Hostname: page-component-669899f699-qzcqf Total loading time: 0 Render date: 2025-04-25T02:42:24.407Z Has data issue: false hasContentIssue false
  • English
  • Français

The Great Depression as a Savings Glut

Published online by Cambridge University Press:  25 October 2024

Victor Degorce  and
Eric Monnet
Victor Degorce
Affiliation:
Research Associate, European Business School (EBS) and EHESS, 54 Boulevard Raspail, 75006 Paris, France. E-mail: [email protected].
Eric Monnet*
Affiliation:
Professor, Paris School of Economics, EHESS & CEPR, 48 Boulevard Jourdan, 75014 Paris, France.
*
E-mail: [email protected]
Get access Rights & Permissions [Opens in a new window]

Abstract

New data covering 23 countries reveal that banking crises of the Great Depression coincided with a sharp international increase in deposits at savings institutions and life insurance. Deposits fled from commercial banks to alternative forms of savings. This fueled a credit crunch since other institutions did not replace bank lending. While asset prices fell, savings held in savings institutions and life insurance companies increased as a share of GDP and in real terms. These findings provide new explanations for the fall in credit and aggregate demand in the 1930s. They illustrate the need to consider nonbank financial institutions when studying banking crises.

Type
Article
Information
The Journal of Economic History , Volume 84 , Issue 3 , September 2024 , pp. 874 - 916
Copyright
© The Author(s), 2024. Published by Cambridge University Press on behalf of the Economic History Association

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Article purchase

Temporarily unavailable

Footnotes

We thank Marc Adam, Thomas Belaich, Michael Burda, Edouard Challe, Barry Eichengreen, François Geerolf, Harold James, Matt Jaremski, Kris Mitchener, Alain Naef, Thomas Piketty, Angelo Riva, Stefano Ungaro, Nikolaus Wolf for comments and helpful discussions, as well as seminar participants at the ASSA, INET, Humboldt University, and EBS. We especially owe a lot to Sarah Quincy’s invaluable comments on a previous version, as well as to the editor and the reports of three anonymous referees. We are also indebted to Flora Macher, Tamas Vonyo, Kiril Kossev, Peter Kugler, Joost Jonker, Ruben Peeters, Amaury de Vicq, Jan Tore Klovland, Karsten Gerdrup, Kim Abildgren, Stéphanie Collet, Ryland Thomas, Mark Billings, Masato Shizume, and Pierre-Cyrille Hautcoeur for their help in finding and interpreting data from different countries. We thank Elie Boisivon for assistance with Canadian data. This study was financed by the ANR (Agence Nationale pour la Recherche) under project name SYSRI 30 (ANR-15-CE26-0008). A working paper version of this article was awarded the 8th SUERF/UniCredit Foundation Research Prize.

