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The theory of “financial fragility” emphasizes the role of weak balance sheets in propagating and magnifying macroeconomic shocks. I use a new panel dataset to investigate the relationship between financial fragility and real activity on U.S. railroads during 1929-1940. First, I formulate a flexible accelerator model of maintenance expenditures and employment. Then, using the model as a benchmark, I ask whether a firm’s degree of leverage, bankruptcy status, and size affect the responses of employment and maintenance expenditures to changes in operating revenues. My results provide strong support for the predictions of the financial fragility theory. Leverage and bankruptcy status had the greatest effect during the worst years of the Depression and their impact differed systematically by firm size. Firm leverage had a large negative effect and generally affected small firms only. That is, firms whose fixed interest burdens were heavier than average exhibited lower than average annual growth in maintenance and employment; in general, this was true of small firms only. Bankruptcy effects were large and positive, and were present in large firms only. In other words, large firms that were in bankruptcy exhibited higher annual growth in maintenance and employment. Various categories of maintenance expenditure were not equally sensitive to financial effects; I find that highly indebted firms mainly used track maintenance to absorb revenue shocks. U.S. Government attempted to keep the railroads out of bankruptcy through loans from the Reconstruction Finance Corporation. I conclude that this policy was counterproductive.

This paper entertains the notion that disturbances on the demand side play a central role in our understanding of the Great Depression. In fact, from Euler equation residuals we are able to identify a series of unusually large negative demand shocks that appeared to have hit the U. S. economy during the 1930s. This echoes the view originally promoted by Temin (1976). We apply these measured demand shocks to a dynamic general equilibrium model and find that size and sequence of shocks can generate a pattern of the model economy that is not unlike data. The model is able to account for the lion's share of the decline in economic activity and is able to exaggerate realistic persistence.

This paper recasts Temin's (1976) question of whether monetary forces caused the Great Depression in a modern time series framework. We adopt a Bayesian estimation and forecasting algorithm to evaluate the e ects of monetary policy against nonmonetary alternatives, allowing for time-varying parameters and coeffcient updating. We nd that the predictive power of monetary policy is very small for the early phase of the depression and breaks down almost entirely after 1931. During the propagation phase of 1930-31, monetary policy is able to forecast correctly at short time horizons put in- variably predicts recovery at longer horizons. Con rming Temin (1976), we nd that nonmonetary leading indicators, particularly on residential construc- tion and equipment investment, have impressive predictive power. Already in September 1929, they forecast about two thirds of downturn correctly. Our time varying framework also permits us to examine the stability of the dy- namic parameter structure of our estimates. We nd that the monetary im- pulse responses exhibit remarkable structural instability and react clearly to changes in the monetary regime that occurred during the depression. We nd this phenomenon to be discomforting in the light of the Lucas (1976) critique, as it suggests that the money/income relationship may itself have been en- dogenous to policy and was not in the set of deep parameters of the U.S. economy. Given the instability and poor predictive power of monetary instru- ments and the strong showing of leading indicators on real activity, we remain skeptical with regard to a monetary interpretation of the Great Depression in the U.S.

The paper considers ways of avoiding a liquidity trap and ways of getting out of one. Unless lower short nominal interest rates are associated with significantly lower interest volatility, a lower average rate of inflation, which will be associated with lower expected nominal interest rates, increases the odds that the zero nominal interest rate floor will become a binding constraint. The empirical evidence on this issue is mixed. Once in a liquidity trap, there are two means of escape. The first is to use expansionary fiscal policy. The second is to lower the zero nominal interest rate floor. This second option involves paying negative interest on government 'bearer bonds' -- coin and currency, that is 'taxing money', as advocated by Gesell. This would also reduce the likelihood of ending up in a liquidity trap. Taxing currency amounts to having periodic 'currency reforms', that is, compulsory conversions of 'old' currency into 'new' currency, say by stamping currency. The terms of the conversion can be set to achieve any positive or negative interest rate on currency. There are likely to be significant shoe leather costs associated with such schemes. The policy question then becomes how much shoe leather it takes to fill an output gap? Finally the paper develops a simple analytical model showing how the economy can get into a liquidity trap and how Gesell money is one way of avoiding it or escaping from it.

