clearning up the house

Banks Should Raise Prices in a Recession (Bob Murphy)

After working on these issues for my book, it suddenly became obvious to me: the high rates of the 1920–1921 depression had certainly been painful, but they had cleaned the rot out of the structure of production very thoroughly. The US money supply and prices had roughly doubled during World War I, and the record-high discount rate starting in June 1920 was a pressure washer on the malinvestments that had festered during the war boom.

Going into 1923, the capital structure in the United States was a lean, mean, producing machine. In conjunction with Andrew Mellon's incredible tax cuts, the Roaring Twenties were arguably the most prosperous period in American history. It wasn't merely that the average person got richer. No, his life changed in the 1920s. Many families acquired electricity and cars for the first time during this decade.