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The author pins most of his explanation on gold flows, but as the following chart of Fed assets shows, there was a large spike of gold holdings in the U.S. in 1917 and then a modest growth until 1919 then a two year plateau. The increase in the Fed’s balance sheet from 1917 to 1921 was driven by the enormous increase in bills discounted and significant increases in Treasuries, especially long-term. In other words, it was deliberate credit expansion by the Fed, not an automatic reaction to international gold flows.
Likewise, the monetary contraction starting in 1921 was the intentional sell-off of bills discounted by the Fed, which completely overwhelmed the coincident gold inflows. The Fed’s balance sheet didn’t stop falling until 1922 (well after the recovery had begun) and plateaued for the next two years (as the recovery proceeded apace). In other words, Fed policy was decidedly contractionary the early recovery from 1921-1922 and significantly contractionary during the entire recovery from 1921-1924.
Each federal reserve bank set its own discount rate in the 1920s. The first chart at the link below shows the discount rates through the 1920s. the rates were generally rose during 1920 from 6 to 7 percent where they stood until the spring of 1921, then the FRDBs lowered their rates to 4 1/2-5 percent by the end of 1921. Then they were steady until mid-1924, just like the Fed’s balance sheet.
Clearly, Fed policy was not expansionary during the recovery.
As the Fed balance sheet charts show, the longest and largest period of gold inflows into the U.S. occurred after FDR seized Americans’ gold at $20.67 an ounce and revalued it at $35 in 1934. After 1934, we experienced the “golden avalanche” as FDR’s overvaluing of gold caused foreigner holders to arbitrage it to the U.S. But the U.S. went off the gold standard completely in 1934. All the major countries save a few preceded us in doing so. Belgium left in 1935 and France and Italy left in 1936. So the golden avalanche could not have contracted the money stock in countries already off the gold standard such as Britain, Germany, Japan, etc.