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Authors: Murray Rothbard

America's Great Depression

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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


George N. Gallagher (
In Memoriam
), Mary Jacob, Hugh E. Ledbetter


Mark M. Adamo, Lloyd Alaback, Robert Blumen,

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


Algernon Land Co., L.L.C., J. Terry Anderson (Anderson Chemical Company), G. Douglas Collins, Jr., George Crispin, Lee A. Everhart, Douglas E. French, John William Galbraith, Walker S. Green, Mr. and Mrs. Max Hocutt, Donald L. Ifland, Joe R. Lee, Arthur L. Loeb, William R. Machgan, Dorothea H. Marica, Bernard Morton, Daniel W. Muirhead, James O’Neill, Charles H. Reeves (Reeves Family Foundation), Donald Mosby Rembert, Stephen K. Salisbury, Mr. and Mrs. Allan Sawatzky, Joseph P. Schirrick, Mr. and Mrs. Thomas W. Singleton (Nehemiah Foundation), Robert W. Smiley, Jr. (The Benefit Capital Companies), Byron L. Stoeser, Joseph J. Syslo, James E. Tempesta, M.D., top dog™, Alex T. Van Rensselaer, Lawrence Van Someren, Sr., Mr. and Mrs. Quinten E. Ward, David Westrate, Anne Williamson, Keith S. Wood


Robert Bero, Robert J. Birnbach, Richard Bleiberg, John Hamilton Bolstad, Mr. and Mrs. Justin G. Bradburn, Jr., David and Elizabeth Butler, John W. Carpenter, Dr. John P. Cochran, John Cooke, Henry V. Curll, James V. De Santo (DTL Inc.), Chris A. Doose, Mr. and Mrs. Ted C. Earle, Jay Elliott, Eric Englund, Dr. Larry J. Eshelman, Lawrence N. Field, Elton B. Fox (The Fox Foundation), Capt. and Mrs. Maino des Granges, Christopher J. Hackett, John A. Halter, John R. Harper, Frank W. Heemstra, Douglas M. Joy, Michael G. Keller, D.O., Robert N. Kennedy, Richard J. Kossmann, M.D., David Kramer, Steven R. Krause, Gary R. Letsinger, Diana Lewis, J. Edward Martin, Norbert McLuckie, Samuel Mellos, Joseph Edward Paul Melville, Robert Mish, Dr. Dorothy Donnelley Moller, Jerry W. Moore, Keith E. Moore, D.M.D., Reed W. Mower, Brantley I. Newsom, Professor and Mrs. Stanley E. Porter, James A. Reichert, Thomas S. Ross, Conrad Schneiker, Roy Schroeder, William V. Stephens, Charles Toops, II (Mo-Ark Guide Service),

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

8
THE DEPRESSION BEGINS:

PRESIDENT HOOVER TAKES COMMAND...................209

The White House conferences........................................................210

Inflating credit.................................................................................214

Public works.....................................................................................216

The New Deal Farm Program........................................................217

Contents

x

9
1930.................................................................................................239

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

APPENDIX: GOVERNMENT AND THE NATIONAL

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