References

REFERENCES

Andersson, Mats, and Rodriguez, Enrique. “Banks and Crisis: Sweden during 150 Years.” ESBG Perspectives 66 (2013): 99–129.Google Scholar
Baker, Mae, and Collins, Michael. “The Asset Portfolio Composition of British Life Insurance Firms, 1900–1965.” Financial History Review 10, no. 2 (2003): 137–64.CrossRefGoogle Scholar
Baron, Matthew, Verner, Emil, and Xiong, Wei. “Banking Crises without Panics.” Quarterly Journal of Economics 136, no. 1 (2021): 51–113.CrossRefGoogle Scholar
Basile, Peter, Won Kang, Sung, Landon-Lane, John, and Rockoff, Hugh. “An Index of the Yields of Junk Bonds, 1910–1955.” Journal of Economic History 77, no. 4 (2017): 1203–19.CrossRefGoogle Scholar
Baubeau, Patrice, Monnet, Eric, Riva, Angelo, and Ungaro, Stefano. “Flight-to-Safety and the Credit Crunch: A New History of the Banking Crises in France during the Great Depression.” Economic History Review 74, no. 1 (2021): 223–50.CrossRefGoogle Scholar
Bernanke, Ben S. “Nonmonetary Effects of the Financial Crisis in the Propagation of the Great Depression.” American Economic Review 73, no. 3 (1983): 257–76.Google Scholar
Bernanke, Ben S., and James, Harold. “The Gold Standard, Deflation, and Financial Crisis in the Great Depression: An International Comparison.” In Financial Markets and Financial Crisis, edited by Glenn Hubbard, R., 33–68. Chicago, IL: University of Chicago Press, 1991.Google Scholar
Blickle, Kristian, Brunnermeier, Markus K., and Luck, Stephan. “Micro-Evidence from a System-Wide Financial Meltdown: The German Crisis of 1931.” SSRN, Rochester, NY, 2019. Available at http://dx.doi.org/10.2139/ssrn.3436140.CrossRefGoogle Scholar
Bolt, Jutta, Inklaar, Robert, De Jong, Herman, and Luiten van Zanden, Jan. “Rebasing ‘Maddison’: New Income Comparisons and the Shape of Long-Run Economic Development.” GGDC Research Memorandum 174 (2018): 1–67.Google Scholar
Bordo, Michael, Eichengreen, Barry, Klingebiel, Daniela, and Soledad Martinez-Peria, Maria. “Is the Crisis Problem Growing More Severe?” Economic Policy 16, no. 32 (2001): 52–82.CrossRefGoogle Scholar
Bordo, Michael D., Redish, Angela, and Rockoff, Hugh. “Why Didn’t Canada Have a Banking Crisis in 2008 (or in 1930, or 1907, or…)?” Economic History Review 68, no. 1 (2015): 218–43.CrossRefGoogle Scholar
Brück, Corneille. Les caisses d’épargne en Europe, vol. 1. Paris, France: Editions de l’Epargne, 1995.Google Scholar
Bülbül, Dilek, Schmidt, Reinhard H., and Schüwer, Ulrich. “Savings Banks and Cooperative Banks in Europe.” No. 5. SAFE White Paper, Goethe University Frankfurt, Frankfurt am Main, Germany, 2013.Google Scholar
Calder, Kent E. “Linking Welfare and the Developmental State: Postal Savings in Japan.” Journal of Japanese Studies 16, no. 1 (1990): 31–59.CrossRefGoogle Scholar
Calomiris, Charles W., Jaremski, Matthew, and Wheelock, David C.. “Interbank Connections, Contagion and Bank Distress in the Great Depression.” Journal of Financial Intermediation 51 (2022): 100899.CrossRefGoogle Scholar
Carletti, Elena, Hakenes, Hendrik, and Schnabel, Isabel. “The Privatization of Italian Savings Banks–A Role Model for Germany?” Vierteljahrshefte zur Wirtschaftsforschung 74, no. 4 (2005): 32–50.CrossRefGoogle Scholar
Casals, José Francisco Forniés. “Interpretación básica de la historia de las Cajas de Ahorros españolas.” Papeles de Economía Española 46 (1991): 39–51.Google Scholar
Challe, Edouard, Matheron, Julien, Ragot, Xavier, and Rubio-Ramirez, Juan F.. “Precautionary Saving and Aggregate Demand.” Quantitative Economics 8, no. 2 (2017): 435–78.CrossRefGoogle Scholar
Chamley, Christophe. “A Paradox of Thrift in General Equilibrium without Forward Markets.” Journal of the European Economic Association 10, no. 6 (2012): 1215–35.CrossRefGoogle Scholar
de Vicq, Amaury, and Peeters, Ruben. “ ‘Flight-to-Safety’? Reassessing the Dutch Banking Sector during the Great Depression.” Mimeo, 2022.Google Scholar
Degorce, Victor, and Monnet, Eric. “The Great Depression as a Savings Glut.” Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2024-06-21. https://doi.org/10.3886/E206301V1 Google Scholar
