Part II: The Postwar Boom, Crisis, and Revival, 1919-1923
6: The Postwar Boom, 1919-1920
Chapter 6
The Postwar Boom, 1919-1920
The Armistice, November 11, 1918, was followed by a sharp reaction in business and in commodity prices at wholesale. The general average of commodity prices fell from 204 in September, 1918, to 193 in February, 1919. The first symptoms of this reaction came to the bankers’ attention in New York about the middle of November, when currency—$1 bills, $5 bills, $10 bills, as well as subsidiary coins—was pouring into the New York banks from correspondent banks in many parts of the country, especially from the Pittsburgh region.
7: The Causes of the Crisis of 1920
Chapter 7
The Causes of the Crisis of 1920
The Quantity Theory of Money Stops Analysis of Causes. With the turn in the tide of commodity prices in the spring of 1919 there came into vogue a readymade explanation which gave great comfort and confidence to the speculators and to the business community as the boom of 1919-1920 proceeded. It was the explanation afforded by the quantity theory of money. Money in circulation and bank credit in the United States were enormously expanded as compared with the prewar situation.
8: The Crisis—1920-1921
Chapter 8
The Crisis—1920-1921
The crisis came with extraordinary suddenness. The present writer symbolized it at the time in these terms. We have been stretching a rubber band. Europe holds one end, we hold the other. The tension in the rubber band represents the high prices of commodities. The tension has been growing. Suddenly Europe turns loose her end. Commodity prices drop in thirteen months from 248 to 141!
9: The Rapid Revival—August, 1921, to March, 1923
Chapter 9
The Rapid Revival—August, 1921, to March, 1923
The rally in business production and employment that started in August of 1921 was soundly based on a drastic cleaning up of credit weakness, a drastic reduction in the costs of production, and the free play of private enterprise. It was not based on Governmental policy designed to make business good. The drop in the physical volume of production from the high of July, 1920, to the low of 1921 was drastic and was indeed unprecedented in severity, so far as records went, down to that date.
10: The Government’s Contribution to the Revival, 1921-1923
Chapter 10
The Government’s Contribution to the Revival, 1921-1923
No Deficit Financing—Overbalanced Budgets Every Year. From the standpoint of New Deal economics the United States Government in the period 1920-1923 was extremely benighted. The idea that an unbalanced budget with vast pump-priming Government expenditure is a necessary means of getting out of a depression received no consideration at all. It was not regarded as the function of the Government to provide money to make business activity.
11: The Money Market, 1920-1923—Renewed Bank Expansion
Chapter 11
The Money Market, 1920-1923—Renewed Bank Expansion
A very important factor in the revival, as in all revivals, was an easing of the money market and an expansion of bank credit. There was a very substantial liquidation of bank credit from the high figures of 1920 to the low figures of 1921, very impressive in dollar volume, though less impressive in percentage. The tide of bank credit turned, however, in the latter part of 1921 and a renewed expansion began.
12: Our Foreign Policy, 1919-1924
Chapter 12
Our Foreign Policy, 1919-1924
The whole of the year 1923 was one of strong industrial activity in the United States. The Federal Reserve Index of Industrial Production,1 based on physical volume shows 1923 standing high above 1922 and high above 1924.
13: Germany, 1918-1924
Chapter 13
Germany, 1918-1924
Germany a Hollow Shell at End of War. Germany at the end of the war was economically a hollow shell. Germany’s war economic policy had been extraordinarily efficient in sucking out of the people all their resources and all their vitality to put guns and food into the hands of the soldiers at the front. She had not been invaded, but invaders could hardly have done a more efficient job of denuding her of resources than her own war government.
14: France, 1918-1924
Chapter 14
France, 1918-1924
French Prewar and Wartime Deficits. We turn now to the parallel story of the financial developments in France during the period when Germany was sinking so rapidly. France entered the war with bad government finances. She had a national debt of 30 billion gold francs as against an estimated national wealth of 300 billion gold francs at the beginning of the war. France had had chronic deficits for many years before the war.
