United States Economic Policy and International Relations

By Raymond F. Mikesell | Go to book overview

CHAPTER 3
United States Financial Policies

IN THIS chapter we shall be concerned with the international repercussions of United States monetary policies during the interwar period. With few exceptions, positive measures relating to the control of business activity in the pre-New Deal era were largely confined to those of the Federal Reserve system. Treasury policy was dominated by the desire to reduce the national debt, and although tax rates were reduced sharply from wartime levels, total interest-bearing debt was reduced from $25.6 billion in December, 1919, to a postwar low of $15.8 billion in December, 1930. In spite of the downturn in business activity, Treasury receipts were higher in 1930 than in any previous year since 1921, and the excess of receipts over expenditures in 1930 was $738 million, slightly larger than in 1929. A deficit of nearly a half billion dollars appeared in 1931, the first since 1919, and grew to $2.5 billion in 1932. So far as the international repercussions of the government's fiscal policy were concerned, the large Treasury surpluses helped to offset the effects of our export surpluses on national income, and hence upon the level of imports. While debt reduction was not undertaken as an antiinflationary measure, it could be justified in most years before 1930 in view of the inflationary tendencies in the American economy.1


Federal Reserve Policies

In the development of central-banking policies in the United States after World War I, the Federal Reserve authorities were faced with the problem of dealing with large gold inflows which involved a consideration of both domestic and international monetary objectives.2 The basic domestic credit policy which emerged in the early 1920's was that the Federal Reserve banks should control credit so as to promote sound business conditions, i.e., to meet the legitimate needs of industry, agriculture, and commerce for short-term working capital and to avoid fi

____________________
1
See S. E. Harris, The National Debt and the New Economics, McGraw-Hill, New York, 1947, pp. 265-267.
2
For a discussion of United States gold policy in the 1920's see S. E. Harris, Twenty Years of Federal Reserve Policy, Harvard University Press, Cambridge, Mass., 1933, Vol. I, pp. 341-371.

-21-

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