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The Depression of 1920–1921 and the Retu...

Bruner, Robert F.

Case

The Depression of 1920–1921 and the Return to “Orthodoxy” (B)

Bruner, Robert F.

F-1891 | Published October 15, 2019 | 5 pages Case

Collection: Darden School of Business

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In the A case, F-1890, the leaders of the Federal Reserve Board (FRB) and the US Treasury confronted questions that seemed likely to shape the Federal Reserve (Fed) for years to come. What should be the Fed's role in the American economy? How should the Fed help resolve World War I's debt burden and the resulting inflation? What reforms, if any, should the monetary authorities seek? Perhaps most importantly, was the "orthodoxy" of established practices still appropriate in the world that had emerged from the war? This B case, set in April 1921, follows the continued efforts of the FRB and the newly installed Harding administration, as they fight the worsening depression.

These cases were developed for the purposes of: (1) Exploring the consequences of monetary management by fiscal authorities and competition among public policy priorities. The cases give particular attention to war finance and the subsequent resolution of the postwar debt overhang. (2) Considering the Fed's role in the US economy and reasons for central bank independence. (3) Reviewing the financial crisis of 1920-21 and its causes. (3) Critically evaluating the "orthodox" principles of central banking at the time, including the real bills doctrine, the penalty rate, and adherence to the gold standard.