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Three Essays on Trade and Finance in the Interwar Period

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Three Essays on Trade and Finance in the Interwar Period THREE ESSAYS ON TRADE AND FINANCE IN THE INTERWAR PERIOD Inaugural-Dissertation Von Marc C. Adam zur Erlangung des akademischen Grades eines Doktors der Wirtschaftswissenschaft des Fachbereichs Wirtschaftswissenschaft Freie Universitat¨ Berlin Graduate School of North American Studies August 2019 Copyright c Marc C. Adam 2019 Erstgutachter Prof. Irwin Collier, PhD Bard College Berlin Zweitgutachterin Prof. Dr. Barbara Fritz ZI Lateinamerika-Institut Freie Universitat¨ Berlin Tag der Disputation: 29. Januar 2020 Fur¨ meine Eltern. Koautorenschaften und Publikationen Die vorliegende kumulative Dissertation besteht aus drei Forschungsaufsatzen¨ (Kapi- tel 2-4 der Dissertation). Das zweite Kapitel der Dissertation (“Return of the Tariffs: The Interwar Trade Collapse Revisited”) wurde in Alleinautorenschaft verfasst (Eigenanteil an Konzeption, Durchfuhrung¨ und Berichtsabfassung: 100 Prozent). Das Kapitel wurde im Jahr 2019 als Diskussionspapier am Fachbereich Wirtschaftswissenschaft veroffentlicht.¨ Die offizielle Literaturangabe lautet: Adam, Marc C., “Return of the Tariffs: The Interwar Trade Collapse Revisited,” Freie Universitat¨ Berlin, School of Business & Economics Discussion Paper, 2019, (8). Das dritte Kapitel der Dissertation (“Liquidating Bankers’ Acceptances: International Crisis, Doctrinal Conflict and American Exceptionalism in the Federal Reserve 1913- 1932”) wurde in Alleinautorenschaft verfasst (Eigenanteil an Konzeption, Durchfuhrung¨ und Berichtsabfassung: 100 Prozent). Zum Zeitpunkt der Einreichung der Dissertation wurde das Kapitel weder als Diskussionspapier noch als Fachartikel veroffentlicht.¨ Das vierte Kapitel der Dissertation (‘Credit Constraints and the Propagation of the Ger- man Great Depression”) wurde in Koautorenschaft mit Walter Jansson verfasst (Eigenanteil an Konzeption, Durchfuhrung¨ und Berichtsabfassung: 50 Prozent). Das Kapitel wurde im Jahr 2019 als Diskussionspapier am Fachbereich Wirtschaftswissenschaft veroffentlicht.¨ Die offizielle Literaturangabe lautet: Adam, Marc C. and Walter Jansson, “Credit Constraints and the Propagation of the Great Depression in Germany,” Freie Universitat¨ Berlin, School of Business & Economics Discussion Paper, 2019, (12). vii DANKSAGUNG Die vorliegende Dissertation ware¨ ohne die Hilfe und Unterstutzung¨ einer Vielzahl an Menschen nicht zustande gekommen. Mein aufrichtiger Dank gilt meinem Betreuer Irwin Collier, dessen Vertrauen und Hil- fsbereitschaft wahrend¨ der letzten funf¨ Jahre maßgeblich zur Fertigstellung dieser Arbeit beigetragen haben. Seine Liebe fur¨ das Fach ist ansteckend und sein Anspruch an Qualitat¨ ein enormer Ansporn. Noch wichtiger jedoch war seine stets offene Tur¨ fur¨ Probleme jedweder Art. Barbara Fritz nahm wie selbstverstandlich¨ die Zweitbetreuung meiner Dissertation auf sich. Sie kommentierte fruhe¨ Entwurfe¨ und lud mich in ihr exzellentes Forschungskollo- quium ein, um meine Ideen zu testen. Ihrer Offenheit und ihrem Engagement gegenuber¨ meinem Projekt gebuhrt¨ mein tiefer Dank. Ich danke außerdem Walter Jansson und