ABSTRACT
After the recessionary post World War I setback of 1920-1921, the twenties were characterized by rapid growth in productivity and overall income. Contrary to the usual expected inflation during a boom as demand accelerates, the prices of the 1920's were remarkably stable. Additional sources of instability were the number of farm bankruptcies due to the weaknesses in the agriculture industry and hurting the holders of farm mortgages, stock market speculation, and the instabilities inherent in the construction industry. The reason that the spirit of optimism in the 1920's would eventually be pierced by the Great Depression is that certain fundamental weaknesses existed in the economy of that time period. According to the Monetarists, the depression was caused first by sterilizing gold flows and contracting loanable funds when they should have been expanded. Depressions are always characterized by a fall in income, consumption, and investment.
