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CHAPTER TWELVE

The Great Depression

R.G. Hawtrey, the English economist, said, in the March, 1926 American 

Economic Review:

"When external investment outstrips the supply of general savings the 

investment market must 

 

carry the excess with money borrowed from 

the banks. A remedy is control of credit by a rise in bank rate."

The Federal Reserve Board applied this control of credit, but not in 

1926, nor as a remedial measure. It was not applied until 1929, and 

then the rate was raised as a punitive measure, to freeze out 

everybody but the big trusts.

Professor Cassel, in the Quarterly Journal of Economics, August 1928, 

wrote that: 

 

 

"The fact that a central bank fails to raise its bank rate in 

accordance with the actual situation of the capital market very much 

increases the strength of the cyclical movement of trade, with all its

pernicious effects on social economy. A rational regulation of the bank 

rate lies in our hands, and may be accomplished only if we perceive its 

importance and decide to go in for such a policy.

With a bank rate regulated on these lines the conditions for the 

development of trade cycles would be radically altered, and indeed, 

our familiar trade cycles would be a thing of the past."

This is the most authoritative premise yet made relating that our 

business depressions are artificially precipitated. The occurrence of the