On "The Great Depression"

[JeffB]

Hello,

I’m a newbie with respect to the Austrian School economics and brand new to these forums. My apologies in advance if this is a topic that has come up and been answered numerous times, but I didn’t see quite what I was looking for via the search feature, so I thought I’d give you guys a try.

I’ve been participating on a site that discusses economics but is geared towards investors called Seeking Alpha. There are some Austrian School proponents there. Peter Schiff used to contribute there, but is now apparently preoccupied with his senatorial campaign. There are also a number of Keynesians and a number of people who seem to have a fairly extensive background in economics, or at least are able to throw a lot of names and theories around, and who are rather dismissive of Austrian School thought.

In any event, I’m no historian and don’t feel comfortable jumping in too heavily on the role FDR’s New Deal played in our eventual extrication from the Great Depression nor in some of the other debates particularly with respect to some of that history.

Some years ago I read G. Edward Griffen’s book, The Creature From Jekyll Island: A Second Look at the Federal Reserve, courtesy of our local library. I also had the opportunity to look at a few video clips of the author discussing the subject on YouTube.

I think those gave me some insight into things, but not enough to cross swords with folks who were making claims about what had happened back then which didn’t quite seem to comport with other things I vaguely remember having read or heard about during that era.

Are there any good papers on here or elsewhere that are reasonably succinct that discuss the issue? Is it something that reasonable people could look at the evidence and come to a definite conclusion, or would it be a very subjective thing where everyone has their own interpretation of a complex situation? I’d prefer not to have to read a bunch of books at the moment, but might be inclined to do a little more reading at some indefinite time in the future.

A somewhat separate, though related issue: I’ve read conflicting statements about the nature of boom and bust cycles in the era before the Federal Reserve. Some claim that things were pretty uneventful on the economic front unless until there were wars, or some big governmental intervention such as a major tax hike back in that era. Others claim their were various panics and a boom and bust cycle much as we have today, perhaps even worse. Any good info/links in that regard?

Thanks for reading all this, for those who made it this far, and thanks for any help anyone might be able to provide.

[chloe732]

Welcome.

What Has Government Done to Our Money by Rothbard: http://mises.org/books/whathasgovernmentdone.pdf

The Mystery of Banking by Rothbard http://mises.org/mysteryofbanking/mysteryofbanking.pdf

[Felix]

I am reading the first one. Seems very interesting…

[Nielsio]

http://www.vforvoluntary.com/wiki/WhatIsMoney

( Based on the works of Hans-Hermann Hoppe and Ludwig von Mises )

[JeffB]

Thanks for the links. I’ll check them out, but it might take me a little while to read them all.

BTW, if anyone is interested in chiming in at Seeking Alpha, one relevant topic might be:

Why Fear Keynes?

Sometimes there are quite a few replies, but the topics usually die fairly quickly. They don’t usually remain active more than a day or two as new topics are coming in continuously.

Some of those new topics are listed in The Macro View. For anyone interested, they offer members a blog there where one can post on pretty much any topic. You can ask to have them publish them on the main pages as well, which is how the other topics get on there. You can, of course, have links back to papers, books or threads on here. Their published topics usually have to do with current events and thoughts thereon.

[Wilmot_of_Rochester]

@JeffB

Hello,

I’m a newbie with respect to the Austrian School economics and brand new to these forums. My apologies in advance if this is a topic that has come up and been answered numerous times, but I didn’t see quite what I was looking for via the search feature, so I thought I’d give you guys a try.

I’ve been participating on a site that discusses economics but is geared towards investors called Seeking Alpha. There are some Austrian School proponents there. Peter Schiff used to contribute there, but is now apparently preoccupied with his senatorial campaign. There are also a number of Keynesians and a number of people who seem to have a fairly extensive background in economics, or at least are able to throw a lot of names and theories around, and who are rather dismissive of Austrian School thought.

In any event, I’m no historian and don’t feel comfortable jumping in too heavily on the role FDR’s New Deal played in our eventual extrication from the Great Depression nor in some of the other debates particularly with respect to some of that history.

