Monetary and fiscal interactions in the USA during the 1940s

摘要

It is generally assumed that the buildup of liquid assets in the USA during WWII played a large role in generating postwar economic activity. Contrary to this assumption, I establish that military contract spending during the war slowed down the growth of bank balance sheets at the state level during the period 1940-1955. State-level bank balance sheets are 10.8 cents smaller per $1 of total military spending by 1949 and 5.8 cents smaller by 1955. This is primarily driven by slower growth of demand deposits. The adjustment on the asset side is largely through reserves and Treasury holdings. Local lending also grows more slowly after the war, but this decrease is relatively small and temporary. This suggests that the local real economy was largely insulated from the slower growth in deposits by the wartime buildup of paper assets. Historical evidence points to the fact that slower growth of deposits is likely driven by a relative decline in demand for deposits by large corporations in war industries.