Proposal preview

The Anglosphere in the 1920s

The 1920s was a decade of tenuous globalization, bounded by the First World War and the globalization backlash that accompanied the Great Depression. This session examines the economic complexities of the Anglosphere countries during the 1920s. The Anglosphere encompassed two of the world’s largest economies: the UK and the USA. For both of these countries, the 1920s represented a break from the economic policies of the past, with the UK now beginning to protect its industries, and with the USA now possessing a central bank. The Anglosphere was broader than just the UK and the USA, however. It included a number of smaller, less-industrialized economies which encountered many similar (but also some different) challenges in the decade after the First World War. Altogether, this session offers novel insights about the diverse range of Anglosphere economies, which are approached from both domestic and international perspectives.

Organizer(s)

  • Brian D. Varian Swansea University b.d.varian@swansea.ac.uk UK
  • Andrea Papadia European University Institute andrea.papadia@eui.eu Italy

Session members

  • Ivan Luzardo, London School of Economics
  • Brian D. Varian, Swansea University
  • Frank Barry, Trinity College Dublin
  • Andrea Papadia, European University Institute
  • Kilian Rieder, University of Oxford & Vienna University of Economics and Business
  • Andrew J. Seltzer, Royal Holloway, University of London and London School of Economics

Discussant(s)

  • Andrew J. Seltzer Royal Holloway, University of London and London School of Economics a.seltzer@rhul.ac.uk
  • Michael D. Bordo Rutgers University and NBER bordo@economics.rutgers.edu

Papers

Panel abstract

The 1920s was a decade of tenuous globalization, bounded by the First World War and the globalization backlash that accompanied the Great Depression. This session examines the economic complexities of the Anglosphere countries during the 1920s. The Anglosphere encompassed two of the world’s largest economies: the UK and the USA. For both of these countries, the 1920s represented a break from the economic policies of the past, with the UK now beginning to protect its industries, and with the USA now possessing a central bank. The Anglosphere was broader than just the UK and the USA, however. It included a number of smaller, less-industrialized economies which encountered many similar (but also some different) challenges in the decade after the First World War. Altogether, this session offers novel insights about the diverse range of Anglosphere economies, which are approached from both domestic and international perspectives.

1st half

Labour Frictions in Interwar Britain: Industrial Reshuffling and the Origin of Mass Unemployment

Ivan Luzardo

This article estimates the matching function of the British labour market for the period of 1921-1934. The variability in matching efficiency explains both the employment resilience during the Great Depression and the high structural unemployment throughout the interwar period. Early in the 1920s, matching efficiency had improvements due to the development of the retail industry. However, the econometric results show a structural break in June 1926, related with a major industrial reshuffling that reduced the demand for workers in staple industries. Since these industries were geographically concentrated, there was an increase in the average distance between the unemployed and vacancies.

This article estimates the matching function of the British labour market for the period of 1921-1934. The variability in matching efficiency explains both the employment resilience during the Great Depression and the high structural unemployment throughout the interwar period. Early in the 1920s, matching efficiency had improvements due to the development of the retail industry. However, the econometric results show a structural break in June 1926, related with a major industrial reshuffling that reduced the demand for workers in staple industries. Since these industries were geographically concentrated, there was an increase in the average distance between the unemployed and vacancies.

Protection and the British rayon industry during the sterling overvaluation, 1925-31

Brian D. Varian

Rayon was one of the classic Second Industrial Revolution industries to emerge in the 1920s. Yet, early in its development, Britain imposed both a customs duty (2s. per lb) and an excise duty (1s. per lb) on rayon yarn, under the Finance Act of 1925. While these duties were heralded as revenue-raising luxury taxes, the difference between the customs duty and the excise duty afforded the industry a margin of protection. This paper argues that the British rayon industry was dependent upon protection in the late 1920s. More broadly, this paper advances two claims. First, protection was already altering the composition of British manufacturing before the Import Duties Act of 1932. Second, trade policy could have been used to offset the adverse effect of monetary policy, i.e. the sterling the overvaluation, on marginally competitive industries.

Rayon was one of the classic Second Industrial Revolution industries to emerge in the 1920s. Yet, early in its development, Britain imposed both a customs duty (2s. per lb) and an excise duty (1s. per lb) on rayon yarn, under the Finance Act of 1925. While these duties were heralded as revenue-raising luxury taxes, the difference between the customs duty and the excise duty afforded the industry a margin of protection. This paper argues that the British rayon industry was dependent upon protection in the late 1920s. More broadly, this paper advances two claims. First, protection was already altering the composition of British manufacturing before the Import Duties Act of 1932. Second, trade policy could have been used to offset the adverse effect of monetary policy, i.e. the sterling the overvaluation, on marginally competitive industries.

