23 Jan 2009

Did Deflation Cause the Great Depression?

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Yet another sneak peek at my upcoming book. The standard mythology of the Depression holds that one of the main causes was (price) deflation: Falling prices make consumers reluctant to spend, but this just feeds on itself, blah blah blah.

So you probably think that the most severe deflation in U.S. history occurred in the early 1930s, right?

Nope, it actually occurred during the 1920-1921 depression. From June 1920 – June 1921, CPI fell 15.8%. In contrast, starting at November 1929 and going forward in 12 month increments, the greatest deflation was 10.4% from November 1930 – November 1931.

You know, the 1920-1921 depression, the one caused by laissez-faire reactionaries in the White House that you spent a week in history class discussing? Boy, I don’t know about you, but I got so sick of how much class time we wasted going over the causes of the 1920-1921 depression. They didn’t even have an SEC or Social Security back then. No wonder it was so awful!

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