Chicago plan

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The Chicago plan was a collection of banking reforms suggested by University of Chicago economists in the wake of the Great Depression. A six-page memorandum on banking reform was given limited and confidential distribution to about forty individuals on 16 March 1933.[1] The plan was supported by such notable economists as Frank H. Knight, Paul H. Douglas, and Henry C. Simons,[2] as well as by Lloyd W. Mints, Henry Schultz, Garfield V. Cox, Aaron Director, and Albert G. Hart.

Between March and November 1933, the Chicago economists received comments from a number of individuals on their proposal, and in November 1933, another memorandum was prepared. The memorandum was expanded to thirteen pages; there was a supplementary memorandum on "Long-time Objectives of Monetary Management" (seven pages) and an appendix titled "Banking and Business Cycles" (six pages).

100% assets[edit]

These memoranda generated much interest and discussion among lawmakers. The core of the Chicago plan was to replace the fractional reserve system by insisting that banks always hold enough liquid assets to cover 100% of their loans, thus eliminating any danger of bank runs.[3] Banks would not be able to create money, and affect the money supply themselves: as Irving Fisher put it in 1936, the banks would be free to lend money “provided we now no longer allow them to manufacture the money that they lend...In short: nationalize money, but do not nationalize banking”.[4]

However, the suggested reforms, such as the imposition of 100% reserves on demand deposits, were shelved and replaced by less drastic measures. The Banking Act of 1935 institutionalized federal deposit insurance and the separation of commercial and investment banking. It successfully restored the public's confidence in the banking system and ended discussion of banking reform.[5][6]

A Program for Monetary Reform[edit]

After apparent recovery in the mid-1930s, America entered the Recession of 1937-1938. This caused renewed discussion of the key elements of the Chicago plan, and in July 1939 a new proposal was drafted, titled A Program for Monetary Reform. The draft resurrected proposals for banking and monetary reform from the original Chicago plan, and was submitted to the Government, but did not result in any new legislation.[7]

The proposal was never published. A copy of the paper was apparently preserved in a college library.[citation needed] Copies of the paper, stamped on the bottom of the first and last pages, “LIBRARY – COLORADO STATE COLLEGE OF A. & M. A. – FORT COLLINS COLORADO” were circulated at the 5th Annual American Monetary Institute Monetary Reform Conference (2009) and the images were scanned for display on the internet.[1]

A Program for Monetary Reform was attributed on its cover page to six American economists: Paul H. Douglas, Irving Fisher, Frank D. Graham, Earl J. Hamilton, Wilford I. King, and Charles R. Whittlesey.

Anticipations and developments[edit]

100% reserve banking had been long anticipated by David Ricardo;[8] and more recently the Chicago Plan proposals have been reiterated by thinkers on economics from Milton Friedman via Hyman Minsky to Martin Wolf.[9]

See also[edit]


  1. ^ M King, The End of Alchemy (London 2017) p. 388
  2. ^ M King, The End of Alchemy (London 2017) p. 262
  3. ^ M King, The End of Alchemy (London 2017) p. 261-2
  4. ^ Quoted in M King, The End of Alchemy (London 2017) p. 263
  5. ^ Phillips, Ronnie J. (June 1992), The 'Chicago Plan' and New Deal Banking Reform,Working Paper No. 76 (PDF), The Levy Economics Institute.
  6. ^ Huerta de Soto, Jesús (2006), Money, Bank Credit, and Economic Cycles (PDF), Ludwig von Mises Institute, pp. 731–735
  7. ^ R Phillips, The Chicago Plan and New Deal Banking Reform (1994) p. 158
  8. ^ M King, The End of Alchemy' (London 2017) p. 411-13
  9. ^ M King, The End of Alchemy (London 2017) p. 262


  • Douglas, Paul H.; Hamilton, Earl J.; Fisher, Irving; King, Willford I.; Graham, Frank D.; Whittlesey, Charles R. (July 1939), A Program for Monetary Reform (PDF), (draft proposal – scanned image)., archived from the original (PDF) on 26 July 2011
  • Douglas, Paul H.; Fisher, Irving; Graham, Frank D.; Hamilton, Earl J.; King, Willford I.; Whittlesey, Charles R. (July 1939), A Program for Monetary Reform (PDF), (draft proposal – text)., archived from the original (PDF) on 3 November 2012