Some years ago I read G. Edward Griffen’s book, The Creature From Jekyll Island: A Second Look at the Federal Reserve, courtesy of our local library. I also had the opportunity to look at a few video clips of the author discussing the subject on YouTube.

I think those gave me some insight into things, but not enough to cross swords with folks who were making claims about what had happened back then which didn’t quite seem to comport with other things I vaguely remember having read or heard about during that era.

Are there any good papers on here or elsewhere that are reasonably succinct that discuss the issue? Is it something that reasonable people could look at the evidence and come to a definite conclusion, or would it be a very subjective thing where everyone has their own interpretation of a complex situation? I’d prefer not to have to read a bunch of books at the moment, but might be inclined to do a little more reading at some indefinite time in the future.

A somewhat separate, though related issue: I’ve read conflicting statements about the nature of boom and bust cycles in the era before the Federal Reserve. Some claim that things were pretty uneventful on the economic front unless until there were wars, or some big governmental intervention such as a major tax hike back in that era. Others claim their were various panics and a boom and bust cycle much as we have today, perhaps even worse. Any good info/links in that regard?

Thanks for reading all this, for those who made it this far, and thanks for any help anyone might be able to provide.

The Great Depression is complicated, so no summary really does much justice. This said, however, allow me to summarize.

Big monetary expansion in the decade before the thirties creates a bubble. In the thirties, the bubble pops and money supply shrinks due to Fed inaction and later reaction to make the money supply shrink faster harder. Prices don’t recover due to price stickiness - mostly as a result of government price floors. The biggest problem, unemployment, was probably mostly due to policy and institutional glitches that discouraged lowering wages and thus those that had jobs did rather well while those who were out of work did not.

[JeffB]

@Nielsio

http://www.vforvoluntary.com/wiki/WhatIsMoney

( Based on the works of Hans-Hermann Hoppe and Ludwig von Mises )

I read the paper you linked to and it seems like a very nice primer on “money” & banking and I’m assuming that it also gives a synopsis of much of the core Austrian beliefs on those issues. I’ll bookmark it as a good resource, but it wasn’t quite what I had in mind in re: discussing the Great Depression with those who think that Keynes came to the rescue and that it proved Laissez Faire economics was not a viable paradigm.

I did follow the link from the article to The Voluntarist Wiki on which it was hosted and saw a link to a page on “The Great Depression”. It linked to a couple of videos and the first one I saw, was quite excellent:

Great Myths of the Great Depression, by Lawrence W. Reed

I’ll bet the other one is also excellent as well, as it appears to be an official presention of the Ludwig von Mises Institute. It’s just over an hour long, however, and I don’t have time to view it at the moment, but I most certainly will.

The Truth About The Great Depression, by Thomas DiLorenzo

Thanks again for the link.

[JeffB]

Oops. Posting error.

Sorry about that.

[JeffB]

@Wilmot of Rochester

The Great Depression is complicated, so no summary really does much justice.

Aye, there’s the rub. Or so it would seem to me. I was hoping that perhaps there might be a pretty straightforward answer backed by relatively uncontested facts that most reasonable people would come to agree with after a little dialogue. I suppose I should have known better or there wouldn’t be quite so much disagreement.

@Wilmot of Rochester

This said, however, allow me to summarize.

Big monetary expansion in the decade before the thirties creates a bubble. In the thirties, the bubble pops and money supply shrinks due to Fed inaction and later reaction to make the money supply shrink faster harder. Prices don’t recover due to price stickiness - mostly as a result of government price floors. The biggest problem, unemployment, was probably mostly due to policy and institutional glitches that discouraged lowering wages and thus those that had jobs did rather well while those who were out of work did not.

That sounds like pretty much what I had expected, and what author Lawrence W. Reed mentioned in the short video linked to in the post above. Come to think of it, that doesn’t sound all that different than our current “Great Recession”.

