Pat, I fear we are in danger of running in circles here, but... So, you say it is a "myth" that the financial collapses that led to the depths of the Great Depression did not reduce AD, or if they did, it is of little interest, since what is of interest is what caused the financial collapses. You then cite Mundell. Well, I went back and looked at Mundell. He likes fixed exchange rates, tight monetary policy, and supply-side tax cuts. He says the world economy worked fine before WW I. His main argument about how the GD came about was the botched attempt to reinstall the gold standard at misaligned exchange rates in the 1920s. I think there is a lot of truth to that, especially when one throws in that when the Fed ran a tight monetary policy to slow down the stock market bubble in the late 1920s, and then the market crashed, which damaged investor confidence and hurt AD through wealth effects, the Fed continued to run a tight monetary policy partly because of the gold standard. The inflows of gold into the US then pushed other countries into tightening their monetary policies, which reduced global AD. Of course, in 1931 all of this came crashing down in the greatest financial collapse of all time, with a concomitant collapse of the money supply with banks failing all over the world, and AD falling through the floor. Of course, I know you would just as soon keep AD falling out of it, but it certainly makes it easier (and I would argue not incorrect, certainly not a "myth") to keep it in the story. The other "myth" you cite is that legislatures created central banks based on the advice of economists to prevent such financial crashes and recessions/depressions. Well, I would say that most central banks had little to do with economists. The early ones in Sweden and the Netherlands and England, and even the later one in the US, were all creatures of the banking sectors in all those countries who wanted a lender of last resort. Certainly central banks have sometimes messed up, either hyperinflating or, as in 1929, engaging in overly contractionary policy that pushed AD down, leading to, well, we already know what... BTW, this is a sideshow, but while Mundell praises the effect of supply side tax cuts in the 1980s, it should be kept in mind that if one compares the growth of the US economy between 1940 and 1964 and since 1981, the latter had a lower rate, even though the top marginal income tax rate has not exceeded 50% since 1981, whereas it exceeded 90% for all of 1940-64. Of course Mundell might fall back on his main interest and argue that this outcome was due to the earlier period having mostly fixed exchange rates while the more recent one has had flexible rates, which he does not like. Barkley Rosser