American Macroeconomics between World War I and The Depression

This survey paper deals with the following issues: (1) Irving Fisher's conception of the cycle as a "dance of the dollar" and the closely associated literature on monetary policy rules to which the contributions of Carl Snyder, Harold Reed, and Lionel Edie are notable; (2) the literature dealing with the "needs of trade" doctrine, associated with Benjamin Anderson and H. Parker Willis, which had considerable influence at the Ferderal Reserve Board; (3) a middle ground position, heavily influenced by Ralph Hawtrey, that put modest faith in stabilization policy and eschewed monetary rules, influential at the Federal Reserve Bank of New York, and prominent in the work of Allyn Young of Harvard; (4) The business cycle work of Wesley C. Mitchell, contrary to popular belief, well grounded in economic theory, but nevertheless heavily empirical and eclectic in outlook, which regarded the fact of monetary exchange as fundamental to the cycle, stressed the accelerator mechanism; this approach, to which Alvin Hansen and Young also contributed favoured activist stabilization policies, involving not just monetary measures, but counter-cyclical public works programmes, as well as major efforts to provide the private sector with data and forecasts of economic activity; and finally (5) the underconsumptionist analysis of William Foster and Waddill Catchings, of which Paul Douglas of the University of Chicago was an early exponent, and which differed from other contemporary versions of the doctrine (e.g. that of J. A. Hobson) by locating the flaw in the market mechanism in the operations of the monetary system rather than in the income distribution. It is argued that this literature raised many themes that would later figure prominently in debates between the adherent of Keynesian economics (so- called) and its critics.