It is a common argument that one of the factors contributing to the decline of institutionalism as a movement within American economics was the arrival of Keynesian ideas and policies. That thesis is not disputed here. Keynesian economics, and the subsequent macroeconomic debates between Keynesians and monetarists, did displace the various institutionalist research programs on cycles and depressions and played a significant part in the marginalization of institutional economics in the post–World War II period. What will be disputed, however, is the common view that institutionalists were somehow left helpless by the phenomenon of the Great Depression, so that Keynesian economics was “welcomed with open arms by a younger generation of American economists desperate to understand the Great Depression, an event which inherited wisdom was utterly unable to explain, and for which it was equally unable to prescribe a cure” (Laidler 1999, p. 211).

As work by William Barber (1988) and David Laidler (1999) has made clear, there is something very wrong with this story. In the 1920s, there was, as Laidler puts it, “a vigorous, diverse, and distinctly American literature dealing with monetary economics and the business cycle” – a literature that had a central concern with the operation of the monetary system, gave great attention to the accelerator relationship, and contained “widespread faith in the stabilizing powers of counter-cyclical public-works expenditures” (Laidler 1999, pp. 211–212).