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Back to Basics: Reserve Requirements and Money Stock Changes, 1929–1936

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  • Robert F. Stauffer

Abstract

This paper explains how the shift of deposits from nonmember banks and country banks to larger member banks increased the average or “effective†reserve requirement in the 1929–1936 period. The result was an inappropriate tightening of monetary conditions, along with liquidity problems for those banks most susceptible to failure. A basic money multiplier model is developed to help clarify the possible impact of increases in effective reserve requirements. The resulting perspective strengthens the usual charges against the Federal Reserve of monetary policy malfeasance during the Great Depression.

Suggested Citation

  • Robert F. Stauffer, 2000. "Back to Basics: Reserve Requirements and Money Stock Changes, 1929–1936," The American Economist, Sage Publications, vol. 44(1), pages 62-69, March.
    • Handle: RePEc:sae:amerec:v:44:y:2000:i:1:p:62-69
    DOI: 10.1177/056943450004400108
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    References listed on IDEAS

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    1. Milton Friedman & Anna J. Schwartz, 1963. "A Monetary History of the United States, 1867–1960," NBER Books, National Bureau of Economic Research, Inc, number frie63-1, July.
    2. Wheelock,David C., 2004. "The Strategy and Consistency of Federal Reserve Monetary Policy, 1924–1933," Cambridge Books, Cambridge University Press, number 9780521531399.
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