Much of the Austrian School Critique of Monetary Policy in the 1920s Could Be Replicated Against the Greenspan-Bernanke Federal Reserve

Yet there are echoes of the earlier monetary catastrophe in the present-day monetary tumult (or catastrophe?) which are eerie and troubling for those who believe strongly in human progress. Here was a renowned professor in monetary economics at the head of the Federal Reserve, who on the occasion of Milton Friedman’s ninetieth birthday party had said that the monetary mistakes which surrounded the Great Depression would never be made again. There were grounds to question whether the professor had learnt the wrong lessons.

The professor (Ben Bernanke) had been the key proponent (back in 2003 already) of the expansionary policy (breathing in inflation) which had played such a critical role in generating the bubble in the first place (even if the buck ultimately stopped at Alan Greenspan’s desk). Indeed, much of the ‘neo-Austrian’ critique (see Rothbard, 1972) of US monetary policy in the 1920s under the leadership of New York Federal Reserve Governor Benjamin Strong in the 1920s could be replicated against the Greenspan–Bernanke Federal Reserve.

At a time when real forces (productivity surge due to technological revolution and terms of trade improvement) were putting downward pressure on the equilibrium level of goods and services prices, the Federal Reserve was setting monetary conditions such as to produce a stable or gently rising price level. In doing so the Federal Reserve created grave monetary disequilibrium with its main symptom being a sharp rise of temperature in credit and asset markets.

--Brendan Brown, Euro Crash: The Implications of Monetary Failure in Europe (Houndmills, UK: Palgrave Macmillan, 2010), 83.