Jonathan Fox. Walter Jansson fur¨ seinen Ein- satz in unserem gemeinsamen Projekt, Kapitel 4 dieser Dissertation, fur¨ seine Kommentare auf einen Entwurf von Kapitel 2 und fur¨ seinen trockenen Humor. Jonathan Fox fur¨ seine Anmerkungen auf fruhe¨ Entwurfe¨ von Kapitel 2 und 3, sowie fur¨ seine Offenheit und Ehrlichkeit. Teile dieser Arbeit profitierten außerdem von der Hilfe und den Kommentaren von Christopher Meissner, Yoto Yotov, Perry Mehrling, Natacha Postel-Vinay, Mark Carlson, Solomos Solomou, und Juan Felipe Bernal Uribe. David Bosold, Kerstin Brunke und Gabi Bodmeier verdanke ich exzellente Rahmenbe- dingungen ohne die ich verloren gewesen ware.¨ Ihre Energie und gute Laune waren lebens- wichtig beim Schreiben uber¨ die Große Depression. Ebenso bedanke ich mich bei allen weiteren fruheren¨ und jetzigen MitarbeiterInnen des John-F.-Kennedy-Instituts und der Graduiertenschule fur¨ Nordamerikastudien fur¨ das angenehme Arbeitsklima. Mein Dank gilt insbesondere Carl-Ludwig Holtfrerich fur¨ seine viii Hinweise und Inspiration und Wolfgang Strehl fur¨ sein Verstandnis¨ und seinen Zuspruch. Daneben danke ich folgenden (Post-)DoktorandInnen, dass sie Teil dieser langen Arbeit waren: Marius Dahmen, Dominique Haensell, Nadja Klopprogge, Tobias Jochum und Joscha Spoellmink. Letzterer hat in der finalen Phase mehr Zeit mit mir verbracht als sonst ein Mensch. Ich schatze¨ mich glucklich¨ eine Vielzahl an Freunden zu haben, die mich auf diesem Weg begleitet haben. Allen voran danke ich Alain Naef und Thomas Treiber. Alain Naef danke ich fur¨ seine Kritik und Anmerkungen zu Teilen dieser Arbeit. Aber vor allem danke ich ihm fur¨ seine Freundschaft, die mich nach Cambridge gefuhrt¨ hat, wo große Teile von Kapitel 3 entstanden sind. Thomas Treiber leistete große Unterstutzung¨ auf den letzten Metern dieser Arbeit. Seiner zehnjahrigen¨ Freundschaft verdanke ich Begeisterung fur¨ Geschichte, Wissenschaft und Politik. Zu guter Letzt mochte¨ ich mich bei meiner Familie bedanken. Meine Eltern sind fur¨ mich das Inbild von Freiheit und Selbstbestimmung. Sie haben mir fruh¨ das Tor zur Welt gezeigt und mir die großte¨ Selbstentfaltung ermoglicht,¨ die ich mir wunschen¨ konnte.¨ Ihre Liebe und Unterstutzung¨ waren mein wichtigster Begleiter. Ihnen verdanke ich alles. ix TABLE OF CONTENTS Danksagung . viii List of Tables . xii List of Figures . xiii Chapter 1: Introduction . 17 Chapter 2: Return of the Tariffs: The Interwar Trade Collapse Revisited . 22 2.1 The Tariff Menace . 22 2.2 Gravity Between the Wars: The Empire Adrift . 27 2.3 Interwar Gravity Redux . 32 2.3.1 Methodology and Data . 32 2.3.2 Partial Effects . 38 2.3.3 General Equilibrium Analysis . 47 2.4 A New Transport Cost Index . 52 2.5 Conclusion . 58 Chapter 3: Liquidating Bankers’ Acceptances: International Crisis, Doctrinal Conflict and American Exceptionalism in the Federal Reserve 1913- 1932 . 60 3.1 Introduction . 60 xi 3.2 The Political and Economic Visions of the Real Bill Doctrinaires . 62 3.3 The Fed: An Early Historiography . 72 3.4 The Rise of the Acceptance Market . 77 3.5 The Liquidation of the Acceptance Market . 81 3.6 Conclusion . 95 Chapter 4: Credit Constraints and the Propagation of the German Great De- pression . 98 4.1 Introduction . 98 4.2 The Great Depression in Germany: An Overview . 