We have been studying the Crash of 1929 and subsequent Great Depression for close to a hundred years, from Keynes to Friedman including many brilliant minds and lesser pundits. What have we learned?
Our acquired wisdom can be summed in a two word phrase, demand insufficiency. Supply side arguments have generally fallen by the wayside although they are still in circulation. The question before us is, what caused the demand insufficiency? Keynes addressed the insufficiency directly and fiscally but easily translated into Friedman as essentially money mismanagement. Stimulus by printing more money which Friedman directly addressed and Keynes implied was essential especially after the stock market crash deflated the currency. It didn't happen, why?
We had no expertise in the mechanics of fiat, paper, money. It was a fringe phenomenon derivative to precious metal coinage and was suspect in its worth. That led directly to the precipitating situation that led to the Crash. The inability of precious metals to fund a general prosperity due to limits of supply coupled with naivete in the mechanics of leverage and fiat money left a gaping hole into which the world economy fell.
The inability of gold and silver to meet currency demands was obvious but theoretically unremarked in the new 20th century resulting in the ad hoc creation of precious metal backed paper claims, leverage, upon the gold hoards of central banks. Moreover the imbalance of trade resulted in a concentration of gold stores in the United States. The Federal Reserve, created in 1913, managed money consisting of notes convertible to gold on demand. That provided significant discipline exactly when discipline was not needed.
The money supply was then inadequate for all potential situations and not easily adjusted. That illiquidity, if you will, was reflected in an illiquid stock market which ratcheted into a crash without remedy according to the conventional wisdom of the times.
That crash deflated the money supply based on precious metals coinage exactly when inflation was needed.
-The whole system collapsed in a chaos of demand Insufficiency due to a shortfall in money supply.-
The lesson to be learned is that acute demand insufficiency is a brutal business and prudent industrial practices should seek to avoid it, which they often do not, but when it occurs it must be addressed directly and immediately.
We are facing a somewhat similar but remarkably different situation.The coming Economic Singularity, robots building robots, is potentially apocalyptic in terms of chronic, not acute, demand insufficiency, robots producing everything and buying nothing, and we must be prepared to intervene structurally in the economy in order to preserve markets and property. Given the enormous shortfall in demand that the robot revolution could realize, we are looking at the necessity for serious economic measures to support aggregate demand.
For ideas on what those economic measures look like see…
https://johnnymfrazier.blogspot.com/2025/11/economic-collapse-in-age-of-autonomous.html?m=1
Be Well and Do Well
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