Thursday, February 2, 2012

Glasner on 1920-21

David Glasner cites both of my articles on the 1920-21 depression in this post. He also adds some thoughts of his own, which is one of the things I've really appreciated about the blogosphere.

After my RAE article, I got a lot of additional insights into the period. Don Boudreaux highlighted what was going on with international trade, and Paul Krugman and Brad DeLong both talked about what was going on with private debt levels (which has implications for the impact of a deflation). Here, David points to the operation of the gold standard. Because the U.S. held so much gold, we effectively had control of the value of the dollar.

I know in a draft I had some discussion of Keynes and Hayek's views on the U.S. policy of gold sterilization and our large gold reserves but I know I cut a lot of that discussion out because the article was initially too long. Anyway - whatever I had in a draft or in the final certainly wouldn't have explained the relevance as clearly as Glasner does here. He also has an interesting story about Rothbard:

"On at least one occasion, no less an authority on Austrian Business Cycle theory than Murray Rothbard, himself, actually admitted that the 1920-21 Depression was indeed a purely monetary episode, in contrast to the Great Depression in which real factors played a major role. In the late 1960s, when I was an undergrad in economics at UCLA, Rothbard gave a talk at UCLA about the Great Depression. All I really remember is that he spent most of the talk berating Herbert Hoover for being just as bad as FDR. Most people were surprised to find out that Hoover was such an interventionist, though anyone who had read Ronald Coase’s classic article on the FCC would have already known that Hoover was very far from being a free market ideologue. I had just started getting interested in Austrian economics – while my contemporaries were experimenting with drugs, I was experimenting with Austrian economics; go figure! I sure hope no permanent damage was done – and was curious to hear what Rothbard had to say. But it was all about Herbert Hoover. Later, I asked Axel Leijonhufvud, who had also attended the talk, what he thought. Axel said that Rothbard was a scholar, but didn’t elaborate except to say that he had chatted with Rothbard after the talk asking Rothbard if there had ever been a purely monetary depression and that Rothbard had said that the 1920-21 Depression had been purely monetary. So there you have it, Rothbard, on at least one occasion, admitted that the 1920-21 Depression was a purely monetary phenomenon."


  1. Replies
    1. It isn't that nobody has anything to say, it is only that I don't see what the big "sting" is in this case. If you're somehow implying that Rothbard saw the depression as a result of the Fed's inability to supply more credit, then you're surely mistaken. If you come to the conclusion that Rothbard was speaking of the prior availability of credit and money, then we're talkin'.

      What is your interpretation of this 3rd person quote?

    2. My interpretation is that he was admitting the depression was controlled by the fed in one way or another, which contradicts the idea that recovery came out of nowhere.

  2. Congratulations, Daniel Kuehn, on the mention! It's an interesting thing to know that Murray Rothbard described the 1920-1921 deep recession as a "purely monetary phenomenon"...


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