[Wilmot_of_Rochester]

@JeffB

That sounds like pretty much what I had expected, and what author Lawrence W. Reed mentioned in the short video linked to in the post above. Come to think of it, that doesn’t sound all that different than our current “Great Recession”.

lol

Are you suggesting that the disaster of the great depression is probably overblown and that though people got a lot poorer they still lived relatively better than they did 20 years ago?

Be careful, you’re walking on the side of historical revisionism.

[Nielsio]

@Wilmot of Rochester

@JeffB

That sounds like pretty much what I had expected, and what author Lawrence W. Reed mentioned in the short video linked to in the post above. Come to think of it, that doesn’t sound all that different than our current “Great Recession”.

lol

Are you suggesting that the disaster of the great depression is probably overblown and that though people got a lot poorer they still lived relatively better than they did 20 years ago?

Be careful, you’re walking on the side of historical revisionism.

It seems like he’s suggesting that government policy of these days are the same, and also have terrible effects; and he would be correct.

[JeffB]

@Nielsio

@Wilmot of Rochester

@JeffB

@Wilmot of Rochester

…The Great Depression is complicated, so no summary really does much justice. This said, however, allow me to summarize.

Big monetary expansion in the decade before the thirties creates a bubble. In the thirties, the bubble pops and money supply shrinks due to Fed inaction and later reaction to make the money supply shrink faster harder. Prices don’t recover due to price stickiness - mostly as a result of government price floors. The biggest problem, unemployment, was probably mostly due to policy and institutional glitches that discouraged lowering wages and thus those that had jobs did rather well while those who were out of work did not.

That sounds like pretty much what I had expected, and what author Lawrence W. Reed mentioned in the short video linked to in the post above. Come to think of it, that doesn’t sound all that different than our current “Great Recession”.

lol

Are you suggesting that the disaster of the great depression is probably overblown and that though people got a lot poorer they still lived relatively better than they did 20 years ago?

Be careful, you’re walking on the side of historical revisionism.

It seems like he’s suggesting that government policy of these days are the same, and also have terrible effects; and he would be correct.

Yes, that’s basically what I was trying to say. I wasn’t trying to downplay the pain of those hurt by the Great Depression, but rather noting that I did see some parallels between then and now. The biggie for me is that the government and their collaborators, the Fed, played a major role in bringing the collapse about, and then exacerbating it in their reaction to it once it occurred.

Another parallel, it seemed to me, was his observation: “and thus those that had jobs did rather well while those who were out of work did not.” Just yesterday my brother-in-law noted that although business was down for his company and they had done some major downsizing because of it, things for him personally were not all that bad. He still had his job and was still making good money. In some ways things might even be better for him in that prices for some things were depressed because of the big downturn in the economy and companies were cutting prices to get business.

I’ve heard it said that all analogies break down at some point, and although I can’t verify that as true in every instance, I think it is in this one. The Fed had caused or allowed the money supply to grow a lot in the years leading up to “The Great Depression” and our own “Great Recession”, or whatever one may want to call it, but the reactions by the Fed have been quite different as Bernanke, a student of the Great Depression, is consciously trying to do the opposite of what the Fed did in the earlier crisis:

@Wilmot of Rochester

.“Big monetary expansion in the decade before the thirties creates a bubble. In the thirties, the bubble pops and money supply shrinks due to Fed inaction and later reaction to make the money supply shrink faster harder.”

In our current situation I don’t think the Fed can be accurately accused of “inaction” in the face of a shrinking money supply. In fact they’ve been very active in trying to counteract the shrinkage due to the deleveraging that naturally follows a massive run-up in debt, itself a natural concomitant of a massive ongoing increase in the money supply.

I personally think that is a problem in itself and likely to make things worth in a later reckoning which may be put off for a time, but at a price of a more severe adjustment when it inevitably is forced upon us. But that’s speculation on my part, of course. I imagine we’ll find out in due time.

