My Working Paper on the 1920-21 Depression

President Harding's Conference on Unemployment, 1921

I'm very new to scholarly publishing, so I'm not quite sure about the etiquette of posting drafts online. I know journals demand original work, but enough working papers are floating around out there I assume that simply means unpublished work (more experienced scholars, please tell me if I'm making a mistake here!). Assuming it's fine, I wanted to share a paper I've been working on for several months now, called "A Critique of the Austrian School Interpretation of the 1920-21 Depression". The relatively unknown 1920-21 depression has gotten considerable attention in certain circles recently as an alleged successful test-case for non-interventionism. In this piece, I specifically engage a series of three shorter articles by Thomas Woods, Jim Powell, and Robert Murphy that make the non-interventionist argument. I think many readers will be familiar with these works, particularly that of Thomas Woods, which has been well publicized on Youtube. This topic has been covered extensively in the blogosphere (I know Brad DeLong, David Henderson, and Steve Horwitz have all blogged on it).

My conclusion is that fiscal intervention was indeed inappropriate in the 1920-21 downturn, and that markets were perfectly capable of self-adjustment, but that monetary policy was far more effective and commendable than just about any of the critics - Austrian or otherwise - give it credit for. Thomas Woods shockingly calls the Fed's actions "hardly noticeable," which for quite a while made me wonder whether he and I were discussing the same depression. In addition to these fundamentally historical points, I also make the analytic point that Keynesian policy recommendations aren't discredited at all by the 1920-21 downturn, and that Woods (2009), Powell (2009), and Murphy (2009) only argue that it is discredited because they misunderstand or ignore Keynes's ideas on (1.) nominal wage adjustments, (2.) the interest rate, and (3.) deflation. I hope I successfully make the point that Woodrow Wilson, Warren Harding, and Benjamin Strong did a commendable job in the post-war period, but that this episode isn't an appropriate test for falsifying Keynesianism.

If you have any comments, I'd very much appreciate them.

Benjamin Strong,

Governor of the New York Federal Reserve