I show that the trend towards single households among older nonmarried women, the majority of whom were widows, has been ongoing only since 1940 and investigate the factors that fostered the rise in separate living quarters since mid-century by examining the impact of Old Age Assistance on living arrangements in 1940 and 1950. I find that Old Age Assistance substantially increased demand for separate living quarters, but that demand depended upon the rules of the program, in particular whether children were held legally responsible for the care of their aged parents. I argue that almost half of the decline in the fraction of older nonmarried women living with relatives from 1950 to 1990 can be attributed to rising Social Security benefits and expanded eligibility and to the fact that Social Security benefits were given with no strings attached.

This paper provides an account of the complex changes taking place within New England in the years from 1880 to 1940. After 1880, technological changes and market shifts undermined the sources of comparative advantage that had promoted the concentration of textile and footwear production within the region and propelled regional economic growth. Despite the decline of these industries after 1880, New England's history after 1880 can hardly be characterized as one of economic decline. Regional economic growth did slow in the wake of these events, but the impact of this slowdown on living standards was moderated, by market driven adjustments in resources away from declining sectors, and by the region's increasing integration within national and international labor and financial markets. Within the region's traditional industries, manufacturers shifted product lines to take advantage of the areas in which they could still compete. At the same time, the growth of other manufacturing activities and an increasingly robust service sector created new employment opportunities that laid the foundation for the region's post-World War II recovery. The responsiveness of international and interregional labor migration moderated the growth of regional labor supplies in response to diminishing opportunities. Meanwhile, financial market integration enabled New Englanders to share in the benefits of more rapid growth elsewhere in the country.

The historical analysis of US regional growth is improved by augmenting existing estimates of state personal income per capita, extending previous studies of convergence across states, and more broadly, offering an improved basis for interpreting other issues in regional development such as the "catch-up" of the South and the convergence "from above" of the West. The income data are first adjusted for state differences in prices at six census years between 1880 to 1980.

The impact of the Great Depression was milder in the South Atlantic states, more severe in the Mountain states, and surprisingly uniform across other regions of the country -despite large differences in industrial structure. Employing data on 20 manufacturing industries disaggregated by state, we analyze the relative contributions of industiy mix and location to regional variations in economic performance. Industrial composition had a significant impact on employment growth, with regions that concentrated on durable goods or inputs to construction faring worse than others. Long-run trends also mattered, and explain much of the South Atlantic's more favorable perfonnance. T he Great Depression was a global crisis, but its severity varied both spatially and sectorally. Within the United States, the severity of the 1929 to 1933 contraction differed substantially across regions and cities. Although all regions suffered considerable employment losses, the contraction was relatively milder and shorter in the South Atlantic states and more severe and prolonged in the Rocky Mountain states. The severity of the contraction also varied dramatically across sectors of the economy, with employment falling most in such industries as construction and durables manufacturing, more modestly in the service sector and nondurables manufacturing. The economic fates of regions and industries were clearly linked. Regional economies that were more dependent on cyclically volatile industries were bound to suffer a relatively more severe contraction of economic activity during the Depression. But there may also have been a local component to economic shocks or their propagation that affected all or most industries within a region. A wave of bank failures in a specific region, for example, was a disruption to the region's capital markets that could affect any industry that depended on local sources of capital.

The article reviews the elements of the Marshall Plan after World War II, and relates its positive features to economic challenges of the end of the 20th century.

This paper examines the U.S. economy in World War II. It argues that the mobilization must be viewed as a rapidly evolving historical process rather than, as is often the case a single undifferentiated event. For example, the employment of unemployed resources, a factor often cited to explain the success of the mobilization, was important during the national defense period, but was relatively unimportant during the period of active U.S. involvement. On the financial side, money creation was more important during the first year of active involvement than in subsequent years. The most significant legacy of the war, viewed in relation to the prosperous era that followed, may have been the change in the macroeconomic regime. The paper also discusses the limitations of the basic time series.

