Did Austrian Libertarians Read The Forgotten Depression: 1921: The Crash That Cured Itself Properly?

The libertarian blogosphere has been spruiking a recent book by James Grant called The Forgotten Depression: 1921: The Crash That Cured Itself (2014) for some time now.

Right now libertarian blogs are gushing over how the book has won the Hayek Prize of the Manhattan Institute. Well, it is not surprising that the conservative/libertarian Manhattan Institute gave a prize named after Hayek to the book, and, quite frankly, I couldn’t care less.

But what does interest me is this: have the Austrians who are spruiking Grant’s book actually read it properly?

The Austrian libertarians are adamant that US monetary policy did not play a significant role in the recovery from this 1920–1921 recession, which lasted from January 1920 to July 1921. (That, incidentally, was a period of 18 months, which is not particularly short as compared with the average length of recessions in the post-WWII era.)

But right on p. 179 of Grant’s The Forgotten Depression: 1921: The Crash That Cured Itself, there is this statement:

“Public policy made one signal contribution, at least, to the improvement in American finances. This was in the all important matter of interest rates. It was welcome news when the Federal Reserve Bank of Boston cut its main discount rate to 6 percent from 7 percent, effective April 15. It was the first easing move by any Federal Reserve bank since the previous spring. The Federal Reserve Bank of New York followed on May 4 with a reduction to 6.5 percent from 7 percent. This move the market correctly interpreted as the beginning of the end of the era of ultrahigh interest rates (high enough in nominal terms, extra lofty when adjusted for the declines in prices and wages).” (Grant 2014: 179).

Although Grant points to the inflow of gold as a more important factor (in his view) for the recovery in the passage that follows this (Grant 2014: 179–180), he clearly does acknowledge the role of Federal Reserve monetary policy too.

The key element in monetary policy in 1921 was interest rates, and there was a clear sea-change in Federal Reserve rate policy from May 1921 before the start of the recovery in July 1921, when in May they signalled that the high rate policy had ended and began to lower rates. The rate cuts beginning in May 1921 had a great influence on the economy by way of expectations and business confidence – especially by helping to create confidence and expectations of continuing rate cuts and looser monetary policy in the future, as indeed did happen.

Even Grant seems to admit this. But Austrians still deny it – at the same time they point to the book as if it vindicates their views. Let’s see: what would be an appropriate expression for this?… Hoist with your own petard, perhaps?

Anyway, if you want an analysis of the recession of 1920–1921 free from Austrian mythology and ignorance, I refer you to my posts on the subject below:

“The US Recession of 1920–1921: Some Austrian Myths,” October 23, 2010.

“There was no US Recovery in 1921 under Austrian Trade Cycle Theory!,” June 25, 2011.

“The Depression of 1920–1921: An Austrian Myth,” December 9, 2011.

“A Video on the US Recession of 1920-1921: Debunking the Libertarian Narrative,” February 5, 2012.

“The Recovery from the US Recession of 1920–1921 and Open Market Operations,” October 4, 2012.

“Rothbard on the Recession of 1920–1921,” October 6, 2012.

“The Recession of 1920–1921 versus the Depression of 1929–1933,” February 2, 2014.

“Debt Deflation: 1920–1921 versus 1929–1933,” February 3, 2014.

“US Wages in 1920–1921,” February 10, 2014.

“The Causes of the Recession of 1920–1921,” February 11, 2014.

“The ‘Depression’ of 1920–1921: The Libertarian Myth that Won’t Die,” October 31, 2014.

“US Monetary Policy and the Recession of 1920–1921,” December 5, 2014.

BIBLIOGRAPHY
Grant, James. 2014. The Forgotten Depression: 1921: The Crash That Cured Itself. Simon & Schuster, New York and London.

US Monetary Policy and the Recession of 1920–1921

There are all sorts of discussion of this at the moment such as here, here, here, here, here and here.

The libertarian commentary is attempting to deny that monetary policy had a significant role in the recovery of 1921.

In response to this, it can be said, firstly, that the American banking and financial system did not collapse in 1920–1921, as in 1929–1933. Confidence in banks was, more or less, maintained. An important reason for this was undoubtedly the Federal Reserve banking system acting as a lender of last resort with its discounting policy in 1920 to an extent sufficient to avert a mass panic and bank runs, as argued by Wicker (1966: 223). Indeed, the evidence shows that the number of bills discounted by Federal Reserve banks soared until nearly the end of 1920. This fact alone is enough to damn the idea that the recovery from recession in 1921 was unaided by significant government intervention. Without a basic lender of last resort in 1920, admittedly following the classic guidelines of Bagehot to lend at a penalty rate to businesses in distress, it is unlikely recovery would have been so easy or rapid in 1921.

To some extent too, the US economy was just lucky in 1920–1921: discount rate policy proved sufficient to avert banking collapse (instead of bailouts and much more radical intervention that was required in 1929–1933 but not done), the economy was not hit by the type of debt deflation (except perhaps to some extent amongst farmers) as it was in 1929–1933, nor were financial markets affected by the collapse of a massive debt-fuelled asset bubble as in 1929, nor were aggregate demand shocks as bad either. Even the price deflation was partly, and perhaps even significantly, the result of positive supply shocks after the end of WWI and the resumption of shipping, trade and production (Romer 1988: 110; Vernon 1991), not simply from severe aggregate demand shocks.

To return to monetary policy, while the broad US monetary aggregates M1 and M2 did fall in late 1920 and 1921, they clearly did not suffer a disastrous collapse to the same extent as money supply from 1929 to 1933. For example, the broad money supply as measured by M2 fell by about 6.37% from Q3 1920 to Q2 1921, but began growing again in Q3 1921, as can be seen in the graph below (with data from Balke and Gordon 1986: 803).

In contrast, M2 contracted by an incredible 35.31% between 1929 and 1933, as credit contraction, bank runs and over 9,000 US bank failures (Wells 2004: 51) destroyed demand-deposit money and savings held by the public, while the 1920–1921 recession did not have such mass bank runs or liquidity crises in banks (Friedman and Schwartz 1963: 235), and even if some bank failures did occur one wonders whether the M2 monetary contraction was caused more by negative credit growth than by loss of deposits.

The second element of US monetary policy in 1920–1921 was the discount rate as set by regional Federal Reserve banks. At the beginning of 1921 the discount rates of the Federal Reserve banks were either 6% or 7% (data in Discount Rates of the Federal Reserve Banks 1914–1921, 1922). In May a number of regional Federal Reserve banks began lowering discount rates from 7% to 6.5%. Then in July a number of rates were cut from 6% to 5.5%, and to 4.5% to 5% by the end of the year. The recovery from the recession is usually dated to July 1921, so that discount rate cuts did indeed precede the recovery.

