Money, Bank Credit, and Economic Cycles - The Ludwig von Mises ...

Additional Considerations on the Theory of the Business Cycle 487Following the crisis of 1907 a new boom began, and in1913 it culminated in a new crisis similar to previous ones.This new crisis was interrupted by the outbreak of World WarI, which altered the productive structure of nearly all countriesin the world. 91THE ROARING TWENTIES AND THE GREAT DEPRESSION OF 1929The years following the First World War were characterizedby the great credit expansion initiated in the UnitedStates. The newly-established Federal Reserve (founded in1913) orchestrated this bout of credit expansion, whichrevolved around programs to stabilize the value of the monetaryunit. Theorists such as Irving Fisher and other monetaristssupported these programs, which acquired great, enduringpopularity at this point. Given that the decade of the 1920s sawa considerable increase in productivity, in which many newtechnologies were employed and a large quantity of capitalwas accumulated, in the absence of such an expansion of themoney supply in the form of loans, there would have been asignificant and healthy decrease in the price of consumergoods and services, and thus a substantial rise in real wages.However credit expansion kept the prices of consumer goodspractically constant throughout the entire period.Benjamin M. Anderson, in his notable financial and economichistory of this period in the United States, gives adetailed account of the volume of credit expansion broughtabout by the American banking system. In little over fiveyears, the amount of the loans created ex nihilo by the bankingsystem grew from $33 billion to over $47 billion. Andersonexpressly states thatBetween the middle of 1922 and April 1928, without need,without justification, lightheartedly, irresponsibly, we91 For a more detailed historical outline of the crises and economic cyclesfrom the dawn of the Industrial Revolution until World War I, see, forexample, Maurice Niveau, Historia de los hechos económicos contemporáneos,Spanish trans. Antonio Bosch Doménech (Barcelona: EditorialAriel, 1971), pp. 143–60.