Duménil and Levy's Economics of the Profit Rate makes major contributions to our theoretical and empirical understanding of advanced capitalist economies. Questions and problems for further research raised by their work concern their definition of stability, the relation of finance to production, the role of the profit rate in the Great Depression, the secular rise in real wages and the pattern of technical change in the U.S. economy, econometric problems identifying low frequency macroeconomic patterns, and the relation of the corporate revolution to macroeconomic performance

This paper tests the hypothesis that idiosyncratic U.S. disturbances and their international propagation can account for the global Depression. Exploiting common stochastic trends in U.S. and Canadian interwar data, we estimate a small open economy model for Canada that decomposes output fluctuations into sources identifiable with world and country-specific disturbances. We find that the onset, depth and duration of output collapse in both Canada and the U.S. are primarily attributable to a common, permanent output shock leaving little significant role for idiosyncratic disturbances originating in either economy.

eginning with Irving Fisher (1933) and John Maynard Keynes (1931 B [1963]), macroeconomists have argued that financial markets were important sources and propagators of decline during the Great Depression. Turning points during the Depression often coincided with or were preceded by dramatic events in financial markets: stock market collapse, waves of bankruptcy and bank failure, and contractions in the money stock. But the mechanism through which financial factors contributed to the Depression has been a source of controversy, as has been the relative importance of financial factors in explaining the origins and persistence of the Depression. This essay reviews the literature on the role of financial factors in the Depression, and draws some lessons that have more general relevance for the study of the Depression and for macroeconomics. I argue that much of the recent progress that has been made in understanding some of the most important and puzzling aspects of financial-real links in the Depression followed a paradigm shift in economics. A central, neglected theoretical piece of the story for financial factors was the allocative effects of imperfections in capital markets, which can imply links between disruptions in financial markets and subsequent economic activity. Also, the increasing emphasis on learning and "path-dependence" in economics has helped to explain why financial shocks during the 1930s were so severe and why policy-makers failed to prevent the Depression.

The Great Depression is to economics what the Big Bang is to physics. As an event, the Depression is largely synonymous with the birth of modern macroeconomics, and it continues to haunt successive generations of economists. With respect to labor and labor markets, these facts evidently include wage rigidity, persistently high unemployment rates, and long-term joblessness. Traditionally, aggregate time series have provided the econometric grist for distinguishing explanations of the Great Depression. Recent research on labor markets in the 1930s, however, has shifted attention from aggregate to disaggregate time series and towards microeconomic evidence. This shift in focus is motivated by two factors. First, disaggregated data provide many more degrees of freedom than the decade or so of annual observations associated with the depression, and thus may prove helpful in distinguishin g macroeconomic explanations. Second, disaggregation has revealed aspects of economic behavior hidden in the time series that may be essential to their proper interpretation and, in any case, are worthy of study in their own right. Although the substantive findings of recent research are too new to judge their permanent significance, I believe that the shift towards disaggregated analysis is an important contribution. The paper begins by reviewing the conventional statistics of the United States labor market during the Great Depression and the paradigms to explain them. It then turns to recent studies of employment and unemployment using disaggregated data of various types. The paper concludes with discussions of

A dynamic stochastic model of a small open economy is used to quantify the macroeconomic effects of a policy that utilizes capital controls as an instrument to target the trade balance. The results show that, given the magnitude of actual business cycles, capital controls have negligible effects on agents' ability to smooth consumption and the level of welfare. These surprising results suggest that the benefits obtained from free trade as a mechanism that facilitates consumption smoothing are of secondary importance. A fiscal strategy that enforces capital controls by taxing foreign interest income is also studied.

In this chapter, Tony Fisher and Doug Hostland provide an historical perspective on trends in labour productivity, labour income and living standards in Canada. They find that, once the appropriate adjustments are made, the labour share and the non-labour share (composed of profits, interest and investment income, and incorporated business income) in national income tend to revert to their historical means over the 1926-2001 historical period, although divergences may last for several years. They note, for example, that the decline in the labour share in Canada since 1994 has not been due to any increase in profit share, but to an increase in the share of depreciation or capital consumption allowances associated with the short services lives of high-tech investment goods.