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Recovery from the Great Depression: The Farm Channel in Spring 1933

Author

Listed:
  • Paul Rhode

    (University of Michigan)

  • Johannes Wieland

    (UCSD)

  • Joshua Hausman

    (University of Michigan)

Abstract
In the four months following the trough of the Great Depression in March 1933, industrial production rose 57 percent. We argue that an important source of recovery was the direct effect of dollar devaluation on farm prices, incomes, and consumption. We call this the farm channel. Using daily spot and futures crop price data, we document that devaluation raised prices of traded crops and their close substitutes (other grains). And using novel state and county auto sales data, we document that recovery proceeded much more rapidly in farm areas. These cross-sectional effects are large, explain a substantial fraction of cross-state variation in auto sales growth, and are concentrated in areas growing traded crops or close substitutes. We also find that given the same exposure to farm price changes, spending rose more in counties with more farm debt. We aggregate our cross-sectional results using a simple incomplete markets model in which indebted farmers have high MPCs. It implies that the farm channel accounts for 30% or more of the spring recovery.

Suggested Citation

  • Paul Rhode & Johannes Wieland & Joshua Hausman, 2017. "Recovery from the Great Depression: The Farm Channel in Spring 1933," 2017 Meeting Papers 772, Society for Economic Dynamics.
    • Handle: RePEc:red:sed017:772
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    Cited by:

    1. Michael D. Bordo, 2017. "An Historical Perspective on the Quest for Financial Stability and the Monetary Policy Regime," Economics Working Papers 17108, Hoover Institution, Stanford University.
    2. Adrien Auclert & Will S. Dobbie & Paul Goldsmith-Pinkham, 2019. "Macroeconomic Effects of Debt Relief: Consumer Bankruptcy Protections in the Great Recession," NBER Working Papers 25685, National Bureau of Economic Research, Inc.
    3. Jason Lennard & Finn Meinecke & Solomos Solomou, 2023. "Measuring inflation expectations in interwar Britain," Economic History Review, Economic History Society, vol. 76(3), pages 844-870, August.
    4. Jason Lennard & Meredith M. Paker, 2023. "Devaluation, Exports, and Recovery from the Great Depression," Discussion Papers 2403, Centre for Macroeconomics (CFM).
    5. Bernardo Candia & Mathieu Pedemonte, 2021. "Export-Led Decay: The Trade Channel in the Gold Standard Era," Working Papers 21-11r, Federal Reserve Bank of Cleveland, revised 08 Nov 2021.
    6. Miguel Almunia & Pol Antràs & David Lopez-Rodriguez & Eduardo Morales, 2021. "Venting Out: Exports during a Domestic Slump," American Economic Review, American Economic Association, vol. 111(11), pages 3611-3662, November.
    7. Margaret M. Jacobson & Eric M. Leeper & Bruce Preston, 2019. "Recovery of 1933," NBER Working Papers 25629, National Bureau of Economic Research, Inc.
    8. Michael D. Bordo, 2017. "An historical perspective on financial stability and monetary policy regimes: A case for caution in central banks current obsession with financial stability," Working Paper 2018/5, Norges Bank.
    9. Davide Cantoni & Noam Yuchtman, 2020. "Historical Natural Experiments: Bridging Economics and Economic History," NBER Working Papers 26754, National Bureau of Economic Research, Inc.
    10. Markus K. Brunnermeier & Sergio A. Correia & Stephan Luck & Emil Verner & Tom Zimmermann, 2023. "The Debt-Inflation Channel of the German Hyperinflation," NBER Working Papers 31298, National Bureau of Economic Research, Inc.
    11. Bent, Peter H., 2020. "Recovery from financial crises in peripheral economies, 1870–1913," Explorations in Economic History, Elsevier, vol. 78(C).
    12. Poelmans, Eline & Taylor, Jason E. & Raisanen, Samuel & Holt, Andrew C., 2022. "Estimates of employment gains attributable to beer legalization in spring 1933," Explorations in Economic History, Elsevier, vol. 84(C).
    13. Colin Weiss, 2020. "Contractionary Devaluation Risk: Evidence from the Free Silver Movement, 1878-1900," The Review of Economics and Statistics, MIT Press, vol. 102(4), pages 705-720, October.
    14. Fishback, Price & Fleitas, Sebastian & Rose, Jonathan & Snowden, Ken, 2020. "Collateral Damage: The Impact of Foreclosures on New Home Mortgage Lending in the 1930s," The Journal of Economic History, Cambridge University Press, vol. 80(3), pages 853-885, September.
    15. Xi He, 2020. "US agricultural exports and labor market adjustments," Agricultural Economics, International Association of Agricultural Economists, vol. 51(4), pages 609-621, July.
    16. Monnet, Eric & Degorce, Victor, 2020. "The Great Depression as a Saving Glut," CEPR Discussion Papers 15287, C.E.P.R. Discussion Papers.
    17. Siodla, James, 2020. "Debt and taxes: Fiscal strain and US city budgets during the Great Depression," Explorations in Economic History, Elsevier, vol. 76(C).

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    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • N12 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - U.S.; Canada: 1913-
    • N52 - Economic History - - Agriculture, Natural Resources, Environment and Extractive Industries - - - U.S.; Canada: 1913-

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