Working Paper: NBER ID: w3546
Authors: J. Bradford DeLong
Abstract: During the 1929-33 slide into the Great Depression, the Federal Reserve took almost no steps to keep the money supply or the price level stable. Instead, the Federal Reserve acted - disastrously - as if the gathering Great Depression could not be avoided, and was best endured. Such a liquidationist' theory of depressions was in fact common before the Keynesian Revolution, and was held and advanced by economists like Kayek and Schumpeter. This paper tries to reconstruct the logic of the liquidationist' view. It argues that the perspective was carefully thought out (although not adequate to the Depression), may hold some truth in other times and places, and could be the core of a more productive research program that currently popular real' business cycle theories.
Keywords: Great Depression; Liquidation Cycle; Real Business Cycle Theory
JEL Codes: E32; E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Federal Reserve's inaction (E52) | decline in economic activity (F44) |
| Federal Reserve's failure to inject liquidity (E44) | deepening of the Great Depression (N12) |
| liquidationist principles (G33) | severity of the economic downturn (F44) |
| liquidationist theory (G33) | Federal Reserve's inaction (E52) |