volume — as long as you anticipated, as we did in 1972, a world of continuous inflation.

America of the 1920s had the same real per-capita GDP as Turkmenistan does today.

All this notwithstanding, the twenties in America were a very good time. Production and employment were high and rising. Wages were not going up much, but prices were stable. Although many people were still very poor, more people were comfortably well-off, well-to-do, or rich than ever before. Finally, American capitalism was undoubtedly in a lively phase. Between 1925 and 1929, the number of manufacturing establishments increased from 183,900 to 206,700; the value of their output rose from $60.8 billions to $68.0 billions.1 The Federal Reserve index of industrial production which had averaged only 67 in 1921 (1923–25= 100) had risen to 110 by July 1928, and it reached 126 in June 1929.2 In 1926, 4,301,000 automobiles were produced. Three years later, in 1929, production had increased by over a million to 5,358,000,3 a figure which compares very decently with the 5,700,000 new car registrations of the opulent year of 1953. Business earnings were rising rapidly, and it was a good time to be in business. Indeed, even the most jaundiced histories of the era concede, tacitly, that times were good, for they nearly all join in taxing Coolidge for his failure to see that they were too good to last.

We want to keep prices stable for two reasons—to hold on to our share of world markets, and to avoid strains and dislocations at home. We are probably entering a period when it will be more difficult to keep prices from rising. It is a matter for both sides of industry to see that increased money returns, either dividends or wages, are matched by increased output.

When central banks print a lot of money to relieve a crisis, buy stocks, gold, and commodities because their value will rise and the value of paper money will fall.

[…] The… oil-fueled boom that energized the suburban expansion of the 1920s brought turmoil and trouble to the farm economy. Thirty percent of the U.S. population still lived on farms in the 1920s. U.S. farmers had done well during World War I, exporting grain to a Europe that had become a shell-blasted battlefield. By the early 1920s, though, Europeans were able to feed themselves again. Meanwhile, the introduction of the tractor and the mechanization of farming in the United States led quickly to [the] massive overproduction of grain. Unable any longer to pawn off the surplus on Europe, America suffered a crash in grain prices. The farm depression, which preceded the financial depression by half a decade, was a self-reinforcing feedback loop. As the market prices of corn and wheat plunged, farmers desperately tried to make up for low prices by producing more, which the domestic markets could not absorb, leading to even greater surpluses and more depressed prices.

Our economy is very stable and we managed to develop even in the years of economic crisis. We managed to triple our GDP in less than 10 years

American life, with its twin engines of suburbanization and factory production of consumer goods for the […] world, became so quickly and obviously successful that a new consensus formed supporting the value of the dollar and its paper accessories in capital markets, chiefly stocks, and bonds. This is not to say that the securities markets boomed in the 1950s and 1960s—it took until then just to recover the value levels of the pre-1929 crash—but stocks and bonds did regain respectability, [and] legitimacy. Those who had lived through the Great Depression, meaning virtually all the men who had served in the wartime army, had very modest expectations about the role of finance in the postwar economy. In the 1950s and 1960s, Americans bought stocks for the annual dividends they paid, not to flip them for a quick profit. In fact, share prices remained […] very flat during this period. The whole notion of investment was different than it would become later in the twentieth century. In the 1950s and 1960s, stock and bond values were linked much more directly with the successful production of real goods. General Motors derived its profits and paid its dividends on the basis of auto sales, not as today, primarily from leveraging interest rates and other abstract numbers' games removed from the actual making of products. In sum, the public attitude about the role of finance was extremely conservative. Finance was not an “industry” per se, but a set of institutions designed to keep the idea of money and its accessories credible, […] to allow real industries to function.

Sometimes I think our central bank will keep printing money till we run out of trees.

It is a sobering fact that the prominence of central banks in this century has coincided with a general tendency towards more inflation, not less. [I]f the overriding objective is price stability, we did better with the nineteenth-century gold standard and passive central banks, with currency boards, or even with "free banking."

The stock of money, prices and output was decidedly more unstable after the establishment of the Reserve System than before. The most dramatic period of instability in output was, of course, the period between the two wars, which includes the severe (monetary) contractions of 1920-1, 1929-33, and 1937-8. No other 20 year period in American history contains as many as three such severe contractions. This evidence persuades me that at least a third of the price rise during and just after World War I is attributable to the establishment of the Federal Reserve System... and that the severity of each of the major contractions — 1920-1, 1929-33 and 1937-8 is directly attributable to acts of commission and omission by the Reserve authorities... Any system which gives so much power and so much discretion to a few men, [so] that mistakes — excusable or not — can have such far reaching effects, is a bad system. It is a bad system to believers in freedom just because it gives a few men such power without any effective check by the body politic — this is the key political argument against an independent central bank... To paraphrase Clemenceau, money is much too serious a matter to be left to the central bankers.

Can anybody remember when the times were not hard and money not scarce?

The American scene changed hugely in the 1920s. Modernity transformed everything from women’s clothing to the human imprint on the landscape. The car liberated rural America and began cluttering up the cities. The first tractors started a revolution on the farm.* Muscular American industry outinvented and outproduced all competitors around the world. Foreigners watched our movies and learned to play jazz. A sense of intoxication ran through Wall Street, prompting excessive risk-taking and wild speculation in any novelty, the participation of easily snookered, inexperienced investors buying stocks with borrowed money (“on margin”), unregulated investment pools that behaved like hedge funds do today, “bucket shops” that amounted to betting parlors, and a great deal of insider banking misconduct around financial markets that were hardly policed at all. After it all crashed in October 1929 the loss of confidence was epic. Decades later, scholars still puzzle over the cause of the Great Depression. It was a reality failure. The things that people believed in proved spectacularly unreliable, especially in the realm of money and other abstract paper extensions of it.

Social history in the nineteenth century was thus the result of a double movement: the extension of the market organization in respect to genuine commodities was accompanied by its restriction in respect to fictitious ones. While on the one hand markets spread all over the face of the globe and the amount of goods involved grew to unbelievable dimensions, on the other hand a network of measures and policies was integrated into powerful institutions designed to check the action of the market relative to labor, land, and money. While the organization of world commodity markets, world capital markets, and world currency markets under the aegis of the gold standard gave an unparalleled momentum to the mechanism of markets, a deep-seated movement sprang into being to resist the pernicious effects of a market-controlled economy. Society protected itself against the perils inherent in a self-regulating market system-this was the one comprehensive feature in the history of the age.