Economic Policy in the Irish Free State and the Other Newly-Established States of the European Periphery

Frank Barry

Though fiscal independence had been a ‘red line’ demand of Irish nationalists in the Anglo-Irish negotiations that led to the establishment of the Irish Free State in 1922, the government of the new Irish state was largely conservative on matters of economic policy: monetary independence was eschewed and protection was selective rather than comprehensive. This paper contrasts the Irish economic policy stance of the 1920s with that of the other newly-established states of the era, with which it shared the characteristic of being among the least industrialised economies in Europe. Ireland differed, however, in that a comprehensive land redistribution programme had been effected prior to independence. Political scientists accord this a key role in the consolidation of democracy. The present paper argues that it was also a key determinant of the economic policy stance adopted.

Though fiscal independence had been a ‘red line’ demand of Irish nationalists in the Anglo-Irish negotiations that led to the establishment of the Irish Free State in 1922, the government of the new Irish state was largely conservative on matters of economic policy: monetary independence was eschewed and protection was selective rather than comprehensive. This paper contrasts the Irish economic policy stance of the 1920s with that of the other newly-established states of the era, with which it shared the characteristic of being among the least industrialised economies in Europe. Ireland differed, however, in that a comprehensive land redistribution programme had been effected prior to independence. Political scientists accord this a key role in the consolidation of democracy. The present paper argues that it was also a key determinant of the economic policy stance adopted.

2nd half

Becoming a Financial Hegemon in the Age of Default: What Drove US Lending Abroad in the 1920s?

Andrea Papadia

The lift of the ban on foreign branching for US banks embedded in the Federal Reserve Act of 1913 provided a decisive boost for the boom in post-WWI international lending. US banks set up branches abroad to gather intelligence in order to start underwriting and selling foreign bonds and between 1924 and 1931, around 60% of total international lending came from the US. By 1929 the dollar had overtaken sterling as the leading international currency in international finance. Thus, in this period, the US underwent a transformation from an essentially closed economy to an international hegemon. This paper studies US lending abroad in the 1920s using detailed information about the size and composition of the loans, and further seeks to uncover the factors determining their geographical distribution.

The lift of the ban on foreign branching for US banks embedded in the Federal Reserve Act of 1913 provided a decisive boost for the boom in post-WWI international lending. US banks set up branches abroad to gather intelligence in order to start underwriting and selling foreign bonds and between 1924 and 1931, around 60% of total international lending came from the US. By 1929 the dollar had overtaken sterling as the leading international currency in international finance. Thus, in this period, the US underwent a transformation from an essentially closed economy to an international hegemon. This paper studies US lending abroad in the 1920s using detailed information about the size and composition of the loans, and further seeks to uncover the factors determining their geographical distribution.

Should monetary policy lean against the wind? Quasi-experimental evidence from the U.S. Phelan Act of 1920

Kilian Rieder

In this paper, I draw on microdata to assess the effectiveness and macroeconomic consequences of “leaning against the wind” policies designed to halt a credit boom gone bad in the U.S. following World War I. My empirical strategy relies on policy differences across Federal Reserve districts that derived from the decentralized way the Federal Reserve System implemented monetary policy in the 1920s. At this time, each Federal Reserve district decided upon and enforced its own interest rate policy. In an explicit attempt to contain the post-war boom, some Federal Reserve Banks (FRB) implemented LAW policies, whereas others did not. While the response of FRBs was endogenous to the strength of the local credit boom, the geographic variation in policies generates a unique setting to test the effect of LAW around the district borders. I employ regression discontinuity design to estimate the effect of LAW policies on bank-level leverage and on...

In this paper, I draw on microdata to assess the effectiveness and macroeconomic consequences of “leaning against the wind” policies designed to halt a credit boom gone bad in the U.S. following World War I. My empirical strategy relies on policy differences across Federal Reserve districts that derived from the decentralized way the Federal Reserve System implemented monetary policy in the 1920s. At this time, each Federal Reserve district decided upon and enforced its own interest rate policy. In an explicit attempt to contain the post-war boom, some Federal Reserve Banks (FRB) implemented LAW policies, whereas others did not. While the response of FRBs was endogenous to the strength of the local credit boom, the geographic variation in policies generates a unique setting to test the effect of LAW around the district borders. I employ regression discontinuity design to estimate the effect of LAW policies on bank-level leverage and on macroeconomic variables at the county-level.

The Functions of Australian Banks’ Branch Networks: Diversification of Risks and Spatial Allocation of Capital

Andrew J. Seltzer

This paper examines the consequences of branch banking for the Australian economy. There is little evidence to show that branching increased the stability of Australian banking. During the 1893 crisis, banks with more extensive branch networks, particularly those that had rapidly expanded their networks during the long boom of 1866-89, were more likely to suspend payments. However, it is shown that branching increased the availability of capital and provision of banking services in rural areas. This occurred because, unlike unit banks which were tied to a specific location, branch banks could internally reallocate capital from urban to rural regions at low cost.

This paper examines the consequences of branch banking for the Australian economy. There is little evidence to show that branching increased the stability of Australian banking. During the 1893 crisis, banks with more extensive branch networks, particularly those that had rapidly expanded their networks during the long boom of 1866-89, were more likely to suspend payments. However, it is shown that branching increased the availability of capital and provision of banking services in rural areas. This occurred because, unlike unit banks which were tied to a specific location, branch banks could internally reallocate capital from urban to rural regions at low cost.