|Author(s):||Wueschner, Silvano A.|
Published by EH.NET (October 2000)
Silvano A. Wueschner, Charting Twentieth-Century Monetary Policy: Herbert
Hoover and Benjamin Strong, 1917-1927. Westport, CT: Greenword Press,
1999. xi + 178 pp. $59.95 (cloth), ISBN: 0-313-30978-7.
Reviewed for EH.NET by Mark Toma, Department of Economics, University of
Charting Twentieth-Century Monetary Policy by Silvano Wueschner,
Assistant Professor of History at William Penn College, is a history of the
political forces that shaped United States monetary policy during the 1920s.
What is intriguing about this account is the injection of Herbert Hoover into
the picture. While a big-time player in the Great Depression, Hoover was
seemingly only a bit-player earlier in the 1920s as head of the Commerce
Department. By documenting the birth and growth of Hoover’s monetary policy
agenda in the 1920s, Wueschner’s analysis sets the stage for a deeper
understanding of the politics of the Great Depression.
Wueschner’s account of monetary policy during the 1920s unfolds as a struggle
between Hoover who covertly exercised influence through kindred spirits on the
Federal Reserve Board and Benjamin Strong who overtly exercised influence as
Governor of the Federal Reserve Bank of New York. Simply put, Strong was a
monetary internationalist who favored cooperation between the Fed and the Bank
of England while Hoover was a monetary nationalist who favored rivalry among
national central banks. On the domestic front, the tables were turned. Hoover
was all in favor of cooperation — as long as the Federal Reserve Board led
the way with strong central powers over discount and open market operation
powers. In contrast, Strong opposed the Board as monetary czar. He sought to
increase the powers of the individual Reserve banks, particularly the New York
In the 1920s, the divisive issue between the two sides was whether the Fed’s
monetary policy would be “easy,” as favored by Strong, to smooth the way for
the international gold standard, or “tight,” as favored by Hoover, to combat
stock market speculation. The basic structure of the Federal Reserve seemed to
favor Hoover since the original Reserve Act provided the Board with relatively
strong powers to influence the discount rates established by the individual
Reserve banks. The Act contained a loophole in the Board’s control, however.
Individual Reserve banks were authorized to conduct open market operations on
their own. With the New York Fed playing a leading role, Reserve banks tended
to purchase government securities for their own accounts when discount policy
was tight. The overall result, as summarized in the title of the penultimate
chapter “Easy Money,” was that the easy money policy won by default. Strong’s
internationalism beat Hoover’s nationalism in the 1920s.
Although beyond the scope of book, it is interesting to consider how the
policy tension between Hoover and Strong in the 1920s set the stage for policy
during the Great Depression. As is well known, the Hoover Administration won
an isolationist victory on trade policy with passage of the Smoot-Hawley
Tariff Act. Less purposefully, Hoover also attained the type of monetary
policy that he had earlier sought as the Board effectively exercised its
muscle in shutting down open market operations during the Great Depression.
Hoover’s fiscal and monetary nationalism carried the day.
Wueschner’s history has much to offer two groups of academic researchers —
those with a general interest in the politics of US democracy and those with a
special interest in the monetary policy of the early Federal Reserve. I, for
one, was surprised to learn that the head of the Commerce Department in the
1920s played such an important role in shaping the course of monetary policy
for decades to come.
Mark Toma is an Associate Professor of Economics at the University of
Kentucky. His recent research (“Open Market Operations and the Great
Depression,” working paper) is on Federal Reserve policy during the 1920s and
|Subject(s):||Financial Markets, Financial Institutions, and Monetary History|
|Geographic Area(s):||North America|
|Time Period(s):||20th Century: Pre WWII|