Daniel Kuehn’s note on the Depression of 1920–21 has been published by the Cambridge Journal of Economics. Daniel has been one of the more vocal critics of the argument that suggests that the Depression of 1920–21 “proves” that fiscal spending is not necessary to stimulate economic recovery. As far as the historical interpretation goes, I agree with Daniel. With regards to what did stimulate a “recovery” I think Daniel hits the nail on the head in the following passage,
With adequate effective demand and no liquidity trap, any demand management that was required could be achieved by adjusting monetary policy. This was accomplished by the Federal Reserve System, when it initiated discount rate reductions in May 1921 to keep the recovery on track.
I think there is room for a comparison between the Depression of 1920 and the Recession of 2000–02.
For those of you who are unable to read Daniel’s piece in the Review of Austrian Economics, this one is not gated and is free. I really suggest reading it, in conjunction with the literature he is responding to (namely, articles by Bob Murphy and Tom Woods).
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