Reply to Paul Krugman

As the Republicans of 1919 put it, "What this country needs is a good 5¢ cigar." Cigars had cost 5¢ in 1914 and had risen (along with the general price level) to 10¢ in 1919. What the Republicans were trying to achieve was a general reduction in prices back to their 1914 level. Since prices were the same in 1914 as they had been in 1793, this was simply a return to the normal way of doing things. Prices fell sharply in 1921 and again in 1930-33. By '33, the Republican program had been achieved, and prices in America were back to their 1793 level.

In the teens and '20s in America, pretty much everyone saved. They put their money in the savings bank and received 5% interest per year. If you do the compound interest calculation, then money saved over a 50 year working lifetime will multiply in amount by about 4¼ times. (The first year's savings multiply by 11 times, the last year's savings only grow by 5% and the middle years grow proportionally.) This multiplication is what makes it possible to retire. As a result, in America virtually everyone saved. What the Democrats did from 1914-1919 was to cut the value of the working man's savings in half.

A detailed account of government's manipulation of the currency and the economy.