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n. Illinois | To add to our understanding of what happened in the 1930's
The bank runs were caused by the Government implementing a tax on check writing. People went to pull their cash out of the banks to avoid the tax causing the bank runs. The Fed Failed to provide the liquidity to meet the deposit runs at the banks causing them to fail. In the end the failures always point to the Federal Reserve failures.
The following is from Grok (Musk's AI program)
Yes, there was an attempt in the 1930s to tax check writing in the United States, and it actually went beyond an attempt—it was implemented. In June 1932, as part of the Revenue Act of 1932, Congress enacted a federal tax of two cents per check written on bank accounts. This "check tax" was a small but notable excise tax aimed at raising revenue during the depths of the Great Depression, when the government was desperate to address a ballooning deficit and economic collapse.
Background and Implementation
The Revenue Act of 1932, signed into law by President Herbert Hoover on June 6, 1932, was a broad effort to boost federal income amid plummeting tax receipts—revenue had fallen from $4.1 billion in 1930 to $1.9 billion by 1932 due to the economic downturn. Alongside increases in income taxes and other excises (like taxes on gasoline and electricity), the check tax was introduced as a transactional levy. It applied to each check drawn on a bank account, regardless of the amount, and was in effect from June 21, 1932, until it was repealed on January 1, 1935.
Economic Impact
The tax wasn’t just a fiscal footnote—it had unintended consequences. Economists like Patrick Honohan and Seán K. Yoder, in a 1997 study published in The Journal of Economic History, argued that it contributed to the severe monetary contraction of the early 1930s. By taxing checks, it discouraged people from using bank accounts, pushing them toward cash transactions. Their estimates suggest the currency-to-demand-deposit ratio rose by about 15%, and the M1 money supply shrank by roughly 12%, exacerbating the banking crisis and deflationary spiral. People hoarded cash or avoided writing checks, which slowed the velocity of money at a time when the economy was already seizing up.
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real cause of the great depression
