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Governor Eugene Meyer and the Great Contraction

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  • James L. Butkiewicz

    () (Department of Economics,University of Delaware)

Abstract

Eugene Meyer was a highly respected financier and government official when he was appointed Governor of the Federal Reserve Board in 1930. Through his force of character, he dominated economic policy making during the last years of Hoover’s administration. He initially found that sizable foreign short-term claims had put the Fed in a precarious position. After reductions in interest rates reduced foreign claims relative to the Fed’s gold reserves, he developed a plan for expansion. His initial plans were constrained by the weak institutional structure of the Fed and the lack of free gold. He obtained legislation creating the Reconstruction Finance Corporation and section 3 of the 1932 Glass-Steagall Act, temporarily allowing use of government securities as collateral for Federal Reserve notes, overcoming the free gold problem. However, when the 1932 open market policy failed to produce an immediate expansion of bank credit, the Federal Reserve Bank governors were able to end additional expansionary policies. Suffering from poor health, political stalemate, and possible sensing Hoover’s ultimate defeat, Meyer’s expansionary efforts effectively came to an end in August 1932. Thus, in spite of strong leadership favoring expansion, the Fed was unable to pursue a sustained expansionary policy. This failure was the direct result of the increased decentralization of power due to the creation of the Open Market Policy Conference in 1930. Foreign claims on the dollar, particularly French claims, were always a serious concern, at times imposing a dominate constraint on policy. The free gold issue was viewed as a real constraint within the Fed. The 1932 open market policy was not a disingenuous ploy to forestall other legislation. It was the direct result of Meyer’s desire to counter the deflationary forces depressing the economy.

Suggested Citation

  • James L. Butkiewicz, 2005. "Governor Eugene Meyer and the Great Contraction," Working Papers 05-01, University of Delaware, Department of Economics.
  • Handle: RePEc:dlw:wpaper:05-01
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    File URL: http://graduate.lerner.udel.edu/sites/default/files/ECON/PDFs/RePEc/dlw/WorkingPapers/2005/UDWP2005-01.pdf
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    References listed on IDEAS

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    1. Peter Temin, 1991. "Lessons from the Great Depression," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262700441, March.
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    Cited by:

    1. Butkiewicz, James, 2015. "Eugene Meyer And The German Influence On The Origin Of Us Federal Financial Rescues," Journal of the History of Economic Thought, Cambridge University Press, vol. 37(01), pages 57-77, March.
    2. James L. Butkiewicz, 2011. "The German Influence on the Origin of U.S. Federal Financial Rescues," Working Papers 11-19, University of Delaware, Department of Economics.

    More about this item

    Keywords

    Central Banking; Economic History;

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • N - Economic History

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