Friday, January 2, 2009

Great Myths of the Great Depression

Yes, you read that title correctly. The public's understanding of the causes of the both the 1929 stock market crash and the ensuing Great Depression is full of myths. The good news is a greater number of economists and historians over the last 40+ years, starting with Milton Friedman and Anna Schwartz's A Monetary History of the United States published in 1963, have begun to unravel the real causes of the 1920's boom, the bust, and the depression. These causes are governmental in origin, not free-market. There have been several scholarly works published since then including Murray Rothbard's America's Great Depression to the recent New Deal or Raw Deal? by Burton Folsom. There are several others, but a smaller compilation of all the myth-busting facts has been written by the Foundation for Economic Education's president Lawrence Reed in an essay titled Great Myths of the Great Depression. I have just completed it and believe the arguments summarized are sound. The 1929 crash and Great Depression were caused and prolonged through government action, not the free-market. In mine and a large (and growing) number of economists and historian's view, that is an indisputable fact. Please take the time to read the article in it's entirety. It can be found here in html and here in pdf. A few excerpts:
"The stock market crash was only a reflection — not the direct cause — of the destructive government policies that would ultimately produce the Great Depression: The market rose and fell in almost direct synchronization with what the Fed and Congress were doing. And what they did in the 1930s ranks way up there in the annals of history’s greatest follies."

"The genesis of the Great Depression lay in the irresponsible monetary and fiscal policies of the U.S. government in the late 1920s and early 1930s. These policies included a litany of political missteps: central bank mismanagement, trade-crushing tariffs, incentive-sapping taxes, mind-numbing controls on production and competition, senseless destruction of crops and cattle and coercive labor laws, to recount just a few. It was not the free market that produced 12 years of agony; rather, it was political bungling on a grand scale."

And in his final remarks:

"Are you tired of politicians blaming each other, scrambling to cover their behinds and score political points in the midst of a crisis, and piling debts upon debts they audaciously label “stimulus packages”?  Why do so many Americans want to trust them with their health care, education, retirement and a host of other aspects of their lives? It’s madness writ large. The antidote is the truth. We must learn the lessons of our follies and resolve to fix them now, not later."

1 comment:

Anonymous said...

Thank you, Mr. Collins, for the generous recommendation of my Great Depression essay. I hope it helps to correct the record so that people will understand what really happened and what the salient lessons are.

Lawrence W. Reed
www.fee.org
lreed@fee.org

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