Section [ ]. Evidence of investment credit expansion in 1927-29
The first point in verifying whether a historical episode contains an ABCT-described pattern is finding the indication of significant credit expansion without which the boom phase of the cycle is not possible. Among students of the US economy in the 1920s, there has been a strong disagreement with respect to this question.
The most detailed case in favor of the existence of a massive credit expansion was made by Rothbard [] and McManus et al. . On the other hand, Timberlake claimed that the Austrian explanation of the Great Depression was implausible because there was essentially no credit expansion in the US in the 1920s. However, careful analysis of the data on M1 and M2 for the period of 1924-29 suggests otherwise. While M1 increased only from $5,58 bln. to $5,9 bln. (by around 5%), M2 rose from $50,86 bln. to $63,62 bln. (by around 25%). Timberlake is right that this increase did not cause significant inflation but in order for the monetary policy to cause a cluster of malinvestments described by ABCT, it does not have to significantly boost the CPI.