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.