Great Depression and Conditionality (PI Mary O’Sullivan)

When the United States emerged from World War 1, the new Federal Reserve System had an opportunity to work normally under peacetime conditions. As the 1920s wore on, lessons from the historical experiences of European countries seemed increasingly inappropriate to the fledgling central banking system in the United States given the enduringly distinctive characteristics of the country’s financial system. For this reason, policymakers debated which types of history were relevant or useful for the United States and argued about what (and whether) they might learn from the past as they struggled to respond to the increasingly trying issues they confronted. For these policymakers, there was nothing self-evident about the lessons of history, nor even about which types of historical experience were most relevant to them. As a result, different actors constructed plausible, coherent but quite different explanations of how history might be used in the present.

The second part of this work package will study the ways in which history was constructed and used in sovereign debt markets in the 1920s and 1930s with a particular focus on conditionality and reputation. In the aftermath of World War 1, there were important changes in the regulation of international financial markets as the League of Nations and central bankers joined international bankers as “money doctors” steering capital and expertise among struggling nations. Inspired by their understanding of the historical experience of the 19th century, the new money doctors of the 1920s continued to emphasise conditionality in international lending. The conditions attached to loans were in turn shaped by the reputation of both the borrower and the lender, reputations that were built by market actors using the past as a guide to future credit-worthiness.  Drawing on a variety of archival sources,  it is possible to understand how these money doctors used the past to identify and measure reputation to guide conditionality in international financial markets. Based on detailed studies of how different debtor countries were affected by the crisis, the study will show how policymakers’ advice, based on their experiences and interpretations of the past, compared with what actually occurred.