[NewLiberty]

“I’ve read conflicting statements about the nature of boom and bust cycles in the era before the Federal Reserve. Some claim that things were pretty uneventful on the economic front unless until there were wars, or some big governmental intervention such as a major tax hike back in that era. Others claim their were various panics and a boom and bust cycle much as we have today, perhaps even worse. Any good info/links in that regard?”

Read select parts of this: History of Money and Banking by Rothbard: http://mises.org/books/historyofmoney.pdf

Things to remember:

1. At no time was money and banking a free market.

2. Historians get confused by things in the 19th century because there were prosperous periods when the price level fell because of increasing productivity, but nowadays, deflation is considered a bad thing, because it’s often linked with recessions. But the historians aren’t smart enough to figure out that there can be beneficial deflation with increasing productivity. The 1873-1879 time period comes to mind, if I remember correctly. Thomas Woods has a lecture where he talks about how historians get this time period wrong.

3. 1865-1913 was generally the best period from what I’ve read. Governments at different levels were still doing dumb things (which allowed fractional reserve banking to continue and perpetuate itself, which does cause some degree of instability), but the gold standard was in place, and growth was awesome. And the price level was steady.

Here is Thomas Woods on “why you’ve never heard of the great depression of 1920”

http://www.youtube.com/watch?v=czcUmnsprQI

Roger Garrison AWESOME (power point) presentation on Austrian Trade Cycle Theory (step by step):

http://www.youtube.com/watch?v=zhoFOyy7rbo

[Catalan]

I’m surprised America’s Great Depression hasn’t been linked. Best source on the first four years of the Great Depression, and what caused it; for one thing, it disproves Friedman’s thesis that the Federal Reserve sat inactive after the crash. Although not dealing with the 1929 crash (1937 recession, instead), I outline Rothbard’s argument here: The Dangerous “Lessons” of 1937.

The Federal Reserve responded to the bank’s loss of liquidity after the original crash of October 1929 by shoring up bank reserves by adding roughly $300 million to the money supply by November of that same year. Between October and December controlled reserves had risen by $359 million, while uncontrolled reserves had fallen by $381 million. As a result, there was an estimated $21 million decrease in bank reserves for the first three months of the Great Depression.[8] 1930 saw the beginnings of an even greater inflationary process, with the New York Federal Reserve reducing the rediscount rate from 4½% in February 1930 to 2% by the end of that same year. However, again, despite the Federal Reserve’s inflationary measures, the money supply fell by roughly 250 million dollars.[9] Although the Central Bank continued in its effort to pump money into the system it failed in its efforts to create more money than was being lost through the decline in uncontrolled reserves, meaning that throughout 1931 and 1932 there was still a decline in the money supply. The claim that the Federal Reserve did nothing to counteract the deflating effects of the bust bases its factual evidence on the general decrease in the volume of the money supply. Monetarists need to take a closer look at the history of the United States’ money supply during this era, and need to account for why the decrease in the money supply was so gradual.

[JeffB]

@NewLiberty

Thanks for the info and links.

It looks like my reading/viewing list is getting longer.

So much for looking for a quick fix/short synopsis.

But honestly, I do appreciate it. This looks like good stuff and something that will be good info for me going forward.

[JeffB]

@Jonathan M. F. Catalán

I’m surprised America’s Great Depression hasn’t been linked. Best source on the first four years of the Great Depression, and what caused it; for one thing, it disproves Friedman’s thesis that the Federal Reserve sat inactive after the crash. Although not dealing with the 1929 crash (1937 recession, instead), I outline Rothbard’s argument here: The Dangerous “Lessons” of 1937.