The libertarians claim that these rate cuts did not necessarily create loose monetary policy or easy money, but most probably the rate cuts beginning in May 1921 had a great influence on the economy by way of expectations and business confidence – especially by helping to create confidence and expectations of continuing rate cuts and looser monetary policy in the future, as indeed did happen.

Another point that seems to be ignored is that the Federal Reserve system embarked on a proto-form of quantitative easing from late 1921 in which the Federal Reserve banks bought government bonds from November 1921 to June 1922 and tripled such holdings from $193 million in October 1921 to $603 million by May 1922 – a fact even noted by Rothbard (2000: 133), who complained that, to the Federal Reserve officials, “[i]nflation seemed justified as a means of promoting recovery from the 1920–1921 slump, to increase production and relieve unemployment” (Rothbard 2000: 133). Strange how modern libertarians seem to have forgotten this.

BIBLIOGRAPHY
Balke, Nathan and Robert J. Gordon. 1986. “Appendix B Historical Data,” in Robert J. Gordon (ed.), The American Business Cycle: Continuity and Change. University of Chicago Press, Chicago. 781–850.

Discount Rates of the Federal Reserve Banks 1914–1921, Government Printing Office, 1922.

Friedman, Milton and Anna Jacobson Schwartz. 1963. A Monetary History of the United States, 1867–1960. Princeton University Press, Princeton.

Romer, C. D. 1988. “World War I and the Postwar Depression: A Reinterpretation based on Alternative Estimates of GNP,” Journal of Monetary Economics 22.1: 91–115.

Rothbard, Murray N. 2000. America’s Great Depression (5th edn.). Ludwig von Mises Institute, Auburn, Alabama.

Vernon, J. R. 1991. “The 1920–21 Deflation: The Role of Aggregate Supply,” Economic Inquiry 29: 572–580.

Wicker, Elmus R. 1966. “A Reconsideration of Federal Reserve Policy during the 1920–1921 Depression,” The Journal of Economic History 26.2: 223–238.

Rothbard on the Recession of 1920–1921

I maintain that the Austrians can’t get their story straight on the recession of 1920–1921.

A look through some passages from Rothbard’s America's Great Depression (2000) confirms this.

Let us review the passages:

“As early as 1915 and 1916, various Board Governors had urged banks to discount from the Federal Reserve and extend credit, and Comptroller John Skelton Williams urged farmers to borrow and hold their crops for a higher price. This policy was continued in full force after the war. The inflation of the 1920s began, in fact, with an announcement by the Federal Reserve Board (FRB) in July, 1921, that it would extend further credits for harvesting and marketing in whatever amounts were legitimately required. And, beginning in 1921, Secretary of Treasury Andrew Mellon was privately urging the Fed that business be stimulated, and discount rates reduced.” (Rothbard 2000: 121).

“If the Reserve authorities had been innocent of the consequences of their inflationary policy in 1922, they were not innocent of intent. For there is every evidence that the inflationary result was most welcome to the Federal Reserve. Inflation seemed justified as a means of promoting recovery from the 1920–1921 slump, to increase production and relieve unemployment.” (Rothbard 2000: 134).

“The first inflationary spurt, in late 1921 and early 1922—the beginning of the boom—was led ... by Federal Reserve purchases of government securities. Premeditated or not, the effect was welcome. Inflation was promoted by a desire to speed recovery from the 1920–1921 recession. In July, 1921, the Federal Reserve announced that it would extend further credits for harvesting and agricultural marketing, up to whatever amounts were legitimately required. Soon, Secretary Mellon was privately proposing that business be further stimulated by cheap money” (Rothbard 2000: 137–138).

“... The 1921–1922 inflation, in sum, was promoted in order to relieve the recession, stimulate production and business activity, and aid the farmers and the foreign loan market.” (Rothbard 2000: 137–138).

So, according to Rothbard, the Federal Reserve initiated an inflationary policy already in 1921, so how can the recovery in that year to ascribed to laissez faire and non intervention?

On pp. 121–122, Rothbard briefly mentions the War Finance Corporation (which existed from 1918–1939). We also read in a footnote:

“The War Finance Corporation had been dominant until 1921, when Congress expanded its authorized lending power and reorganized it to grant capital loans to farm cooperatives. In addition, the Federal Land Bank system, set up in 1916 to make mortgage loans to farm associations, resumed lending, and more Treasury funds for capital were authorized.” (Rothbard 2000: 122, n. 25)

Here is some background on the War Finance Corporation:

“Originally created as a war agency, as its name implies, the War Finance Corporation was empowered by the Conpress in March, 1919, to assist in the task of reconstruction and readjustment. It was authorized, in order to promote commerce with foreign nations through the extension of credits, and to aid in the transition from the conditions of war to the conditions of peace, to make advances not exceeding $1,000,000,000 to American exporters and American banking institutions for the purpose of financing the exportation of domestic products. This authority was exercised until May, 1920, when the activìties of the Corporation were suspended.

In the autumn of 1920, when the collapse in commodity markets became acute, the question of our exports again became a matter of general interest; and the Congress, in January, 1921, adopted the following joint resolution directing that the activities of the Corporation be resumed:

‘That the Secretary of the Treasury and the members of the War Finance Corporation are hereby directed to revive the activities of the War Finance Corporation, and that said Corporation be at once rehabilitated with the view of assisting in the financing of the exportation of agricultural and other products to foreign countries.’” (Wright 1922: 292)

This War Finance Corporation made emergency loans to farmers in 1921 (Walton and Rockoff 2005: 405), and the volume of loans made in 1921 was $112 million. In August 1921, the corporation became a rediscount agency for agricultural and livestock producers.

So here we have a US government corporation extending credit to favoured businesses, allegedly distorting markets, but still the Austrians regard 1920–1921 as a laissez faire recovery.

This is reinforced by this statement of Rothbard:

“While the government did not greatly intervene in the 1920–1921 recession, there were enough ominous seeds of the later New Deal. In December, 1920, the War Finance Corporation was revived as an aid to farm exports, and a $100 million Foreign Trade Financial Corporation was established. Farm agitation against short-selling led to the Capper Grain Futures Act, in August, 1921, regulating trading on the grain exchanges. Furthermore, on the state level, New York passed rent laws, restricting the eviction rights of landlords; Kansas created an Industrial Court regulating all key industries as ‘public utilities’; and the Non-Partisan League conducted socialistic experiments in North Dakota.

