I believe you\’ve got your history a little telescoped here.
The fact that no remedy has seemed to work has had remarkably little impact on policy. During the Depression Milton Friedman\’s call for an increase in money supply proved ineffective when that increase was merely hoarded by stricken banks. Thus pumping up the banks is exactly what the Bank of England is doing today: to the same minimal effect.
During the Depression Friedman was a newly minted MA. He wasn\’t calling for and certainly no one would have been listening to any such calls. His great innovation of the period was in fact the invention of with holding (or PAYE as we call it) for income tax. Something he came to regard as a very large mistake in fact.
And, err, the Fed didn\’t pump up the money supply at the time and the banks didn\’t hoard the money.
It is his work with Anna Schwartz, published in the 60s, which actually analyses what was done and what should have been done and leads us to thinking that we should pump the banks full of money in such circumstances.
You might think this is all pedantry but it\’s really rather important. If the banks had been pumped full of money and we\’d still had the Depression then that would indicate that pumping the banks full of money was not a solution for falling into a Depression. Thus not a solution for us now. However, they weren\’t, so it still might be: we\’ll obviously have to wait and see whether it\’s a sufficient solution.
Likewise in the 1920s and 1930s governments that forced national budgets into balance through austerity saved their banks, but exacerbated stagnation and slump.
Nope, banks fell over all over the place. Austerity, along with that not expanded money supply, helped cause this.
Sweden nationalised, divided and recapitalised its banks.
And, let us remember, promptly privatised them again.
Yes, shareholders should lose everything when their management screws up. That\’s capitalism. But get the banks back into the private sector: otherwise all lending decisions are going to be about who you know in politics: one of the fastest known methods of entirely corrupting the entire political system.
The question is not what history says but who is listening.
Erm actually, I think it\’s that Santayana thing: who actually remembers it. For mis-remembering it is really quite dangerous….you know, thinking that in the 30s the money supply was hugely expanded but the banks just sat on hte money for example?