AGD: Chapter V - The Development of the Inflation

After describing the instruments used to spur inflation, the chapter on hand lays out how the step-by-step process brought into action. 

Foreign Lending: After the 1920-21 recession, lending to foreign countries was the way of choice to benefit the US export industry. Together with trade restriction and tariffs, this helped to boost US exports to a level far above imports.

Helping Britain: Co-operation between the Bank of England (BoE) and the Federal Reserve Bank of New York began in 1920. Britain was inflating heavily and could not get back to the pre-war gold-standard. Therefore gold was leaving the country – the US being called to help by inflating themselves and thus stop this gold drain. In 1925 Britain returned to the gold standard, aided by 300 USD mn of US credit. The FED pushed interest rates in the US below the London level. The USD weakened compared to the GBP. 

Excursion: One nice sentence here in regard to today’s discussion: Certainly it is absurd, though convenient, to pin the blame for the consequences of a government’s unsound policies upon the relatively sounder policies of another government.

Rothbard explains the difference between gold standard, gold bullion standard and gold exchange standard and shows on the next pages, how the BoE used its monetary power to influence European countries and support British exports. The US government took all this steps more or less in secret, as the public view was not to engage in foreign affairs, not to join the League of Nations and of course also not to collude with foreign central banks.

The Crisis Approaches: Stock markets showed some high gains in the late 1920s, and the FED started to cut monetary expansion on this occasions. Unfortunately, it focused on only a few expansionary items, leaving others alone or even adding to expansion on those fields. In total, expansionary policy keeps going on until 1929, with the FED, the Treasury and the Administration responsible for its creation. And the public being the ones to suffer in the following years.