i'm david schoumacher.oning made possible by the annenberg/cpb project america's businessmen and women know how dependent they are on a friendly bank for their success and the growth of their communities. america's banking system has provided that success and growth for more than a century. although most banks are healthy and long-lived historically we have faced bank failures. while we can accept other businesses failing with a shrug a bank closing is another matter, as we learn in our story. new york early in the century, financial capital of america. it was money that kept new york moving and growing, money that built its elevated trains and skyscrapers. most of the money that built new york came from the banks, from the powerful national firms on wall street to the more modest like the knickerbocker trust which served the city's neighborhoods. working-class families kept their savings in the knickerbocker. storekeepers dropped off daily receipts there and borrowed there to buy merchandise. wealthy matro

i'm david schoumacher. coins, bilchecks-- our basic money supply. amount of money and where it goes wiin the bankingysm has enhe main concern of our nation's central bank. at t fed's headquarters here in washington, dc, closedeliberatio are held bs who continuously monitor our financial health and prescribe remedies. how did these experts prescribe a remedy that pnged us even deeper in the great depression? american banks operated eay iwith little regulation and great vulnerability. in907, that vulnerability became apparent when depositors lost confince and demandedir money. e nks coul't get short-termoa when depositors lost confince and many colpsed.ney. e nks coul't get it took a powerful banke short-j.p. morgan, but should an entire country be dependent on an individual's whim? a central bank, a lender of last resort, seemed better solution. just before christmas of 1913, esident wilson sigd the federal reserve act. it created a federal reserve system. though its real operating powers resided in 12 regionalanks, its official headquarters was in w

this is david schoumacher.aptioning made possible by the annenberg/cpb project captioning performed by the national captioning institute, inc. captions copyright 1986 educational film center annenberg media ♪ for information about this and other annenberg media programs call 1-800-learner and visit us at www.learner.org. annenberg media ♪ annenberg media ♪ for information about this and other annenberg media programs call 1-800-learner and visit us at

i'm david schoumacher. 20 years after world war ii brought self-confidence to american political economics. the lessons of depression and war convinced economists and politicians alike that the government could promote prosperity by manipulating taxes and spending. these continuing adjustments are called fiscal policy. for the two decades after world war ii each new administration asked itself how fiscal policy could be used to control the economy. our story begins in 1944. americans had vivid memories of the great depression. they remembered 1/4 of the work force without jobs factories closed families hungry. and they remembered an inspirational leader who showed them that the government cared. it was the war not the new deal that ended the depression. by 1944, 12 million people were in uniform. 66 million more had jobs supporting the mightiest war machine ever known. amidst this world conflict senator harry truman said, "war is hell but peace might be worse." working with truman was senate staff aide bert

i'm david schoumacher.m or bust? why is the economy so unstable? factories sit idle or stagger along because nobody has any money to spend. workers sit home without any money to spend hoping the economy gets better so they can work again. it's a pattern that repeats itself over and over again. few people worried about trying to explain economic fluctuations during the 19th century. americans were too busy building railroads expanding commerce overseas, or creating new industry. the years after the civil war saw a continuing expansion of the american economy. although this prosperity was interrupted by periodic slumps few people seemed to worry. didn't the economy always bounce back? on the eve of world war i, economists had no theory to explain recurring downturns. why not? we asked some economic historians. the bubbles, the panics, the convulsions, revulsions, crises, gluts, they were noticed back in the 1810s, but the idea of a cycle-- good times and then bad times-- took a long time until it reached the

i'm david schoumacher.oumacher: since the passage of the employment act in 1946, it has been accepted policy for the government to fight unemployment by stimulating total demand. often, inflation resulted. when that happened the government shifted gears and clamped down on demand in order to decrease inflation. for five administrations the government more or less successfully practiced the delicate art of balancing off unemployment and inflation. the experience of the 1950s and 1960s indicated that when unemployment went up, inflation would, correspondingly, fall. by the time richard nixon was in office, though, this classic relationship was showing signs of strain. by 1972, inflation was at a level of 4% and unemployment was at 5 1/2%. a year later unemployment was holding at 5% but inflation had skyrocketed to 8 1/2%. why weren't the old predictable trade-offs working? what had happened to change the economic rules? nature, suddenly violent rampaged over the entire globe. in 1972, there were crop failures