The Deflation of 1930. Its Causes and Pernicious Effects (en Inglés) - John C Harvey;Mary Keil

The Deflation of 1930 explores in-depth the economic events of a year that was the quintessential example from our nation's history when deflationary forces became unleashed. As the authors write, deflation is NOT inflation in reverse. It is its own powerfully damaging force that erases wealth in large gulps. As just one example, from April 1, 1930 to January 1, 1934, the total value of all real estate in the U.S. fell 35.2%. Statistical evidence from 1930 shows that the money stock fell dramatically and at an accelerating rate as indebted consumers-autonomously and in aggregate- tightened their belts, instead prioritizing loan payoffs in order to get out of debt. As business activity slowed as a result of reduced demand, businesses, too, repaid short-term bank loans or shifted from short to long-term debt.

The year 1930 was not only eventful but pivotal. It was when the dynamic of the Great Depression, with its accompanying deflation, took hold in the imagination of the American psyche and dramatically changed their economic behavior. The authors' close look at the economic data makes it clear that in a period of volatility and uncertainty as occurred post-Crash, people retreated from spending in order to repay debt obligations incurred during pre-Crash times of optimism, thus initiating deflationary forces, denoted by shrinkage in the money supply. This took place from November 1929 onwards and worsened throughout 1930 and on into 1931. Government and financial leadership understood little about the wide-ranging and pernicious effects of deflation and therefore did little to stop it. The result was the Great Depression.

Until The Deflation of 1930, not enough has been understood even today about the potentially catastrophic effects of deflation allowed to continue unabated. As the lessons of 1930 show us, when it gets going and builds in momentum, deflation becomes very difficult to counteract.