Hostname: page-component-848d4c4894-jbqgn Total loading time: 0 Render date: 2024-06-30T07:02:36.444Z Has data issue: false hasContentIssue false
  • English
  • Français

The Role of Business Liquidity During the Great Depression and Afterwards: Differences Between Large and Small Firms

Published online by Cambridge University Press:  03 March 2009

Helen Manning Hunter
Helen Manning Hunter
Affiliation:
Associate Professor of Economics at Bryn Mawr College, Bryn Mawr, Pennsylvania 19010.
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper describes two contrary developments in corporate finance during the Great Depression. In 1930s downswings the top one percent of firms acquired unusually high rations of liquid assets to receipts, thus withdrawing funds from the spending stream. Smaller firms, however, were forced into highly illiquid positions (by postwar standards) by episodes of monetary restriction in 1931 and 1937. It is argued that both developments made the Depression more severe. A structural change is found after 1945 in the financial behavior of large firms. This is attributed to a new cyclical pattern of price change and lower business uncertainty during postwar recessions.

Type
Articles
Information
The Journal of Economic History , Volume 42 , Issue 4 , December 1982 , pp. 883 - 902
Copyright
Copyright © The Economic History Association 1982

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.)

References

1 The analysis presented here depends on the availability of the Internal Revenue Service's Statistics of Income data, which were first published in 1917. Comparison with years before 1917 is therefore precluded.Google Scholar

2 See a summary of such studies in Laidler, David, The Demand for Money: Theories and Evidence, 2nd ed. (New York, 1977), pp. 130–33.Google Scholar

3 Chandler, Lester V., American Monetary Policy, 1928–1941 (New York, 1971), pp. 233–39, 255–59, describes several contemporary investigations.Google Scholar

4 Hunter, Helen Manning, “Corporate Demand For Cash: The Influence of Corporate Population Growth and Structure”, The Review of Economics and Statistics, 60 (08. 1978), 467–71.CrossRefGoogle Scholar

5 Hunter, “Corporate Demand For Cash”, p. 468.Google Scholar

6 Porter, Richard D., Simpson, Thomas D., and Mauskopf, Eileen, “Financial Innovation and the Monetary Aggregates,” Brooking Papers in Economic Activity, 1, 1979, p. 217.Google Scholar

7 Chandler, American Monetary Policy, p. 256, Table 16–7.Google Scholar

8 For an account of the controversy within the Federal Reserve about the use of member bank borrowing in the 1920s, see Friedman, Milton and Schwartz, Anna J., A Monetary History of the United States 1867–1960, Princeton, 1963, Ch. 6.Google ScholarRatios for Member Bank Reserves and Member Bank Borrowing are derived from U.S. Department of Commerce, Historical Statistics, Part II Series 798 and 803.Google Scholar Recent years were derived from the 1982 Economic Report of the President (Washington, D. C., 1982), p. 308.Google Scholar

9 Lieberman, Charles, “Structural and Technological Change in Money Demand”, American Economic Review, 69 (05 1979), 324–29.Google Scholar

10 Hunter, “Corporate Demand for Cash”, Table 1.Google Scholar

11 The prewar period is covered in Chandler, American Monetary Policy, pp. 233–39 and 255–59.Google Scholar For a description of credit rationing today, and for bibliographical references, see Mayer, Thomas, Duesenberry, James S., and Aliber, Robert Z., Money, Banking, and the Economy (New York, 1981), Ch. 4.Google Scholar

12 Chandler, American Monetary Policy, pp. 315–20.Google Scholar

13 This procedure is suggested by Toyoda, Toshida, “Use of the Chow Test Under Heteroscedasticity”, Econometrica, 42 (05 1974), 601–07.CrossRefGoogle Scholar

14 Keynes, John Maynard, “The General Theory of Employment”, Quarterly Journal of Economics, 51 (02 1937), 216.CrossRefGoogle Scholar

15 Keynes, John Maynard, The General Theory of Employment, Interest and Money (New York, 1936), 235.Google Scholar

16 For a different opinion see Temin, Peter, Did Monetary Forces Cause the Great Depression? (New York, 1976), Chaps. 4 and 6. Temin does not distinguish between the positions of large and small firms, nor does he refer to the National Industrial Conference Board Study and other evidence about credit rationing cited by Chandler. These appear to be the main sources of disagreement with this paper.Google Scholar