You don't have a problem with understanding how an increase in the gold supply, e.g., when new mines were found in California, Australia, and South Africa, was inflationary, right?
Why is it so hard to understand that when real activity increases at a faster rate than the gold supply, that's deflationary? Or they could have devalued, but they never did, until FDR.
Further, why is it so hard to understand that, during deflation, what matters is the real interest rate, not the nominal interest rate?
Your assertion, that what was important was the failure of the government to allow wages to fall, is fallacious because, to be true, it would have to be universally true, and it's not. Neither to the rest of the world, nor to other depressions. It's just a little piece of the puzzle, but far from the most important. |