Perhaps the most important development of all, however, was the President’s Conference on Unemployment, called by Harding at the instigation of the indefatigable Herbert Hoover. This was probably the most fateful omen of anti-depression policies to come. About 300 eminent men in industry, banking, and labor were called together in September, 1921, to discuss the problem of unemployment. President Harding’s address to the conference was filled with great good sense and was almost the swan song of the Old Order’s way of dealing with depressions. Harding declared that liquidation was inevitable and attacked governmental planning and any suggestion of Treasury relief. He said, ‘The excess rather than a source of cure.’

To the conference members, it was clear that Harding’s words were mere stumbling blocks to the wheels of progress, and they were quickly disregarded. The conferees obviously preferred Hoover’s opening speech, to the effect that the era of passivity was now over; in contrast to previous depressions, Hoover was convinced, the government must ‘do something.’ The conference’s aim was to promulgate the idea that government should be responsible for curing depressions, even if the sponsors had no clear idea of the specific things that government should do. The important steps, in the view of the dominant leaders, were to urge the necessity of government planning to combat depressions and to bolster the idea of public works as a depression remedy. The conference very strongly and repeatedly praised the expansion of public works in a depression and urged coordinated plans by all levels of government. Not to be outdone by the new administration, former President Wilson, in December, added his call for a federal public works stabilization program.

The extreme public works agitators were disappointed that the conference did not go far enough. For example, the economist William Leiserson had thought that a Federal Labor Reserve Board ‘would do for the labor market what the Federal Reserve Board did for the banking interests.’ But the wiser heads saw that they had made a great gain. As a direct result of Hoover’s conference, twice as many municipal bonds for public works were floated in 1921 and 1922 as in any previous year; Federal highway grants in-aid to the states totaled $75 million in the autumn of 1921, and American opinion was aroused on the entire subject. (Rothbard 2000: 191–193).

So all in all the measures taken in 1921 included the following:

(1) loose monetary policy including discount rate cuts by the Fed;

(2) open market operations in late 1921–1922;

(3) direct credit allocation by the government War Finance Corporation from early 1921;

(4) some limited deficit financed public works.

BIBLIOGRAPHY

Rothbard, Murray N. 2000. America’s Great Depression (5th edn.), Ludwig von Mises Institute, Auburn, Alabama.

Walton, Gary M. and Hugh Rockoff. 2005. History of the American Economy (10th edn.). Thomson/South-Western, Mason, Ohio.

Wright, Ivan. 1922. Bank Credit and Agriculture. McGraw-Hill Book Co., Inc., New York.

The Recovery from the US Recession of 1920–1921 and Open Market Operations

The US had a recession between January 1920 and July 1921. The Austrians are forever blathering about it, calling it (incorrectly) a depression and arguing that it shows how free markets can “quickly” end deflationary recessions/depressions. I have refuted this nonsense before here and here.

Now the recovery began in August 1921 and continued into 1922.

Did the development and strength of that recovery have something to do with this, described by Murray Rothbard?:

“Member bank reserves increased during the 1920s largely in three great surges—one in 1922, one in 1924, and the third in the latter half of 1927. In each of these surges, Federal Reserve purchases of government securities played a leading role. “Open-market” purchases and sales of government securities only emerged as a crucial factor in Federal Reserve monetary control during the 1920s. The process began when the Federal Reserve tripled its stock of government securities from November, 1921, to June, 1922 (its holdings totaling $193 million at the end of October, and $603 million at the end of the following May). It did so not to make money easier and inflate the money supply, these relationships being little understood at the time, but simply in order to add to Federal Reserve earnings. The inflationary result of these purchases came as an unexpected consequence. It was a lesson that was appreciatively learned and used from then on.”⁵²

52.Yet not wholly unexpected, for we find Governor Strong writing in April, 1922 that one of his major reasons for open-market purchases was “to establish a level of interest rates . . . which would facilitate foreign borrowing in this country . . . and facilitate business improvement.” Benjamin Strong to Under-Secretary of the Treasury S. Parker Gilbert, April 18, 1922. Chandler, Benjamin Strong, Central Banker, pp. 210–11.

(Rothbard 2000: 133).

In other words, an unprecedented open market operation by the Federal Reserve appears to have strongly aided the recovery process in late 1921.

Strong even said explicitly (as quoted in Rothbard’s footnote) “that one of his major reasons for open-market purchases was ‘to establish a level of interest rates . . . which would facilitate foreign borrowing in this country . . . and facilitate business improvement.’”

Once we see that this policy was combined with Fed cuts to the discount rate during the recession of 1920-1921 we see that it used loose monetary policy to end the recession:

Discount Rate of the Federal Reserve Bank of New York
Date | Rate
1920
May | 6%
June | 7%
Dec. | 7%
1921
Jan. | 7%
Apr. | 7%
May. | 6.5%
Jun. | 6%
Jul. | 5.5%
Sep. | 5%
Nov. | 4.5%

1922
Jan. | 4.5%
Jun. | 4%.
http://fraser.stlouisfed.org/download-page/page.pdf?pid=38&id=1477

Although the rate was raised to 7% in June 1920, the rate was cut from 7% in 1921 to 5.5% by July, and a further cut to 5% in September as the recovery had begun, and then to 4.5% in November. This was when the open market purchases began.

At this point, I think the whole modern Austrian narrative about 1920–1921 falls apart.


BIBLIOGRAPHY

Rothbard, Murray N. 2000. America's Great Depression (5th edn.), Ludwig von Mises Institute, Auburn, Alabama.

US Unemployment in the 1890s

With all the talk of the recession of 1920–1921 at the moment (see here and here), there is another issue: the double dip recession of the 1890s.

Various Austrians are asserting that 1920–1921 proves that austerity can “quickly” end a recession. I have debunked that nonsense here, and the dishonest (or at least misleading) reference to a depression of 1920–1921, when there was no such thing, just a mild or moderate recession (depending on whether you use the revised data of (1) Romer or (2) Balke and Gordon).

Moreover, there was quite clearly a mild or moderate recession in the 1890s that completely contradicts the Austrians’ belief that austerity leads to rapid prosperity and high employment.

I. The GNP Data
According to the figures of Balke and Gordon, 1890s America suffered a double dip recession, with contractions in real GNP from 1893–1894 and 1896.

Balke and Gordon’s estimates for real GNP are here (the GNP growth rates are my own calculations):

Year | GNP* | Growth Rate
1890 | $183.9 | 1.43%
1891 | $189.9 | 3.26%
1892 | $198.8 | 4.68%
1893 | $198.7 | -0.05%
1894 | $192.9 | -2.91%
1895 | $215.5 | 11.7%
1896 | $210.6 | -2.27
1897 | $227.8 | 8.16%
1898 | $233.2 | 2.37%
1899 | $260.3 | 11.6%
1900 | $265.4 | 1.95%
* Billions of 1982 dollars
(Balke and Gordon 1989: 84).

