Deflation

"To every outworn shibboleth of 19th-century economics he clung with fanatic tenacity. Economy, Free Trade, Gold - these were the keynotes of his political philosophy, and deflation the path he trod with almost ghoulish enthusiasm."

"Between August 1921 and August 1929 the Dow Jones Industrial index increased by a factor of 4.4. Other prices, however, had not risen so far. Some were already falling. For those fortunate enough not to be fighting it, the First World War had been a two-fold boon. The temporary diversion of so much European production into the business of destruction had allowed Asian and American producers to expand mightily, but they could not wholly compensate for the disruption caused by the war. It was a global sellers market. At the same time, the inflationary financing of the war, as governments printed money to pay for their deficits, pushed up world prices. The spot price of wheat in the Chicago market - a reasonably good proxy for traded primary commodity prices - hit roughly treble its pre-war average in 1917 and again in 1920. The twin stimuli of dearth and currency depreciation ended thereafter, and a global recession in 1920-21 saw steep declines in the prices of primary products and manufactures. Thereafter, they barely recovered. The price of wheat peaked in February 1925 at 182 cents a bushel (compared with 294 cents in May 1920) and by May 1929 it was down to 102 cents. Similar forces were driving down the world prices of other key commodities like iron and steel. This deflation was the overture to the Great Depression. In the 1920s it meant poverty for farmers, but easy living for those who received the profits of industry and finance."