A Question on the Depression of 1920

Economics Economics Questions
21

On the tax foundation link I posted, it has the income levels for the rate of taxation. I assume the claim was made on the basis that in 1921, the top tax rate applied to income over $1,000,000, but in 1922 it applied to income over $200,000. But when examined closely, this claim is ignorant of the fact that the top rate in 1921 was 73% and in 1922 it was 58%. There were dozens of marginal rates back then. But if you look at them comparatively, in 1921, if you made $200,000/year, you were entering the 68% range. While in 1922, that was where it stopped at 58%.

But if that doesn’t suffice, I don’t know what does. So you would have to ask for a source to support his claim.

22

*Actually, to support the claim in general if you are not referring to any specific critic.

23

Yes, but Rothbard was wrong, and disproven many times over by people with better grasp of monetary theory. I’d like you to present me with some evidence, other than Rothbard’s word.

The overwhelming weight of analysis is that prices were stable during the 20s, and that the Fed contracted money by thirty percent in 1929, while enforcing their new doctrine.

Here is the Timberlake analysis, followed by a summary of Friedman’s devastating work on the topic…I would have linked to the full text, but intellectual monopoly law appears to have rendered that unavailable:

http://econjwatch.org/file_download/88/2005-08-timberlake-tyranny_statquo.pdf?tmpl=component&format=raw

http://www.thefreemanonline.org/featured/the-great-depression-according-to-milton-friedman/

24

Friedman’s work is hardly ‘devastating’ (have you read A Monetary History?); he tracks money aggregates, and in terms of aggregates there’s no disagreement between Rothbard and Friedman. Also, nobody disagrees that ‘prices were stable’ during the 1920s; that has no weight on the Austrian boom-bust cycle theory (in fact, Mises pointed to that as a clear sign that there was malinvestment occuring).

I’ll have to listen to Timberlake, but Friedman should not be someone you base your account on. Money aggregates don’t tell the whole story; namely, why those aggregates are falling (Friedman also infamously pointed out the fact that low interest rates don’t necessarily mean easy money; he’s right, but he’s right in Rothbard’s framework).

25

Monetary History is one of my favorite texts, and of course his Great Contraction started as an exerpt from it. In fact, I’d go so far as to say that text establishes Friedman’s credentials as understanding the monetary history more extensively than just about anyone else.

Even if you’re going to attack the source, at least address the arguments as well. I don’t take Rothbard seriously on any monetary theory, because he’s even more off-base than Keynes in that regard, but I do still refute his points, after mentioning how wrong he is.

If we were going to stick to appeal to authority, then note that Timberlake considers Friedman second only to Schumpeter as an economist, or at least that’s what he’s told me. While I’m Austrian in philosophy, and Timberlake’s just about the only Free Banking advocate I know of who specifically denies being Austrian, I think he’s pretty close to correct on that. He actually has convinced me that Schumpeter deserves way more credence than he’s given…did you know his theory predicted (not in name, of course) the dot-com crisis?

26

Even if you’re going to attack the source, at least address the arguments as well. I don’t take Rothbard seriously on any monetary theory, because he’s even more off-base than Keynes in that regard, but I do still refute his points, after mentioning how wrong he is.

So far you’ve done everything but this. Btw, how is Rothbard “more off-base than Keynes”, if Rothbard’s monetary theory is not much different than Mises’. In another thread you accused DD5 of making accusations based on emotions, but this seems tantamount to what you’re doing. Just because Rothbard doesn’t agree with fractional reserbe banking doesn’t mean his entire monetary theory (which is not “his”, by the way) is wrong.

If we were going to stick to appeal to authority, then note that Timberlake considers Friedman second only to Schumpeter as an economist, or at least that’s what he’s told me.

So far, you’ve been the only one to appeal to authority. I said Friedman aggregates money stock, and so he judges economic phenomena based on changes in the money stock. But his analysis fails to sufficiently deaggregate when it needs to, and so he doesn’t really explain well why these money aggregates move in the direction they do. The result is a poor analysis. Not specifically related to the topic on hand, but I make a general comparison between Friedman’s book and Rothbard’s A Monetary History here.

By the way, if Timberlake things that highly of Schumpeter it should move you to revisit how reliable you consider Timberlake. This says nothing of his analysis (which I will have to read when I get back later tonight), but Schumpeter is on the whole an inferior economist to Hayek, Mises, and even Rothbard (Schumpeter being what amounts to a Walrasian with some Weiserian influence). Schumpeter was a brilliant guy, but Schumpeter used that brilliance to deduce unrealistic theoretical assumptions. Friedman, based on accuracy of work, is a much better economist than Schumpeter, even if one could argue that Schumpeter had a more complicated and a more able mind.

By the way, how many theorists purport to have predicted the dot-com crisis, and just about every other crisis? Does that give credence to the Austrians, Minsky, et cetera?

27

One day I hope to write a paper on the Great Depression. I think you deeply misunderstand it. But that is not what this paper was about.