As we can see, according to these figures, the US had a moderate recession from 1893–1894 in which GNP fell by 2.96%, with a recovery in 1895, but a further serious recession in 1896 with real GNP falling by 2.27%.

II. Unemployment
What were the effects of these output shocks on employment? There are three estimates that have been done:

(1) Lebergott’s estimates of the unemployment rate.
(2) Romer (1986: 31):
(3) Vernon (1994: 710).

Here are Lebergott’s estimates of the unemployment rate:

Year | Unemployment Rate
1890 | 4.0%
1891 | 5.4%
1892 | 3.0%
1893 | 11.7%
1894 | 18.4%
1895 | 13.7%
1896 | 14.5%
1897 | 14.5%
1898 | 12.4%
1899 | 6.5%
1900 | 5.0%

By these figures, the unemployment rates were a disaster in the 1890s, but Lebergott’s figures are challenged by Romer (1986).

The revised figures in Romer are as follows:

Year | Unemployment Rate
1892 | 3.72%
1893 | 8.09%
1894 | 12.33%
1895 | 11.11%
1896 | 11.965
1897 | 12.43%
1898 | 11.62%
1899 | 8.66%
1900 | 5.00%
(Romer 1986: 31).

Even using Romer’s figures, the US economy did not return to high employment for nearly a decade after 1893.

Finally, here are Vernon’s (1994) figures:

Year | Unemployment Rate
1890 | 3.97%
1891 | 4.34%
1892 | 4.33%
1893 | 5.51%
1894 | 7.73%
1895 | 6.46%
1896 | 8.19%
1897 | 7.54%
1898 | 8.01%
1899 | 6.20%
(Vernon 1994: 710).

They are lower than Romer’s, but still in the high single digits.

So it does not matter what figures you use: the double dip recession of the 1890s led to high unemployment that persisted to the end of the decade. There was a period of protracted unemployment in the 1890s comparable to the aftermath of the Great Depression (in the years from 1933–1939).

III. Conclusions
An important point is that 1890s America had no central bank, government spending was a very small percentage of GDP (it fluctuated between 2.55% and 3.62% in the 1890s), and governments tended to pursue austerity in times of recession. In fact, US federal government spending fell from 1893 to 1896 and fell from $465.1 million in 1893 to $443.1 million by 1896, which was obviously contractionary fiscal policy. Yet the culmination of the fiscal contraction in 1896 saw the economy in recession again.

Above all – and I wish to emphasise this – the fiscal contraction from 1893-1896 is correlated with rising unemployment in both the unemployment estimates of Romer and Vernon. Even by Vernon’s figures unemployment remained at nearly 8% until 1898. In Lebergott’s original estimates, unemployment soared from 1892-1894, went down in 1895, but then surged again in 1896 and stayed at 14.5% in 1897. No estimates of unemployment give any support to the view that austerity returns a shocked economy to high employment quickly. Curiously, a quick look at the data on
US federal government spending shows that spending rose from 1897 to 1899, and that this is also correlated with falling unemployment in the estimates from 1897 to 1899.

As an aside, I note how utterly absurd it is for Austrians to invoke 1920–1921 as an (alleged) vindication of their theories, when in that period America had a central bank. By any definition, 1920–1921 was even less of a laissez faire system than 1890s America, so it should be less relevant than the 1890s.

If 1920–1921 can be invoked as some kind of “proof” that austerity works, then, with even greater reason, the 1890s should show the “proof” of austerity too. But it does no such thing: although there was some high real GNP growth after the double dip in 1896, this was not sufficiently high to bring unemployment down.

Why was this? After all, real GNP growth rates of 8.16% (in 1897) and 11.6% (in 1899) seem very high by the contemporary averages of the mature US economy.

But there is a crucial issue: the US was a newly industrialising economy in the late 19th century, and in this respect was very much like China in the last three decades. With a large reserve of urban labour, coming from the countryside and from overseas in the case of the US in the late 1800s, an industrialising economy requires very high growth rates to maintain employment levels. In the case of China, a GDP growth rate of less than 7–8% leads to serious unemployment:

“‘China needs a growth rate of at least 7 per cent to avoid massive unemployment’ (www.economist.com, 10 November 2008). ‘The original estimated for China’s minimum rate of growth, which was made in the mid-1990s, was 7 per cent’ (The Economist, 15 November 2008, p. 88).

More recently somewhat higher figures for minimum GDP growth have been mentioned. ‘Most economists estimate that 8 per cent growth is needed to prevent urban unemployment from rising, which could trigger demonstrations and undermine the country’s social stability’ (www.iht.com, 20 October 2008; IHT, 21 October 2008, IHT, 21 October 2008, p. 11).

‘The government is expected to supply a fiscal stimulus to keep growth above 8 per cent’ (The Economist, 11 October 2008, p. 110). ‘China's own leaders believe they need growth of at least 8 per cent a year to avoid painful unemployment’ (The Economist, 15 November 2008, p. 14).” (Jeffries 2011: 10).

In other words, a growth rate of less than 7% in China today is the functional equivalent of a recession for workers in terms of its effects on unemployment.

I suspect a similar phenomenon was going on in 19th century America: just because there were positive growth rates (even what seem like high ones in 1897 and 1899), it does not mean that unemployment was always falling or that the economy was booming.

A research question I would propose is: what level of real GNP growth was necessary in 1890s America to mop up idle labour and reduce high unemployment? If there was a certain level of positive GNP growth required to prevent falling unemployment, a moderate recession (in technical terms) with a contraction of 2.96% in GNP may well have been a disaster for employment levels. In fact, it is possible that positive growth rates of 1%–4% may have been insufficient to maintain employment. All in all, this suggests to me that America’s actual GNP was well below its potential GNP in these years. This was not a healthy economy: it was an economy operating at well below its potential and no “proof” of the success of austerity at all. Rather, the 19th century, laissez faire policies of the US government were a disaster, above all in terms of unemployment.

It is no surprise to me that you do not see the Austrians appealing to the 1890s as an example of the wonders of the free market allegedly ending the aftermath of a recession, because on the metric of unemployment alone the 1890s completely contradict their absurd fantasies.

