Hawtreyan Credit Deadlock or Keynesian Liquidity Trap? Lessons for Japan from the Great Depression

Roger Sandilands

No 904, Working Papers from University of Strathclyde Business School, Department of Economics

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: Great Depression; Japan’s Great Stagnation; Hawtreyan Credit deadlock; Keynesian Liquidity trap (search for similar items in EconPapers)
JEL-codes: B22 B23 E12 E32 E58 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2009-01
New Economics Papers: this item is included in nep-his and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Chapter: Hawtreyan ‘Credit Deadlock’ or Keynesian ‘Liquidity Trap’? Lessons for Japan from the Great Depression (2010)
Working Paper: Hawtreyan Credit Deadlock or Keynesian Liquidity Trap? Lessons for Japan from the Great Depression (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:str:wpaper:0904

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