100 4.3 The German Credit Banks and the Development of the Short Term Foreign Credit Market . 104 4.4 Empirical Approach . 110 4.5 Results . 114 4.6 Conclusion . 119 Appendix A: Return of the Tariffs: The Interwar Trade Collapse Revisited . 121 A.1 Gravity Data Appendix . 121 A.2 Robustness Appendix . 127 A.3 General Equilibrium Appendix . 133 A.4 Transport Costs Appendix . 136 Appendix B: Credit Constraints and the Propagation of the German Great De- pression . 138 B.1 Data . 138 B.2 Stochastic Volatility . 140 xii B.3 Robustness . 140 B.3.1 Foreign Bond Issuance . 140 B.3.2 Alternative Investment Series . 141 B.4 Priors . 143 References . 144 Summary . 162 Zusammenfassung . 164 Ehrenwortliche¨ Erklarung¨ . 165 xiii LIST OF TABLES 2.1 Estimation of the Interwar Trade Cost Function . 42 2.2 Trade and Currency Blocs in the Interwar Period . 46 2.3 General Equilibrium Comparative Statics . 50 3.1 Acceptances Held by Institutions (in Mio. USD) . 87 4.1 Advances and Equity + Reserves of 4 Credit Banks (in Mio. RM) . 106 4.2 Short-term Liabilities of 92 Credit Banks and Estimated Total Short-Term Debt Owed to Foreigners Incl. Non-Banks (in Mio. RM) . 108 A.1 Countries in Both Samples and Bloc Membership . 121 A.2 Percentage Composition of Merchandise Trade by Groups of Countries . 124 A.3 Regression Estimates: Robustness . 129 A.4 Regression Estimates: Blocs Lagged . 131 A.5 Regression Estimates: No Interval . 132 A.6 Technology in the Interwar Liner Shipping Industry . 137 B.1 Variable Descriptions and Data Sources . 138 xiv LIST OF FIGURES 2.1 The Interwar Distance Elasticity Puzzle . 29 2.2 Cotton Freight Index . 55 3.1 Dollar Acceptances Outstanding (in Mio. USD) . 79 3.2 Distribution of Acceptances (in Percent) . 82 3.3 Interest Rates on Dollar Acceptances . 84 3.4 Distribution of Acceptances Held by Different Institutions. 88 4.1 Liquidity Ratios of the Great Banks . 107 4.2 Impulse Responses of Industrial Production and Investment from Credit . 114 4.3 Time-Varying Impulse Responses of Industrial Production and Investment to Credit Shocks . 116 4.4 Time-varying Forecast Error Variance Decomposition of Shocks to Credit after 12 Months . 117 4.5 Impulse Responses of Credit from Industrial Production and Investment Shocks . 118 4.6 Impulse Responses of Industrial Production and Investment from Interest Rate Shocks . 118 A.1 Geographical Distribution of the Partial Sample . 122 A.2 Cotton Ad-Valorem Freight Rates from New York to 21 Destinations . 136 xv B.1 Interest Rates in Germany . 139 B.2 Stochastic Volatility of Shocks . 140 B.3 Impulse Responses of Industrial Production and Investment from Bond Is- suance . 141 B.4 Impulse Responses of Industrial Production and Investment from Loans Controlling for Bond Issuance . 142 B.5 Impulse Responses of Industrial Production and Investment from Loans with Alternative Investment Indicator . 142 xvi CHAPTER 1 INTRODUCTION To understand the Great Depression is the Holy Grail of macroeconomics. —Ben S. Bernanke (1995) The 2008 global financial crisis and the ensuing recession marked the worst economic downturn since the Great Depression (International Monetary Fund, 2009, p.9). The polit- ical aftershocks of the crisis
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