Appendix 1: Romer’s Figures for GNP in the 1890s

Romer’s estimates for real GNP are here (the GNP growth rates are my own calculations):

Year | GNP* | Growth Rate
1890 | $182.964 | 4.53%
1891 | $191.757 | 4.80%
1892 | $204.279 | 6.53%
1893 | $202.616 | -0.81%
1894 | $200.819 | -0.88%
1895 | $215.668 | 7.39%
1896 | $221.438 | 2.67%
1897 | $233.655 | 5.51%
1898 | $241.459 | 3.33%
1899 | $254.728 | 5.49%
1900 | $264.540 | 3.85%
* Billions of 1982 dollars
(Romer 1989: 22).

Romer’s figures show no contraction in 1896, and only a mild contraction in 1893–1894. Yet we know by all estimates unemployment soared in these years. What is going on? Romer’s estimates might be flawed. More likely, I think this supports the view that America in the late 19th century was very much like China today: just because growth rates were positive does not necessarily mean the economy was healthy, or that it was growing at its potential capacity.

Appendix 2: Were Movements in the Labour Force Pro-cyclical or Countercyclical in the 19th century?

There is the question whether movements in the labour force – especially involving women – were pro-cyclical or countercyclical in the 19th century. If it was countercyclical, this adds to unemployment, as women, young adults, and perhaps even children go out and look for employment when their husband/fathers/breadwinners lose employment (for literature, see James and Thomas 2007; Weir 1986, 1992). This is relevant for the method and accuracy of unemployment estimates in the 1890s.

BIBLIOGRAPHY

Balke, N. S., and R. J. Gordon, 1989. “The Estimation of Prewar Gross National Product: Methodology and New Evidence,” Journal of Political Economy 97.1: 38–92.

James, J. A. and M. Thomas, 2007. “Romer Revisited: Long-Term Changes in the Cyclical Sensitivity of Unemployment,” Cliometrica 1.1: 19–44.

Jeffries, I. 2011. Political Developments in Contemporary China: A Guide, Routledge, Oxon, England and New York.

Lebergott, S. 1964. Manpower in Economic Growth: The American Record since 1800, McGraw-Hill, New York.

Lebergott, S. 1964. Men Without Work: The Economics of Unemployment, Prentice-Hall, Englewood Cliffs, N.J.

Lebergott, S. 1986. “Discussion,” Journal of Economic History 46: 367-371.

Romer, C. D. 1986. “Spurious Volatility in Historical Unemployment Data,” Journal of Political Economy 94: 1–37.

Vernon, J. R. 1994. “Unemployment Rates in Post-Bellum America: 1869–1899,” Journal of Macroeconomics 16: 701–714.

Weir, D. R. 1986. “The Reliability of Historical Macroeconomic Data for Comparing Cyclical Stability,” The Journal of Economic History 46.2: 353–365.

Weir, D. R. 1992. “A Century of U.S. Unemployment, 1890–1990: Revised Estimates and Evidence for Stabilization,” Research in Economic History 14: 301–346.

The Depression of 1920–1921: An Austrian Myth

The Austrians and other libertarians frequently assert that America had a depression from 1920 to 1921. That is simply not true if one accepts the estimates of (1) Romer or (2) Balke and Gordon.

The generally accepted definition of a depression is a real GNP/GDP contraction of 10% or more - or, in other words, where the real (inflation-adjusted) value of national output falls by 10% or more. In past estimates of the fall in national output, such as the official Commerce Department data (based on the Kuznets-Kendrick series), GNP fell 8% between 1919 and 1920 and 7% between 1920 and 1921 (Romer 1988: 108). But that data has been challenged, and acceptance of it also shows numerous and long depressions in the 19th century, depressions that did not end quickly – data which hardly supports the Austrian apologetics for gold standard capitalism. In fact, if the Austrians really wish to accept the data from the Kuznets-Kendrick series, then that entails that gold standard capitalism was hit by numerous and frequent recessions and depressions, and sometimes very long ones. Other Austrians are of course aware of the most recent GNP estimates, and press these into service to show that the 19th century US business cycle was less volatile than in Kuznets-Kendrick or the Commerce Department data. But you cannot have it both ways: either (1) the Kuznets-Kendrick series is valid or (2) better data is available in Romer (1988) or Balke and Gordon (1989).

What do the most recent GNP estimates show?

First, we can cite Romer’s estimates for GNP here (I have added the annual growth rates by my own calculation):

Year | GNP* | Growth Rate
1914 | $414.599
1915 | $443.048 | 6.86%
1916 | $476.498 | 7.54%
1917 | $473.896 | -0.54%
1918 | $498.458 | 5.18%
1919 | $503.873 | 1.08%
1920 | $498.132 | -1.13%
1921 | $486.377 | -2.35%
1922 | $514.949 | 5.87%
1923 | $583.105 | 13.23%
* Billions of 1982 dollars
(Romer 1989: 23).

The figures show a GNP contraction of 3.47% from 1919 to 1921, a recession that was less severe than the contraction of 1908 by Romer’s figures, and much lower than the 10% figure needed to declare a depression. Romer concludes that the “growth path of output was hardly impeded by the recession” (Romer 1988: 108–112), and the positive supply shocks that resulted from the resumption in international trade after WWI actually benefited certain sectors of the US economy (Romer 1988: 111).

Secondly, the estimates for GNP of Balke and Gordon are here (I have added the annual growth rates by my own calculation):

Year | GNP* | Growth Rate
1914 | $402.4 |
1915 | $417.3 | 3.70%
1916 | $485.0 | 16.2%
1917 | $484.9 | -0.02%
1918 | $522.2 | 7.69%
1919 | $507.1 | -2.89%
1920 | $496.3 | -2.12%
1921 | $478.8 | -3.52%
1922 | $513.2 | 7.18%
1923 | $585.0 | 13.99%
1924 | $600.5 | 2.64%
* Billions of 1982 dollars
(Balke and Gordon 1989: 84–85).

These figures show a GNP decline of 5.58% from 1920–1921. That was a severe recession, but hardly a depression.

If we include the contraction at the end of First World War in 1919, the GNP contraction was 8.31% from the wartime GNP peak of 1918 to 1921, but that figure is misleading, as it includes the contraction that appears in Balke and Gordon’s estimates that was caused by the dismantling of America’s wartime economy. Curiously, no such contraction for 1919 appears in Romer’s data. According to the offical data the business cycle ran through these phases in these years:

August 1918–March 1919, severe depression from the end of wartime production;
April 1919-December 1919, expansion;
January 1920-July 1921, recession.

US Business Cycle Expansions and Contractions, National Bureau of Economic Research.

All in all, there was no depression in 1920–1921. There was no financial crisis, and no mass bank failures as in 1929–1933. This was a recession of an entirely different order from that of 1893–1894, 1907–1908 or 1929–1933 (a useful paper on the differences between the 1920-1921 and 1929-1933 contractions in the neoclassical literature can be found in Gertler 2000, a response to Cole and Ohanian, 2000).