Edwards, Jeremy, and Ogilvie, Sheilagh. “Universal Banks and German Industrialization: A Reappraisal.” Economic History Review (1996): 427–46.CrossRefGoogle Scholar
Eggertsson, Gauti B., and Krugman, Paul. “Debt, Deleveraging, and the Liquidity Trap: A Fisher-Minsky-Koo Approach.” Quarterly Journal of Economics 127, no. 3 (2012): 1469–513.CrossRefGoogle Scholar
Eichengreen, Barry. Golden Fetters: The Gold Standard and the Great Depression, 1919–1939. New York and Oxford: Oxford University Press, 1992.Google Scholar
Eichengreen, Barry, and Mitchener, Kris J.. “The Great Depression as a Credit Boom Gone Wrong.” Research in Economic History 22 (2004): 183–237.CrossRefGoogle Scholar
Fisher, Irving. Booms and Depressions: Some First Principles. New York, NY: The Adelphi Company, 1932.Google Scholar
Fisher, Irving. “The Debt-Deflation Theory of Great Depressions.” Econometrica (1933): 337–57.CrossRefGoogle Scholar
Fleitas, Sebastian, Fishback, Price, and Snowden, Kenneth. “Economic Crisis and the Demise of a Popular Contractual Form: Building & Loans in the 1930s.” Journal of Financial Intermediation 36 (2018): 28–44.CrossRefGoogle Scholar
Fleitas, Sebastian, Jaremski, Matthew, and Sprick Schuster, Steven. “The US Postal Savings System and the Collapse of Building and Loan Associations during the Great Depression.” Southern Economic Journal 89, no. 4 (2023): 1196–215.CrossRefGoogle Scholar
Friedman, Milton, and Schwartz, Anna J.. A Monetary History of the United States, 1867–1960. Princeton, NJ: Princeton University Press, 1963.Google Scholar
Goldsmith, Raymond W. Financial Intermediaries in the American Economy since 1900. Princeton, NJ: Princeton University Press, 1958.Google Scholar
Goldsmith, Raymond W. A Study of Saving in the United States: Nature and Deprivation of Annual Estimates of Saving, 1897 to 1949, vols. 1–3. Princeton, NJ: Princeton University Press, 1969.Google Scholar
Grossman, Richard S. “The Shoe That Didn’t Drop: Explaining Banking Stability during the Great Depression.” Journal of Economic History 54, no. 3 (1994): 654–82.CrossRefGoogle Scholar
Grossman, Richard S. Unsettled Account: The Evolution of Banking in the Industrialized World since 1800. Princeton, NJ: Princeton University Press, 2010.CrossRefGoogle Scholar
Grossman, Richard S., and Meissner, Christopher M.. “International Aspects of the Great Depression and the Crisis of 2007: Similarities, Differences, and Lessons.” Oxford Review of Economic Policy 26, no. 3 (2010): 318–38.CrossRefGoogle Scholar
Guerrieri, Veronica, and Lorenzoni, Guido. “Credit Crises, Precautionary Savings, and the Liquidity Trap.” Quarterly Journal of Economics 132, no. 3 (2017): 1427–67.CrossRefGoogle Scholar
Guidolin, Massimo, and La Jeunesse, Elizabeth A.. “The Decline in the US Personal Saving Rate: Is It Real and Is It a Puzzle?” Review-Federal Reserve Bank of Saint Louis 89, no. 6 (2007): 491–514.Google Scholar
Guinnane, Timothy W. “Cooperatives as Information Machines: German Rural Credit Cooperatives, 1883–1914.” Journal of Economic History 61, no. 2 (2001): 366–89.CrossRefGoogle Scholar
Hausman, Joshua K., Rhode, Paul W., and Wieland, Johannes F.. “Recovery from the Great Depression: The Farm Channel in Spring 1933.” American Economic Review 109, no. 2 (2019): 427–72.CrossRefGoogle Scholar
Hautcoeur, Pierre-Cyrille. “Efficiency, Competition, and the Development of Life Insurance in France (1870–1939): Or: Should We Trust Pension Funds?” Explorations in Economic History 41, no. 3 (2004): 205–32.CrossRefGoogle Scholar
Hoffman, Philip. T., Postel-Vinay, Gilles, and Rosenthal, Jean-Laurent. Dark Matter Credit: The Development of Peer-to-Peer Lending and Banking in France. Princeton, NJ: Princeton University Press, 2019.Google Scholar
Horne, Oliver. A History of Savings Banks. Oxford, UK: Oxford University Press, 1947.Google Scholar
Jaremski, Matthew, and Plastaras, Brady. “The Competition and Coexistence of Mutual and Commercial Banks in New England, 1870–1914.” Cliometrica 10, no. 2 (2016): 151–79.CrossRefGoogle Scholar
