The Journal of Economic History


The Check Tax: Fiscal Folly and the Great Monetary Contraction

William D. Lastrapesa1 and Grorge Selgina1

a1 Department of Economics, Terry College of Business, University of Georgia, Athens, Georgia 30602.

Although its role has been overlooked by monetary historians, a two-cent tax on bank checks effective from June 1932 through December 1934 appears to have been an important contributing factor to that period's severe monetary contraction. According to the estimates in this article, the currency–demand deposit ratio was about 15 percent higher, and the M1 money stock about 12 percent smaller, ceteris paribus, than each would have been without the tax. The contractionary consequences had in fact been anticipated by many legislators who were, nevertheless, unable to prevent the measure from being included in the Revenue Act of 1932.