The Check Tax

From the NBER Reporter Fall 1995 page 31, summarizing William D, Lastrapes and George Selgin, University of Georgia, “The Check Tax and The Great Contraction”, a paper delivered at the Workshop on Macroeconomic History, Oct 13 In Cambridge, Mass.

“Although its role has been overlooked by monetary historians, a two cent tax on bank checks effective from Jun 1932 through December 1935 appears to have been an important contributory factor to the periods severe monetary contraction. According to estimates by Lastrapes and Selgin, the tax accounted for between 11 percent and 17 percent of the total increase in the ratio of currency to demand deposits and for between 11 percent and 19 percent of the total decline in M1 between October 1930 and March 1933. The contractionary consequences of the check tax had been anticipated by many legislators, but they were unable to prevent the measure from being included in the Revenue Act fl 1931.”

The resulting paper can be found at papers.ssrn.com/sol3/papers.cfm?abstract_id=33320

I have read a fair amount about monetary history and the Great Depression and I do not recall hearing about the check tax.

(This piece is the result of reading and discarding old publications of the NBER.)