Chicago plan
Encyclopedia
The Chicago plan was a collection of banking reforms
suggested by University of Chicago
economists in the wake of the Great Depression
. A six-page memorandum on banking reform was given limited and confidential distribution to about 40 individuals on March 16, 1933. The plan was supported by such notable economists as Frank H. Knight, Lloyd W. Mints, Henry Schultz
, Henry C. Simons, Garfield V. Cox, Aaron Director
, Paul H. Douglas, and Albert G. Hart.
During the period March to November, the Chicago economists received comments from a number of individuals on their proposal and in November 1933 another memorandum was prepared. The memorandum was expanded to thirteen pages, there was a supplementary memorandum on "Long-time Objectives of Monetary Management" (seven pages) and an appendix titled "Banking and Business Cycles" (six pages).
These memoranda generated much interest and discussion among lawmakers but the suggested reforms, such as the abolition of the fractional reserve system and imposition of 100% reserves on demand deposit
s, were set aside and replaced by watered down alternative measures. The Banking Act of 1935 institutionalized Federal deposit insurance and the separation of commercial and investment banking; it successfully restored the public's confidence in the banking system and ended discussion of banking reform.
After apparent recovery in the mid-1930s, America entered the Recession of 1937-1938 and the key elements of the Chicago plan resurfaced in a July 1939 draft proposal titled A Program for Monetary Reform
but did not result in any new legislation.
Monetary reform
Monetary reform describes any movement or theory that proposes a different system of supplying money and financing the economy from the current system.Monetary reformers may advocate any of the following, among other proposals:...
suggested by University of Chicago
University of Chicago
The University of Chicago is a private research university in Chicago, Illinois, USA. It was founded by the American Baptist Education Society with a donation from oil magnate and philanthropist John D. Rockefeller and incorporated in 1890...
economists in the wake of the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...
. A six-page memorandum on banking reform was given limited and confidential distribution to about 40 individuals on March 16, 1933. The plan was supported by such notable economists as Frank H. Knight, Lloyd W. Mints, Henry Schultz
Henry Schultz
Henry Schultz was an American economist and statistician, one of the founders of econometrics.-Life:Henry Schultz was born on September 4, 1893 in a Polish family in Szarkowszczyzna, the Russian Empire...
, Henry C. Simons, Garfield V. Cox, Aaron Director
Aaron Director
Aaron Director , a celebrated professor at the University of Chicago Law School, played a central role in the development of the Chicago school of economics...
, Paul H. Douglas, and Albert G. Hart.
During the period March to November, the Chicago economists received comments from a number of individuals on their proposal and in November 1933 another memorandum was prepared. The memorandum was expanded to thirteen pages, there was a supplementary memorandum on "Long-time Objectives of Monetary Management" (seven pages) and an appendix titled "Banking and Business Cycles" (six pages).
These memoranda generated much interest and discussion among lawmakers but the suggested reforms, such as the abolition of the fractional reserve system and imposition of 100% reserves on demand deposit
Demand deposit
Demand deposits, bank money or scriptural money are funds held in demand deposit accounts in commercial banks. These account balances are usually considered money and form the greater part of the money supply of a country.-History:...
s, were set aside and replaced by watered down alternative measures. The Banking Act of 1935 institutionalized Federal deposit insurance and the separation of commercial and investment banking; it successfully restored the public's confidence in the banking system and ended discussion of banking reform.
After apparent recovery in the mid-1930s, America entered the Recession of 1937-1938 and the key elements of the Chicago plan resurfaced in a July 1939 draft proposal titled A Program for Monetary Reform
A Program for Monetary Reform
A Program for Monetary Reform is a July 1939 first draft proposal to repair and rebuild the American economic system following the Great Depression which began with the sudden, devastating collapse of US stock market prices on October 29, 1929, known as Black Tuesday and after apparent recovery in...
but did not result in any new legislation.