Jordà, Òscar, Katharina Knoll, Dmitry Kushinov, Schularick, Moritz, and Taylor, Alan M.. “The Rate of Return on Everything, 1870–2015.” Quarterly Journal of Economics 134, no. 3 (2019): 1225–98.CrossRefGoogle Scholar
Jorge-Sotelo, Enrique. “Escaping” the Great Depression: Monetary Policy, Financial Crises and Banking in Spain, 1921–1935. Ph.D. thesis, London School of Economics and Political Science, 2019.Google Scholar
Jorge-Sotelo, Enrique. “The Limits to Lender of Last Resort Interventions in Emerging Economies: Evidence from the Gold Standard and the Great Depression in Spain.” European Review of Economic History 24, no. 1 (2020): 98–133.Google Scholar
Kemmerer, Edwin Walter. “The United States Postal Savings Bank.” Political Science Quarterly 26, no. 3 (1911): 462–99.CrossRefGoogle Scholar
Keynes, John M. Essays in Persuasion. London, UK: Macmillan & Co, 1931.Google Scholar
Keynes, John M. The General Theory of Employment, Interest and Money. London, UK: Macmillan & Co, 1936.Google Scholar
Kindleberger, Charles P. The World in Depression, 1929–1939. Berkeley, CA: University of California Press, 1973.Google Scholar
Kindleberger, Charles P. A Financial History of Western Europe. Crows Nest, Australia: George Allen & Unwin, 1984.Google Scholar
Kossev, Kiril. “The Banking Sector and the Great Depression in Bulgaria, 1924–1938: Interlocking and Financial Sector Profitability.” Bulgarian National Bank Discussion Papers 68, Sofia, Bulgaria, 2008.Google Scholar
Lains, Pedro. História da Caixa Geral de Depósitos, 1910–1974: Política, finanças e economia na República e no Estado Novo. Lisbon, Portugal: Imprensa Ciencias Sociais, 2008.Google Scholar
Lehmann-Hasemeyer, Sibylle, and Wahl, Fabian. “The German Bank–Growth Nexus Revisited: Savings Banks and Economic Growth in Prussia.” Economic History Review 74, no. 1 (2021): 204–22.CrossRefGoogle Scholar
Lepelletier, Ferdinand. Les Caisses d’Epargne. Paris, France: J. Gabalda & Cie, 1911.Google Scholar
Martin-Aceña, Pablo. “The Savings Banks Crisis in Spain: When and How?” ESBG Perspectives 66 (2013): 85–98.Google Scholar
Mian, Atif R., Straub, Ludwig, and Sufi, Amir. “The Saving Glut of the Rich and the Rise in Household Debt. NBER Working Paper No. w26941, Cambridge, MA, April, 2020.CrossRefGoogle Scholar
Mishkin, Frederic S. “The Household Balance Sheet and the Great Depression.” Journal of Economic History 38, no. 4 (1978): 918–37.CrossRefGoogle Scholar
Mitchener, Kris James, and Richardson, Gary. “Network Contagion and Interbank Amplification during the Great Depression.” Journal of Political Economy 127, no. 2 (2019): 465–507.CrossRefGoogle Scholar
Mody, Ashoka, Ohnsorge, Franziska, and Sandri, Damiano. “Precautionary Savings in the Great Recession.” IMF Economic Review 60, no. 1 (2012): 114–38.CrossRefGoogle Scholar
Molteni, Marco. “Bank Failures: What Failure? Distress, Development, and Supervision in Italian Banking, 1926–1936.” Ph.D. diss., University of Oxford, 2021.Google Scholar
Monnet, Eric. Controlling Credit: Central Banking and the Planned Economy in Postwar France, 1948–1973. Cambridge: Cambridge University Press, 2018.CrossRefGoogle Scholar
Monnet, Eric. “The State and Credit Policies: From the 19th Century Till Present.” Stato e mercato 43, no. 1 (2023): 3–28.Google Scholar
Monnet, Eric, Riva, Angelo, and Ungaro, Stefano. “The Real Effects of Bank Runs. Evidence from the French Great Depression (1930–1931).” CEPR Discussion Papers No. 16054, London, UK, May 2021.Google Scholar
Mura, Jurgen. History of European Savings Banks. Stuttgart, Baden-Wurttemberg, Germany: Deutscher Sparkassenverlag, 1996.Google Scholar
National Monetary Commission. Notes on the Postal Savings-Bank Systems of the Leading Countries. Washington, DC: GPO, 1910.Google Scholar
O’Hara, Maureen, and Easley, David. “The Postal Savings System in the Depression.” Journal of Economic History 39, no. 3 (1979): 741–53.CrossRefGoogle Scholar
Olney, Martha L. “Avoiding Default: The Role of Credit in the Consumption Collapse of 1930.” Quarterly Journal of Economics 114, no. 1 (1999): 319–35.CrossRefGoogle Scholar
