Hawtreyan “Credit Deadlock” or Keynesian “Liquidity Trap”? Lessons for Japan from the Great Depression
AbstractThis paper outlines the ideas of Ralph Hawtrey and Lauchlin Currie on the need for monetised fiscal deficit spending in 1930s USA to combat the deep depression into which the economy had been allowed to sink. In such exceptional circumstances of “credit deadlock” in which banks were afraid to lend and households and business afraid to borrow, the deadlock could best be broken through the spending of new money into circulation via large fiscal deficits. This complementarity of fiscal and monetary policy was shown to be essential, and as such indicates the potential power of monetary policy – in contrast to the Keynesian “liquidity trap” view that it is powerless This lesson was not learned by the Japanese authorities in their response to the asset price collapse of 1991-92, resulting in a lost decade as ballooning fiscal deficits were neutralised throughout the 1990s by unhelpfully tight monetary policy with the Bank of Japan refusing to monetise the deficits.
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Bibliographic InfoPaper provided by Scottish Institute for Research in Economics (SIRE) in its series SIRE Discussion Papers with number 2009-14.
Date of creation: 2009
Date of revision:
Great Depression; Japan’s Great Stagnation; Hawtreyan Credit deadlock; Keynesian Liquidity trap;
Other versions of this item:
- Roger Sandilands, 2009. "Hawtreyan Credit Deadlock or Keynesian Liquidity Trap? Lessons for Japan from the Great Depression," Working Papers 0904, University of Strathclyde Business School, Department of Economics.
- B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
- B23 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Econometrics; Quantitative and Mathematical Studies
- E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Mauro Boianovsky, 2004. "The IS-LM Model and the Liquidity Trap Concept: From Hicks to Krugman," History of Political Economy, Duke University Press, vol. 36(5), pages 92-126, Supplemen.
- Kazuo Ueda, 2005.
"The Bank of Japan's Struggle with the Zero Lower Bound on Nominal Interest Rates: Exercises in Expectations Management,"
Wiley Blackwell, vol. 8(2), pages 329-350, 08.
- Kazuo Ueda, 2005. "The Bank of Japan's Struggle with the Zero Lower Bound on Nominal Interest Rates: Exercises in Expectations Management," CIRJE F-Series CIRJE-F-375, CIRJE, Faculty of Economics, University of Tokyo.
- Mauro Boianovsky, 2003. "The IS-LM Model and the Liquidity Trap Concept: from Hicks to Krugman," Anais do XXXI Encontro Nacional de Economia [Proceedings of the 31th Brazilian Economics Meeting] a13, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Optimum Taxation Policy and the Impact of Public Debt Under Modern Monetary Theory
by andrew lainton in Decisions, Decisions, Decisions on 2013-04-26 09:29:27
- K. Vela Velupillai, 2010. "The 'Minsky Moment' - A Critique and a Re-construction," ASSRU Discussion Papers 1009, ASSRU - Algorithmic Social Science Research Unit.
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