Hawtreyan 'credit deadlock' or Keynesian 'liquidity trap'? Lessons for Japan from the great depression

Research output: Working paper

Abstract

This 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.
LanguageEnglish
Place of PublicationGlasgow.
PublisherUniversity of Strathclyde
Number of pages48
Publication statusPublished - 2009

Publication series

NameStrathclyde Discussion Papers in Economics
PublisherUniversity of Strathclyde
Volume09-04

Fingerprint

Japan
Liquidity trap
Fiscal deficit
Great Depression
Deadlock
Credit
Monetary policy
Asset prices
Bank of Japan
Household
Complementarity
Fiscal and monetary policy
Authority

Keywords

  • keynesian economics
  • great depression
  • Japan
  • market economy
  • labour
  • hawtreyan credit deadlock
  • keynesian liquidity trap

Cite this

Sandilands, R. (2009). Hawtreyan 'credit deadlock' or Keynesian 'liquidity trap'? Lessons for Japan from the great depression. (Strathclyde Discussion Papers in Economics; Vol. 09-04). Glasgow.: University of Strathclyde.
Sandilands, Roger. / Hawtreyan 'credit deadlock' or Keynesian 'liquidity trap'? Lessons for Japan from the great depression. Glasgow. : University of Strathclyde, 2009. (Strathclyde Discussion Papers in Economics).
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Sandilands, R 2009 'Hawtreyan 'credit deadlock' or Keynesian 'liquidity trap'? Lessons for Japan from the great depression' Strathclyde Discussion Papers in Economics, vol. 09-04, University of Strathclyde, Glasgow.

Hawtreyan 'credit deadlock' or Keynesian 'liquidity trap'? Lessons for Japan from the great depression. / Sandilands, Roger.

Glasgow. : University of Strathclyde, 2009. (Strathclyde Discussion Papers in Economics; Vol. 09-04).

Research output: Working paper

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Sandilands R. Hawtreyan 'credit deadlock' or Keynesian 'liquidity trap'? Lessons for Japan from the great depression. Glasgow.: University of Strathclyde. 2009. (Strathclyde Discussion Papers in Economics).