The Federal Reserve responded to the bank’s loss of liquidity after the original crash of October 1929 by shoring up bank reserves by adding roughly $300 million to the money supply by November of that same year. Between October and December controlled reserves had risen by $359 million, while uncontrolled reserves had fallen by $381 million. As a result, there was an estimated $21 million decrease in bank reserves for the first three months of the Great Depression. 1930 saw the beginnings of an even greater inflationary process, with the New York Federal Reserve reducing the rediscount rate from 4½% in February 1930 to 2% by the end of that same year. However, again, despite the Federal Reserve’s inflationary measures, the money supply fell by roughly 250 million dollars.[9] Although the Central Bank continued in its effort to pump money into the system it failed in its efforts to create more money than was being lost through the decline in uncontrolled reserves, meaning that throughout 1931 and 1932 there was still a decline in the money supply. The claim that the Federal Reserve did nothing to counteract the deflating effects of the bust bases its factual evidence on the general decrease in the volume of the money supply. Monetarists need to take a closer look at the history of the United States’ money supply during this era, and need to account for why the decrease in the money supply was so gradual.

Thanks. Those look like more great resources. I’ve started reading your “Dangerous Lessons” paper and it looks very good so far. It looks like I have a lot to learn, though. Fortunately, this site and the members appear to have a wealth of resources.

Thanks again for the help.

[Wilmot_of_Rochester]

@Jonathan M. F. Catalán

I’m surprised America’s Great Depression hasn’t been linked. Best source on the first four years of the Great Depression, and what caused it; for one thing, it disproves Friedman’s thesis that the Federal Reserve sat inactive after the crash. Although not dealing with the 1929 crash (1937 recession, instead), I outline Rothbard’s argument here: The Dangerous “Lessons” of 1937.

The Federal Reserve responded to the bank’s loss of liquidity after the original crash of October 1929 by shoring up bank reserves by adding roughly $300 million to the money supply by November of that same year. Between October and December controlled reserves had risen by $359 million, while uncontrolled reserves had fallen by $381 million. As a result, there was an estimated $21 million decrease in bank reserves for the first three months of the Great Depression. 1930 saw the beginnings of an even greater inflationary process, with the New York Federal Reserve reducing the rediscount rate from 4½% in February 1930 to 2% by the end of that same year. However, again, despite the Federal Reserve’s inflationary measures, the money supply fell by roughly 250 million dollars.[9] Although the Central Bank continued in its effort to pump money into the system it failed in its efforts to create more money than was being lost through the decline in uncontrolled reserves, meaning that throughout 1931 and 1932 there was still a decline in the money supply. The claim that the Federal Reserve did nothing to counteract the deflating effects of the bust bases its factual evidence on the general decrease in the volume of the money supply. Monetarists need to take a closer look at the history of the United States’ money supply during this era, and need to account for why the decrease in the money supply was so gradual.

I’m pretty sure Rothbard uses misleading statistics here.

I’d point to the interview on EconTalk with Scott Sumner.

[Wilmot_of_Rochester]

@JeffB

In our current situation I don’t think the Fed can be accurately accused of “inaction” in the face of a shrinking money supply. In fact they’ve been very active in trying to counteract the shrinkage due to the deleveraging that naturally follows a massive run-up in debt, itself a natural concomitant of a massive ongoing increase in the money supply.

I personally think that is a problem in itself and likely to make things worth in a later reckoning which may be put off for a time, but at a price of a more severe adjustment when it inevitably is forced upon us. But that’s speculation on my part, of course. I imagine we’ll find out in due time.

I just put a link to an interview with Scott Sumner on this. They haven’t really done as much as many of the people here would suggest, at least according to Sumner.

[JeffB]

@Wilmot of Rochester

@JeffB

In our current situation I don’t think the Fed can be accurately accused of “inaction” in the face of a shrinking money supply. In fact they’ve been very active in trying to counteract the shrinkage due to the deleveraging that naturally follows a massive run-up in debt, itself a natural concomitant of a massive ongoing increase in the money supply.

I personally think that is a problem in itself and likely to make things worth in a later reckoning which may be put off for a time, but at a price of a more severe adjustment when it inevitably is forced upon us. But that’s speculation on my part, of course. I imagine we’ll find out in due time.

I just put a link to an interview with Scott Sumner on this. They haven’t really done as much as many of the people here would suggest, at least according to Sumner.

I replied but figured it was off topic, so I moved it to a new thread.

[regwat]

Awesome posts. Thanks all !