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Response to Review of Austrian Reconstruction and the Collapse of Global Finance, 1921-1931

I am grateful to Matthew Kolasa for this thoughtful review. Mr Kolasa’s reads my book as an 'apparent wholesale endorsement of the League approach' because, in his view, I fail to take sufficient account of today’s debate about the effects of austerity. It was never my intention to imply that the League’s policy of austerity was right in terms of today’s economic theory and there is little to be gained in judging the decisions of the policy makers in the 1920s by our understanding of economic theory one-hundred years later. Keynes’ remedy of applying fiscal stimulus during a recession had not yet been formulated in the 1920s. Moreover, in a gold-standard (or Euro) system (which Keynes termed a 'barbarous relic' in 1923), money cannot just be printed, it must be borrowed. Under such circumstances, a country with unsustainable foreign debt (Greece) or budget deficits (Austria) is forced to commit itself to reducing expenditures (or raising taxes) if it wants to obtain fresh funds – or to leave the fixed-exchange rate system in favor of inflation and depreciation. I am honoured the IHR commissioned this review and very much enjoyed the positive things Mr Kolasa had to say about my book.