The depression of 1920–1921: a credit induced boom and a market based recovery?

Patrick Newman ()
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Patrick Newman: George Mason University

The Review of Austrian Economics, 2016, vol. 29, issue 4, No 4, 387-414

Abstract: Abstract This paper examines the American post-WW1 boom and bust. It argues that the Federal Reserve’s monetary easing from 1919 to 1920 created an Austrian Business Cycle (ABC), or an unsustainable credit boom. The collapse of the boom initiated the Depression of 1920–1921. The subsequent laissez faire policy promoted a swift recovery. In particular, the natural recovery began following a severe liquidation of firms, reallocation of resources, and wage cuts stimulated by fiscal and monetary contraction. Contrary to some other accounts, we find that significant recovery began before the Federal Reserve’s 1921–1922 monetary easing affected the economy. We also address other criticisms of the credit-cycle interpretation.

Keywords: Depression of 1920–1921; Austrian business cycle theory; Federal reserve; Liquidation (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:kap:revaec:v:29:y:2016:i:4:d:10.1007_s11138-015-0337-5

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DOI: 10.1007/s11138-015-0337-5

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