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Federal Reserve policy and the recession of 1937-1938: let's not ignore Telser's analysis

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  • Robert F. Stauffer

Abstract

Despite compelling arguments by Lester Telser, the myth continues that the recession of 1937-38 was caused by the Federal Reserve's three increases in reserve requirements from 1936 to 1937. Telser argued that banks were able to significantly increase lending prior to the recession by using asset substitutionânamely, switching from government securities to loans. This analysis reinforces Telser's position by comparing the behavior of member banks, which were subject to reserve requirement increases, to the behavior of nonmember banks, which were not constrained by such increases.

Suggested Citation

  • Robert F. Stauffer, 2010. "Federal Reserve policy and the recession of 1937-1938: let's not ignore Telser's analysis," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 32(4), pages 591-600, July.
    • Handle: RePEc:mes:postke:v:32:y:2010:i:4:p:591-600
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