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Bank failures during the Great Depression

Thursday, February 04, 2010

A few important details about the banking system during the Great Depression are revealed in Murry Rothbard's The Great Depression and depicted in the graphic below. Recall that this topic was discussed here in some detail a couple weeks ago, today's entry being one of the many tidbits that seemed worthy of a separate post with more to come in the weeks ahead.

During the early years of the Great Depression, not only were bank failures just two or three times the rate of failure in the 1920s - far less than what is commonly believed - but they didn't reach a crescendo until after Roosevelt took office in 1933, more than four years after the depression began.
IMAGE According to Rothbard, bank failures averaged about 700 per year throughout the 1920s. Since the "Roaring Twenties" weren't all that good for farmers, the primary customers for lenders at the time, about three percent of banks failed every year, this total doubling in 1930 during the first full year of the Great Depression.

But, interestingly, bank failures didn't peak until three years later and not for the reasons that you might think. It was the uncertainty about the devaluation of the dollar - as Hoover was on his way out and Roosevelt was on this way in - that caused a series of panics and "hoarding" of gold, all of which resulted in FDR ordering the confiscation of gold in April of 1933 as about 4,000 banks were getting ready to fail during his first year in office despite the many "bank holidays".

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Anonymous said...

People wouldn't put their money in the bank during the GD because they feared the stupid loans the banks were making with their money. They wanted gold instead. When gold was confiscated, they switched to storing their value in homes instead. Are they going to confiscate people's homes this time? Oh wait, they are already doing that.

Anonymous said...

Dorothea Lange's migrant mother wasn't until 1936

Anonymous said...

"Dorothea Lange's migrant mother wasn't until 1936"

Yes, a migrant from a failed subsistence farm, a victim of the Dust Bowl.

Remember that by 1936 industrial productivity (and we were indeed an industrial nation) had soared. Although unemployment remained high, the GNP matched that of '28 IN CONSTANT DOLLARS. Those who claim that GNP did not recover until the War are not taking the ultimate deflation of our currency into account. Note that the Automobile, Radio and Home appliance industries had approached, and in some cases exceeded their average Cooledge-era unit sales by 1936.

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