It is well-known that the housing market took many years and significant government interventions to recover. But most accounts fail to recognize the role of postal savings in delaying the recovery, by increasing people's incentive to withdraw funds from S&Ls, denying them a role as re-depositories, and not putting any funds into housing-related lending until 1934. Banks then faced restrictions on mortgage lending, so even had they wanted to deploy postal re-deposits into mortgages, they could not have fully made up for the retreat of S&Ls. Speculating how differently things might have turned out but for postal savings is risky. Still, perhaps the government-dominated housing finance market that today characterizes the United States (but no other Western country) might not have come to be without the long slump to which postal savings contributed.

Postal Savings as Practical Politics

Subsequent essays will discuss the lessons of postal savings for two contemporary proposals aimed at financial inclusion: post-office banking and Federal Reserve provision of retail deposit accounts, often under the banner of a "central bank digital currency." For now, the most important lesson is that any such proposal is just as likely as postal savings was to become an object of political horse-trading and heavy lobbying by vested interests. And that can turn even desirable interventions into practical disasters.

This article first appeared at the Cato Institute.

Image: Reuters.