. What were the main factors that caused the 1937 recession?

The 1937 recession was primarily caused by a combination of monetary and fiscal policy changes, along with a decline in consumer spending and investment. The Federal Reserve raised interest rates and reduced the money supply, while the government decreased spending and increased taxes.

2. How did the 1937 recession differ from the Great Depression?

The 1937 recession was a short, sharp downturn in the economy that lasted for about 13 months. In contrast, the Great Depression lasted for over 10 years and had a much larger impact on the economy. Additionally, the cause of the 1937 recession was primarily policy changes, while the Great Depression was caused by a combination of factors including the stock market crash and widespread bank failures.

3. What was the impact of the 1937 recession on employment?

The 1937 recession caused a significant increase in unemployment, with the unemployment rate rising from 9.2% in June 1937 to 14.3% in May 1938. This was due to a decrease in economic activity and a decline in consumer spending and business investment.

4. How did the 1937 recession affect other countries?

The 1937 recession had a global impact, with many countries experiencing a decline in economic activity. This was due to the interconnectedness of the global economy and the decrease in international trade during this period.

5. What lessons can be learned from the 1937 recession?

The 1937 recession highlights the importance of careful and coordinated monetary and fiscal policies in maintaining a stable economy. It also serves as a reminder of the potential consequences of sudden and significant policy changes. Additionally, the 1937 recession showed the importance of international cooperation and the impact of global economic interconnectedness.

Hot Threads

Recent Insights

Back
Top