Read America's Great Depression Online
Authors: Murray Rothbard
America's Great Depression
Fifth Edition
America’s Great Depression
Fifth Edition
Murray N. Rothbard
MISES
INSTITUTE
Copyright © 1963, 1972 by Murray N. Rothbard
Introduction to the Third Edition Copyright © 1975 by Murray N. Rothbard Introduction to the Fourth Edition Copyright © 1983 by Murray N. Rothbard Introduction to the Fifth Edition Copyright © 2000 by The Ludwig von Mises Institute
Copyright © 2000 by The Ludwig von Mises Institute All rights reserved. Printed in the United States of America.
No part of this book may be reproduced in any manner whatsoever without written permission except in the case of reprints in the context of reviews. For information write The Ludwig von Mises Institute, 518 West Magnolia Avenue, Auburn, Alabama 36832.
ISBN No.: 0-945466-05-6
TO JOEY,
the indispensable framework
The Ludwig von Mises Institute dedicates this volume to all of its generous donors, and in particular wishes to thank these Patrons: Dr. Gary G. Schlarbaum
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George N. Gallagher (
In Memoriam
), Mary Jacob, Hugh E. Ledbetter
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Philip G. Brumder, Anthony Deden (Sage Capital Management, Inc.), Mr. and Mrs. Willard Fischer, Larry R. Gies,
Mr. and Mrs. W.R. Hogan, Jr., Mr. and Mrs. William W. Massey, Jr., Ellice McDonald, Jr., MBE, Rosa Hayward McDonald, MBE, Richard McInnis, Mr. and Mrs. Roger Milliken (Milliken and Company), James M. Rodney, Sheldon Rose, Mr. and Mrs. Edward Schoppe, Jr., Mr. and Mrs. Robert E. Urie, Dr. Thomas L. Wenck
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Robert H. Walker (Walker Die Casting Company), Mr. and Mrs. Victor Zadikov, Jeannette Zummo
Introduction
v
vi
America’s Great Depression
Acknowledgments
While the problem of 1929 has long been of interest to myself as well as most Americans, my attention was first specifically drawn to a study of the Great Depression when Mr. Leonard E. Read, President of the Foundation for Economic Education, asked me, some years ago, to prepare a brief paper on the subject. I am very grateful to Mr. Read for being, in this way, the sparkplug for the present book. Having written the article, I allowed the subject to remain dormant for several years, amid the press of other work. At that point, on the warm encouragement of Mr. Richard C. Cornuelle, now of the Foundation for Voluntary Welfare, I proceeded on the task of expansion to the present work, an expansion so far-reaching as to leave few traces of the original sketch. I owe a particular debt to the Earhart Foundation, without whose aid this study could never have been written.
My supreme debt is to Professor Ludwig von Mises, whose monumental theory of business cycles I have used to explain the causes of the otherwise mysterious 1929 depression. Of all Professor Mises’s notable contributions to economic science, his business cycle theory is certainly one of the most significant. It is no exaggeration to say that any study of business cycles not based upon his theoretical foundation is bound to be a fruitless undertaking.
The responsibility for this work, of course, is entirely my own.
vi
Introduction
vii
viii
America’s Great Depression
Contents
Introduction to the Fifth Edition.........................................................xi Introduction to the Fourth Edition..................................................xvii Introduction to the Third Edition....................................................xxv Introduction to the Second Edition.................................................xxxi Introduction to the First Edition....................................................xxxv
PART I: BUSINESS CYCLE THEORY
1
THE POSITIVE THEORY OF THE CYCLE.........................3
Business cycles and business fluctuations............................................4
The problem: the cluster of error........................................................8
The explanation: boom and depression...............................................9
Secondary features of depression: deflationary credit contraction...................................................................................14
Government depression policy: laissez-faire.....................................19
Preventing depressions......................................................................23
Problems in the Austrian theory of the
trade cycle.....................................................................................29
2
KEYNESIAN CRITICISMS OF THE THEORY..................37
The liquidity “trap”...........................................................................39
Wage rates and unemployment.........................................................42
3
SOME ALTERNATIVE EXPLANATIONS OF
DEPRESSION: A CRITIQUE....................................................55
General overproduction....................................................................56
Underconsumption............................................................................57
The acceleration principle.................................................................60
viii
Introduction
ix
Dearth of “investment opportunities”...............................................68
Schumpeter’s business cycle theory...................................................72
Qualitative credit doctrines...............................................................75
Overoptimism and overpessimism....................................................80
PART II: THE INFLATIONARY BOOM: 1921–1929
4
THE INFLATIONARY FACTORS...........................................85
The definition of the money supply...................................................87
Inflation of the money supply, 1921–1929........................................91
Generating the inflation, I: reserve requirements.............................95
Generating the inflation, II: total reserves......................................101
Treasury currency.............................................................................116
Bills discounted................................................................................117
Bills bought–acceptances.................................................................126
U.S. government securities..............................................................133
5
THE DEVELOPMENT OF THE INFLATION................137
Foreign lending................................................................................137
Helping Britain................................................................................142
The crisis approaches.......................................................................159
6
THEORY AND INFLATION: ECONOMISTS AND
THE LURE OF A STABLE PRICE LEVEL.........................169
PART III: THE GREAT DEPRESSION: 1929–1933
7
PRELUDE TO DEPRESSION: MR. HOOVER
AND LAISSEZ-FAIRE................................................................185
The development of Hoover’s interventionism:
unemployment...........................................................................188
The development of Hoover’s interventionism:
labor relations.............................................................................199
PRESIDENT HOOVER TAKES COMMAND...................209
The White House conferences........................................................210
Inflating credit.................................................................................214
Public works.....................................................................................216
The New Deal Farm Program........................................................217
Contents
x
More inflation..................................................................................239
The Smoot–Hawley Tariff...............................................................241
Hoover in the second half of 1930...................................................243
The public works agitation..............................................................250
The fiscal burdens of government...................................................253
10
1931—“THE TRAGIC YEAR”.................................................257
The American monetary picture.....................................................260
The fiscal burden of government....................................................263
Public works and wage rates............................................................264
Maintaining wage rates....................................................................267
Immigration restrictions..................................................................270
Voluntary relief................................................................................271
Hoover in the last quarter of 1931...................................................272
The spread of collectivist ideas in the business world.....................277
11
THE HOOVER NEW DEAL OF 1932..................................285
The tax increase...............................................................................286
Expenditures versus economy..........................................................288
Public works agitation......................................................................292
The RFC..........................................................................................296
Governmental relief.........................................................................300
The inflation program.....................................................................301
The inflation agitation.....................................................................308
Mr. Hoover’s war on the stock market.............................................316
The home loan bank system............................................................317
The bankruptcy law..........................................................................318
The fight against immigration.........................................................319
12
THE CLOSE OF THE HOOVER TERM..................................321
The attack on property rights: the final currency failure................323
Wages, hours, and employment during the depression...................330
Conclusion: the lessons of Mr. Hoover’s record.............................336