BIBLIOGRAPHY

Balke, N. S., and R. J. Gordon, 1989. “The Estimation of Prewar Gross National Product: Methodology and New Evidence,” Journal of Political Economy 97.1: 38–92.

Cole, H. L. and L.E. Ohanian, 2000. “Re-examining the Contributions of Money and Banking Shocks to the U.S. Great Depression,” in B. S. Bernanke and K. Rogoff (eds.), NBER Macroeconomics Annual 2000, MIT Press, Cambridge, MA. 183-226.

Gertler, M. 2000. “Comment,” in B. S. Bernanke and K. Rogoff (eds.), NBER Macroeconomics Annual 2000, MIT Press, Cambridge, MA. 237-257.

Romer, C. D. 1989. “The Prewar Business Cycle Reconsidered: New Estimates of Gross National Product, 1869–1908,” Journal of Political Economy 97.1: 1–37.

There was no US Recovery in 1921 under Austrian Trade Cycle Theory!

Austrian economists and their sympathizers are fond of pointing to the US recession of 1920–1921 as proof that recessions can end “quickly” with a recovery and no government intervention.

In fact, their claims are false and misleading, as I have shown here:

“The US Recession of 1920–1921: Some Austrian Myths,” October 23, 2010.

The following points should be made in response to them:

(1) The recession lasted from January 1920 to July 1921, or for a period of 18 months. This was a long recession by the standards of the post-1945 US business cycle, where the average duration of US recessions was just 11 months. The average duration of recessions in peacetime from 1854 to 1919 was 22 months, and the average duration of recessions from 1919 to 1945 was 18 months (Knoop 2010: 13). Therefore the recession of 1920–1921 was not even short by contemporary standards: it was of average length.

(2) The period of 1920–1921 was not a depression (a downturn where real GDP contracted by 10% or more): it was mild to moderate recession, with positive supply shocks. Christina Romer argues that actual decline in real GNP was only about 1% between 1919 and 1920 and 2% between 1920 and 1921 (Romer 1988: 109). So in fact real output moved very little, and the “growth path of output was hardly impeded by the recession” (Romer 1988: 108–112). The positive supply shocks that resulted from the resumption in international trade after WWI actually benefited certain sectors of the economy (Romer 1988: 111).

(3) there was no large collapsing asset bubble in 1920/1921, of the type that burst in 1929, which was funded by excessive private-sector debt;

(4) Because of (3) the economy was not gripped by the death agony of severe debt deflation in 1920-1921;

(5) There was no financial and banking crisis, as in 1929–1933;

(6) The US economy in fact had significant government intervention in 1921: it had a central bank changing interest rates. The Fed lowered rates and had a role in ending this recession: in April and May 1921, Federal Reserve member banks dropped their rates to 6.5% or 6%. In November 1921, there were further falls in discount rates: rates fell to 4.5% in the Boston, Philadelphia, New York, and to 5% or 5.5% in other reserve banks (D’Arista 1994: 62). By June 1922, the discount rate was lowered again to 4%, and the recovery gained momentum.

It is the height of stupidity to claim that a recession that was ended partly by Federal Reserve intervention through interest rate lowering can be ascribed to the “free market,” or is a vindication of Austrian economics. Nor did the recession end “quickly,” either by contemporary or modern (post-1945) standards.

And there is yet another absurd contradiction here.

An Austrian cannot claim that the recession of 1920–1921 ended with a real and proper recovery. Why? The Fed lowered interest rates. Why did this not cause an Austrian trade cycle and unsustainable boom, distorting capital structure? If it did not, they must explain why the Fed’s lowering of interest rates did not make the market rate fall below the natural rate. How did the economy avoid distortions to its capital structure when it had a fractional reserve banking system and Fed inflating the money supply in 1921/22? How could there have been any real “recovery” in 1921?

In other words, by the Austrians’ own economic theory, the “recovery” of 1921 was no recovery at all: just the beginning of another Austrian business cycle!

BIBLIOGRAPHY

D’Arista, J. W. 1994. The Evolution of U.S. Finance, Volume 1: Federal Reserve Monetary Policy: 1915–1935, M. E. Sharpe, Armonk, New York.

Knoop, T. A. 2010. Recessions and Depressions: Understanding Business Cycles (2nd edn), Praeger, Santa Barbara, Calif.

Romer, C. 1988. “World War I and the Postwar Depression: A Reinterpretation based on alternative estimates of GNP,” Journal of Monetary Economics 22.1: 91–115.

The US Recession of 1920–1921: Some Austrian Myths

The US recession of 1920–1921 is endlessly cited by Austrians as proof that Keynesian economic policies are not needed to stimulate an economy out of recession or depression. Unfortunately, Austrians are deeply ignorant about the recession of 1920–1921. This recession was atypical, occurred shortly after the WWI, and recent research shows that the GDP contraction was not especially severe.

We can list some basic facts about the 1921 recession below and how these facts do not support the Austrian/libertarian myths one endlessly hears on their blogs:

(1) Duration of the Recession
The recession lasted from January 1920 to July 1921 (a period of 18 months). From January 1920 until July 1920 the recession was mild, and only became severe after July 1920 (Vernon 1991: 573), and the downturn persisted until July 1921.

Libertarians claim that the recession of 1920–1921 was short. Of course, what they don’t say is that a recession lasting 18 months is in fact a very long one by the standards of the post-1945 US business cycle. The average duration of US recessions in the post-1945 era of classic Keynesian demand management (1945–1980) and the neoliberal era (1980–2010) has been about 11 months (see Carbaugh 2010: 248 and the data in Knoop 2010: 13; curiously, there has only been one post-1945 US recession that lasted 18 months: the Great Recession of December 2007–June 2009, which was much worse than the 1920–1921 downturn). The average duration of recessions in peacetime from 1854 to 1919 was 22 months (Knoop 2010: 13), and the average duration of recessions from 1919 to 1945 was 18 months (Knoop 2010: 13).

In the post 1945 period this was cut to about 11 months. Thus the average duration of recessions was essentially cut in half after 1945, because of countercyclical fiscal and monetary policy. Even expansions in the post-1945 business cycle became longer: the average duration of post-1945 expansions was 50 months. By contrast, the average duration of expansions from 1854 to 1919 was 27 months, and the average from 1919 to 1945 was 35 months (Knoop 2010: 13). In other words, the average length of post-1945 expansions became 43% higher compared with that of 1919 to 1945, and 85% higher than between 1854 to 1919.

