In the 1930s, Investment Banks Lobbied For Pro-Growth Policies

In one fascinating passage of Jean Edward Smith’s FDR he notes that as Roosevelt was considering ditching the gold standard, JP Morgan analysts concluded that this would be a pro-growth policy and lobbied for it:

Rising above conventional wisdom, J. P. Morgan and his partners, Thomas Lamont and Russell Leffingwell, worried about the unrest that continued to sweep the farm belt and believed a rise in commodity prices was essential to ensure the nation’s political stability. The fastest way to achieve that was to go off the gold standard and let the market set the value of the dollar. A cheaper dollar would make American farm products more attractive to foreign buyers, and the increased demand would raise domestic prices. Morgan and his partners were not idle spectators. They made whatever overtures they could to the administration through Treasury secretary Woodin and enlisted Walter Lippmann, the nation’s premier political analyst, in the cause. “Walter,” said Leffingwell over lunch in New York, “you’ve got to explain to the people why we can no longer afford to chain ourselves to the gold standard. Then maybe Roosevelt, who I am sure agrees, will be able to act.”

What this reminded me of is the work of Jan Hatzius, chief economist at Goldman Sachs, who’s written in favor of NGDP targeting and generally taken an expansionary line on fiscal and monetary policy. The difference is that while Hatzius has written and talked about that stuff, Goldman Sachs hasn’t lobbied for it. When Goldman CEO Lloyd Blankfein talks public policy, he’s overwhelmingly pushing for his favored tax and regulatory agendas. Ordinary business lobbying stuff. That his bank publishes some analysis of the fundamental macroeconomic situation is totally incidental to Goldman’s lobbying and government affairs efforts, which are focused on Goldman’s bottom line.

By contrast Morgan, Lamont, and Leffingwell seem to have really put some muscle into trying—and ultimately succeeding—in getting unorthodox monetary policy measures enacted.