Friday, December 5, 2014

Was Murray Rothbard Wrong About the Recovery from the 1920-1921 Depression?

I think not.

I am seeing more arguments that there was no monetary stimulus that launched the economy out of the 1920-21 depression.

What is curious about this claim is that it is being made by those who are supporting their claim by looking at everything other than money supply growth itself!

There was monetary stimulus big time coming out of that depression

According to the National Bureau of Economic Research, the 1920-1921 Depression "officially" lasted from January 1920 to July 1921.

A Monetary History of the United States 1867-1960 by Milton Friedman and Anna Schwartz shows  (Appendix A) that money supply declined in the first part of 1921  by 8.4% and then started to climb. This is completely in line with what you would expect, based on Austrian business cycle theory, when you have a central bank manipulating the money supply.

In Chapter 4, Table 1 of Rothbard's America's Great Depression, Rothbard lists money supply growth of 4.1% from June 1921 to June 1922 and he shows that it jumped even higher the following 12 months to 9.8%. That's serious stimulus, especially after a period when money supply declined dramatically.

Now, in AGD, Rothbard does quote the economist Benjamin Anderson, who wrote that the 1920-21 Depression was "our last natural recovery to full employment."

But by quoting Anderson here, Rothbard is not implying that Federal Reserve monetary stimulus did not occur. He is discussing, as he writes immediately before he quotes Anderson, a Depression where, "wage rates were permitted to fall, and government expenditures and taxes were reduced."

In other words, he is contrasting the current prolonged recessions/depressions which include attempts to prop up wages and increase government spending, versus the relative laissez faire approach prior to America's great depression, where the manipulations were strictly of the monetary stimulus kind. But he is not in any way saying that there was no monetary stimulus coming out of the 1920-21 depression. In fact, his table shows that there was.

No comments:

Post a Comment