Macroeconomic performance after 1945 has been superior, without any doubt, to that of the previous gold standard eras. The recession of 1920–1921 with a duration of 18 months was in fact of long duration relative to the average of post-1945 recessions. Keynesian and even neoliberal economic management of the business cycle has been superior to the system that existed before 1933.

The empirical data tells us that, if Keynesian stimulus had been applied early in 1920, there are convincing reasons for thinking that the contraction would have been far shorter than 18 months.

(2) Severity of the Recession
Libertarians seem unaware that recent economic research has shown that the downturn of 1920–1921 was not as severe as previously thought. The widely accepted definition of a depression is a fall of 10% in output or GDP. In past estimates of the fall in national output, official Commerce Department data suggested that GNP fell 8% between 1919 and 1920 and 7% percent between 1920 and 1921 (Romer 1988: 108).

But Christina Romer has argued that actual decline in real GNP was only about 1% between 1919 and 1920 and 2% between 1920 and 1921 (Romer 1988: 109; Parker 2002: 2). So in fact real output moved very little, and this was not a depression on the scale of 1929–1933 or previous 19th century depressions. Libertarians cannot claim that 1920–1921 was an example of the free market quickly ending a downturn where output collapsed by 10% or more (a real depression). In reality, GNP contraction was relatively small, and the growth path of output was hardly impeded by the recession (Romer 1988: 108–112; Parker 2002: 2).

(3) Deflation and Positive Supply Shocks
Although deflation was very severe, one significant cause of the deflation was a positive supply shock in commodities due to the resumption of shipping after the war (Romer 1988: 110). After WWI, there was a recovery in agricultural production in Europe, even though American farmers had continued their production at wartime levels. When primary commodity supplies from other countries were resumed after international shipping recovered, there was a great increase in the supply of commodities and their prices plummeted. As Romer argues,

“Tiffs suggests that a flood of primary commodities may have entered the market following the war and thus driven down the price of these goods. That these supply shocks may have been important in stimulating the economy can be seen in the fact that the response of the manufacturing sector to the decline in aggregate demand in 1921 was very uneven …. The industries that were most devastated by the downturn were those in heavy manufacturing …. On the other hand, nearly all industries… that used agricultural goods or imports as raw materials experienced little or no decline in labour input in 1921 .... That industries related to agricultural goods and imports flourished during 1921 suggests that beneficial supply shocks did stimulate production in a substantial sector of the economy” (Romer 1988: 111).

Vernon (1991) comes to the same conclusion as Romer: the deflation in 1920-1921 was caused not just by a decline in aggregate demand but also by a positive aggregate supply shock. Another factor is that deflationary expectations were high after the war, as prices over the 1914–1920 period had increased by 115% (Vernon 1991: 577). This means that business was expecting deflation. We can contrast this with the 1929–1933 period when severe deflation was largely unexpected, and had much more harmful consequences.

(4) No Major Financial Crisis
The recession of 1920–1921 also had no serious financial crisis: although some bank failures occurred, there were no mass bank runs and collapses in 1920–1921 (Brunner 1981: 44). Stock market prices had been high before 1920 and overvalued and hit a peak 2 months before the onset of the recession. But this stock market bubble does not appear to have been caused by excessive private debt and leveraged speculation as in 1929. We can also note that the explosive rise in consumer credit to households and small businesses only occurred in the course of the 1920s (Parker 2002: 2), and thus large levels of private debt were clearly not a significant factor in 1920/1921. Thus debt deflationary effects were not as serious as in other recessions, and certainly not like the downturn of 1929–1933.

(5) The Federal Reserve’s Role
It is perfectly clear that the Federal Reserve had a role both in contributing to the cause of the recession and in ending it. As Vernon (1991: 573) notes,

“Monetary policy began to shift in December 1919, then changed markedly in January 1920. The Federal Reserve Bank of New York’s discount rate, which had been pegged at 4 percent since April 1919, was raised to 4.75 percent in December 1919, to 6 percent in January 1920, and to 7 percent in June 1920. Similar discount rate increases were made at the other Federal Reserve Banks. Friedman and Schwartz argue that these sharp increases came too late to be responsible for the January 1920 turning point but that they produced the severe contraction and deflation which came after mid-year.”

But, by 1921, there was monetary loosening. In April and May 1921, Federal Reserve member banks dropped their rates to 6.5% or 6%. In November 1921, there were further falls in discount rates: rates fell to 4.5% in the Boston, Philadelphia, New York, and to 5% or 5.5% in other reserve banks (D’Arista 1994: 62).

The role of the Federal Reserve underscores how the recession of 1920–1921 was not like US downturns in the 19th century, since the US had no central bank before 1914 (and after 1836 when the charter of the Second Bank of the United States expired). If we admit that Fed policy contributed to the recession, then it is highly probable that Fed easing of interest rates in 1921 also had a role in ending the recession, because the relatively lower interest rates after May 1921 preceded the expansion that ended the recession (which began in July 1921).

The recovery, then, has to be partly related to central bank policy, not to the pure free market eulogised by Austrian economists. (And in fact one of the reasons why there was no sharp recession after WWII was that the Federal Reserve kept interest rates very low after 1945 [Vernon 1991: 580]).

In light of all this, the recession of 1920–1921 was very different from the contraction of 1929–1933 and various other pre-1914 recessions that were preceded by excessive private debt, and caused by bursting asset bubbles, severe financial crises, demand contractions and debt deflation.

An obvious example of such a 19th century depression was that of 1893-1895. This was set off by a financial crisis in 1893 and caused the US to suffer high involuntary unemployment throughout the 1890s, even after a technical recovery had begun in 1895 (on this depression, see Steeples and Whitten 1998; Akerlof and Shiller 2009: 59-64; Romer 1986: 31).

The belief that the recovery in 1921 proves that a laissez faire or “do nothing” policy will work in other cases of serious recession or depression is utter nonsense. Above all, the empirical data show that modern macroeconomic policies have reduced the durations of recessions after 1945. There is no reason why in principle the 1920–1921 recession could have been alleviated and brought to an end sooner if countercyclical fiscal policy had been used.


UPDATE
I have recently seen an article by Daniel Kuehn called “A critique of Powell, Woods, and Murphy on the 1920–1921 depression.”
This also presents a critique of the Austrian view of the 1920-21 recession:

http://factsandotherstubbornthings.blogspot.com/2010/10/1920-21-depression-article-is-on-online.html

Kuehn also draws attention to the role of the Federal Reserve, and argues that its high discount rate (the primary policy tool in those days) in 1920 to combat inflation was a major factor in inducing the recession.