Park, Gene. Spending without Taxation: FILP and the Politics of Public Finance in Japan. Redwood City, CA: Stanford University Press, 2011.Google Scholar
Piketty, Thomas, and Zucman, Gabriel. “Capital Is Back: Wealth-Income Ratios in Rich Countries 1700–2010.” Quarterly Journal of Economics 129, no. 3 (2014): 1255–310.CrossRefGoogle Scholar
Proettel, Thorsten. “Path Dependencies in European Savings Banks: The Impact of the Fundamental Decisions from the Beginning of the 19th Century.” Vierteljahrschrift für Sozial- und Wirtschaftsgeschichte 104, no. 2 (2017): 177–202.CrossRefGoogle Scholar
Radice, Edward Albert. Savings in Great Britain, 1922–1935: An Analysis of the Causes of Variations in Savings. London, UK: Oxford University Press, Humphrey Milford, 1939.Google Scholar
Reinhart, Carmen M., and Rogoff, Kenneth S.. This Time Is Different. Princeton, NJ: Princeton University Press, 2009.Google Scholar
Rockoff, Hugh. “The Meaning of Money in the Great Depression.” NBER Historical Working Papers No. 0052, Cambridge, MA, December 1993.Google Scholar
Romer, Christina D. “The Great Crash and the Onset of the Great Depression.” Quarterly Journal of Economics 105, no. 3 (1990): 597–624.CrossRefGoogle Scholar
Rose, Jonathan D., and Snowden, Kenneth A.. “The New Deal and the Origins of the Modern American Real Estate Loan Contract.” Explorations in Economic History 50, no. 4 (2013): 548–66.CrossRefGoogle Scholar
Schularick, Moritz, and Taylor, Alan M.. “Credit Booms Gone Bust: Monetary Policy, Leverage Cycles, and Financial Crises, 1870–2008.” American Economic Review 102, no. 2 (2012): 1029–61.CrossRefGoogle Scholar
Schuster, Steven Sprick, Jaremski, Matthew, and Ruth Perlman, Elisabeth. “An Empirical History of the US Postal Savings System.” Social Science History 44, no. 4 (2020): 667–96.CrossRefGoogle Scholar
Shaw, Christopher W. “ ‘Banks of the People’: The Life and Death of the US Postal Savings System.” Journal of Social History 52, no. 1 (2018): 121–52.CrossRefGoogle Scholar
Shizume, Masato. “The Japanese Economy during the Interwar Period: Instability in the Financial System and the Impact of the World Depression.” In The Gold Standard Peripheries: Monetary Policy, Adjustment and Flexibility in a Global Setting, edited by Ögren, Anders and Lars Fredrik Øksendal, 211–28. Berlin, Germany: Springer, 2012.Google Scholar
Sissman, Louise. “The Postal Savings System and the Banks.” Southern Economic Journal 4, no. 3 (1938): 339–51.CrossRefGoogle Scholar
Skulic, Jovan A. “La caisse d’épargne postale en Yougoslavie.” Ph.D. diss., Université de Paris, 1936.Google Scholar
Snowden, Kenneth. “The Evolution of Interregional Mortgage Lending Channels, 1870–1940: The Life Insurance-Mortgage Company Connection.” In Coordination and Information: Historical Perspectives on the Organization of Enterprise, edited by Naomi, R. Lamoreaux and Daniel, M.G. Raff, 209–56. Chicago, IL: University of Chicago Press, 1995.Google Scholar
Stalson, J. Owen. Marketing Life Insurance: Its History in America. Cambridge, MA: Harvard University Press, 1942.Google Scholar
Temin, Peter. Did Monetary Forces Cause the Great Depression? New York, NY: W. W. Norton & Company, 1976.Google Scholar
Temin, Peter. “The Great Depression.” NBER Historical Working Papers No. 0062, November 1994.Google Scholar
Thomes, Paul. “The Impact of Crises on the Savings Banks Institutions in Germany.” ESBG Perspectives 66 (2013).Google Scholar
Tournié, Vincent. Epargne et crises politiques en France: Les mouvements de panique dans les Caisses d’épargne au XXe siècle. Paris, France: Economica, 2011.Google Scholar
Molle, Van, Leen. Les banques d’épargne belges: Histoire, droit, fonction économique et institutions. Tielt, Belgium: Lannoo, 1986.Google Scholar
Vogler, Bernard. L’histoire des caisses d’épargne européennes, vol. 1. Paris, France: Editions de L’Epargne, 1991. Google Scholar
Supplementary material: File

Degorce and Monnet supplementary material

Degorce and Monnet supplementary material
Download Degorce and Monnet supplementary material(File)
File 1.9 MB