Monetary Policy, Loan Liquidation, and Industrial Conflict: The Federal Reserve and the Open Market Operations of 1932

Abstract

Early in 1932 the Federal Reserve System made a serious attempt to reverse the “Great Contraction” throught expansionary open market operations, but abandoned it a few months later. In this paper we offer an interpretation of the episode that throws new light on the Fed's behavior during the Depression. Key are the attitude of private bankers, Britain's abandonment of the gold standard, and the brief open market campaign. To protect bank profits the Fed abandoned the program which set the stage for the complete financial collapse of the United States in early 1933.