Hawtreyan 'credit deadlock' or Keynesian 'liquidity trap'? Lessons for Japan from the Great Depression

Research output: Chapter in Book/Report/Conference proceedingChapter

7 Citations (Scopus)

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
Title of host publicationDavid Laidler's Contributions to Economics
EditorsRobert Leeson
Place of PublicationHoundmills
Pages329-365
Number of pages37
Publication statusPublished - 3 Feb 2010

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

  • credit deadlock
  • great depression
  • 1930s
  • economics
  • Japan

Cite this

Sandilands, R. J. (2010). Hawtreyan 'credit deadlock' or Keynesian 'liquidity trap'? Lessons for Japan from the Great Depression. In R. Leeson (Ed.), David Laidler's Contributions to Economics (pp. 329-365). Houndmills.
Sandilands, R.J. / Hawtreyan 'credit deadlock' or Keynesian 'liquidity trap'? Lessons for Japan from the Great Depression. David Laidler's Contributions to Economics. editor / Robert Leeson. Houndmills, 2010. pp. 329-365
@inbook{ee49efe90e6d4763a282d4c6f2530379,
title = "Hawtreyan 'credit deadlock' or Keynesian 'liquidity trap'? Lessons for Japan from the Great Depression",
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.",
keywords = "credit deadlock, great depression, 1930s, economics, Japan",
author = "R.J. Sandilands",
year = "2010",
month = "2",
day = "3",
language = "English",
isbn = "9780230018983",
pages = "329--365",
editor = "Robert Leeson",
booktitle = "David Laidler's Contributions to Economics",

}

Sandilands, RJ 2010, Hawtreyan 'credit deadlock' or Keynesian 'liquidity trap'? Lessons for Japan from the Great Depression. in R Leeson (ed.), David Laidler's Contributions to Economics. Houndmills, pp. 329-365.

Hawtreyan 'credit deadlock' or Keynesian 'liquidity trap'? Lessons for Japan from the Great Depression. / Sandilands, R.J.

David Laidler's Contributions to Economics. ed. / Robert Leeson. Houndmills, 2010. p. 329-365.

Research output: Chapter in Book/Report/Conference proceedingChapter

TY - CHAP

T1 - Hawtreyan 'credit deadlock' or Keynesian 'liquidity trap'? Lessons for Japan from the Great Depression

AU - Sandilands, R.J.

PY - 2010/2/3

Y1 - 2010/2/3

N2 - 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.

AB - 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.

KW - credit deadlock

KW - great depression

KW - 1930s

KW - economics

KW - Japan

UR - http://strathprints.strath.ac.uk/7234/

UR - http://www.palgrave.com/products/title.aspx?PID=276734

M3 - Chapter

SN - 9780230018983

SP - 329

EP - 365

BT - David Laidler's Contributions to Economics

A2 - Leeson, Robert

CY - Houndmills

ER -

Sandilands RJ. Hawtreyan 'credit deadlock' or Keynesian 'liquidity trap'? Lessons for Japan from the Great Depression. In Leeson R, editor, David Laidler's Contributions to Economics. Houndmills. 2010. p. 329-365