UPDATE 2, 18 January, 2011
I have just seen this page on the Mises forum where someone has copied my post above:

http://mises.org/Community/forums/p/22126/391853.aspx#391853

A commentator there has in fact unintentionally provided an important counterargument against the Austrians.

If Austrians think that the 1890s recession and high unemployment in that decade do not provide evidence against their theories (since the US had a national banking system and fractional reserve banking in the 1890s, instead of the pure laissez faire they advocate), then why on earth do they endlessly invoke 1920–1921 as if it proves the Austrian position?

If they really believe that 1890s America (where there was no central bank) cannot be invoked as a criticism of Austrian theory, then it is absurd in the extreme for Austrians to invoke 1920–1921 as vindication of their theories, when, in that period, America had a central bank! By your own definition, it was even less of a laissez faire system than 1890s America.

And, of course, given there was no period in recent history when the fantasy Austrian world of no fractional reserve banking, no fiduciary media, no regulation, and no government has ever even existed, there is no empirical evidence whatsoever that such a system would work or be stable.

All one can do is look to real world capitalism in the 19th century: given there was no central bank, a gold standard and minimal regulation in 1890s America, this must give at least an approximation of what their system would look like.
If Austrians think it is not an approximation, then the 1920–1921 period is utterly invalid too, in any attempt to vindicate their theory.

In short, this is another severe logical contradiction running through Austrian analysis.

APPENDIX 1: GNP ESTIMATES
All GNP figures are merely estimates, since proper data collection was not done before about 1945. There are four important studies on GNP before 1945:

Balke, N. S., and R. J. Gordon, 1986. “The American Business Cycle: Continuity and Change,” in R. J. Gordon (ed.), The American Business Cycle, University of Chicago Press, Chicago.

Balke, N. S., and R. J. Gordon, 1989. “The Estimation of Prewar Gross National Product: Methodology and New Evidence,” Journal of Political Economy 97.1: 38–92.

Romer, C. 1989. “The Prewar Business Cycle Reconsidered: New Estimates of Gross National Product, 1869-1908,” Journal of Political Economy 97.1: 1–37.

Ritschl, A., Sarferaz, S. and M. Uebele, “The U.S. Business Cycle, 1867–2006: Dynamic Factor Analysis vs. Reconstructed National Accounts,” January, 2010
https://www.ciret.org/conferences/newyork_2010/papers/upload/p_200-500401.pdf

The various estimates for 1920–1921 GNP:

The U.S. Department of Commerce = 6.9% GNP decline

Balke and Gordon = 3.5% GNP decline

Romer = 2.4% GNP decline

Balke and Gordon’s figures support a much lower decline for GDP.

The estimate of Ritschl, Sarferaz, Uebele (2010) is higher than that of Balke and Gordon and Romer.

APPENDIX 2: THE DEPRESSION OF THE 1890s
For data on the persistence of double digit unemployment in the 1890s, see the revised figures in Romer 1986: 31.

Year Unemployment rate
1892 3.72%
1893 8.09%
1894 12.33%
1895 11.11%
1896 11.965
1897 12.43%
1898 11.62%
1899 8.66%
1900 5.00%

The US economy did not return to full employment for nearly a decade after 1893. Contrary to Austrian economic analysis, there is no evidence that the 1890s slump was rapidly ended by a laissez faire economy. In fact, since the US had no central bank in the 1890s, Austrians and other free market libertarians should be doubly embarrassed by the downturn in the 1890s and the persistence of high unemployment and sub-optimum growth.

The other widely used estimate of unemployment in the 1890s is the work of Stanley Lebergott. His estimates of unemployment are much higher than Romer’s, so, even if his estimates are invoked as more accurate than Romer’s, they would only make matters worse for the libertarian position.

And one might argue that Romer’s estimates are questionable (Lebergott 1992), and at least for the period from 1900-1929 (Weir 1986), as the idea that movements in the labour force were procyclical before 1945 can be challenged: if aggregate participation rates were anticyclical, then Lebergott’s estimates for 1900-1929 may be better (Weir 1986: 364; Weir 1992, however, does agree that Lebergott’s figures for 1890-1899 are too volatile). Here are Lebergott’s estimates of the unemployment rate:

Year Unemployment rate
1890 4.0
1891 5.4
1892 3.0
1893 11.7
1894 18.4
1895 13.7
1896 14.5
1897 14.5
1898 12.4
1899 6.5
1900 5.0

BIBLIOGRAPHY
Akerlof, G. A. and R. J. Shiller. 2009. Animal Spirits: How Human Psychology drives the Economy, and Why it Matters for Global Capitalism, Princeton University Press, Princeton.

Brunner, K. 1981. The Great Depression Revisited, Nijhoff, Boston and London.

Carbaugh, R. J. 2010. Contemporary Economics: An Application Approach, M.E. Sharpe, Armonk, New York.

D’Arista, J. W. 1994. The Evolution of U.S. Finance, Volume 1: Federal Reserve Monetary Policy: 1915–1935, M. E. Sharpe, Armonk, New York.

Knoop, T. A. 2010. Recessions and Depressions: Understanding Business Cycles (2nd edn), Praeger, Santa Barbara, Calif.

Lebergott, S. 1964. Manpower in Economic Growth: The American Record since 1800, McGraw-Hill, New York.

Lebergott, S. 1992. “Historical Unemployment Series: A Comment,” Research in Economic History 14: 377–386.

Parker, R. E. 2002. Reflections on the Great Depression, Edward Elgar, Cheltenham, Northampton, MA.

Romer, C. 1986. “Spurious Volatility in Historical Unemployment Data,” Journal of Political Economy 94.1: 1–37.

Romer, C. 1988. “World War I and the Postwar Depression: A Reinterpretation based on alternative estimates of GNP,” Journal of Monetary Economics 22.1: 91–115.

Romer, C. 1989. “The Prewar Business Cycle Reconsidered: New Estimates of Gross National Product, 1869-1908,” Journal of Political Economy 97.1: 1–37.

Steeples, D. W. and D. O. Whitten, 1998. Democracy in Desperation: The Depression of 1893, Greenwood Press, Westport, Conn.

Vernon, J. R. 1991. “The 1920–21 Deflation: The Role of Aggregate Supply,” Economic Inquiry 29: 572–580.

Weir, D. R. 1986. “The Reliability of Historical Macroeconomic Data for Comparing Cyclical Stability,” The Journal of Economic History 46.2: 353–365.

Weir, D. R. 1992. “A Century of U.S. Unemployment, 1890–1990: Revised Estimates and Evidence for Stabilization,” Research in Economic History 14: 301–346.