Working Paper: NBER ID: w29416
Authors: Hugh Rockoff
Abstract: When the Great Depression struck the United States, Oliver M.W. Sprague was America’s foremost expert on financial crises. His History of Crises under the National Banking System is a frequently cited classic. Had he diagnosed a banking panic and called for an aggressive response by the Federal Reserve, it might have made a difference; but he did not. Sprague’s misdiagnosis had, I argue, two causes. First, the crisis lacked the symptoms of a panic, such as high short-term interest rates in the New York money market, which Sprague had identified from his studies of previous crises. Second, Sprague’s macro-economic ideas led him to conclude that an expansionary monetary policy would be of little help once a depression was underway. Sprague’s main concern was that abandoning the gold standard would intensify the crisis, a concern that led him to resign his position as advisor to the U.S. Treasury to protest Roosevelt’s gold policy.
Keywords: No keywords provided
JEL Codes: B2; N12; N2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Sprague's diagnosis of a banking panic (E44) | Federal Reserve intervention (E52) |
| absence of typical panic symptoms (Y70) | Sprague's misdiagnosis (Y30) |
| Sprague's macroeconomic beliefs (E65) | Sprague's misdiagnosis (Y30) |