U.S.S.R. did better economically than the rest of the world during the great depression

Economics Economics Questions
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1

A friend of mine said that the only reason why we have recession/depressions is because of capitalism. I posted the following.

Actually, the only reason we have recessions and depressions are because of the state’s manipulation of the money supply. Due to it’s monopoly on currency, the state creates a situation where banks can inflate the money supply via fractional reserve banking. This sends false signals to entrepreneurs, leading them to believe there are more resources available for their projects than their actually are. They do not discover the disinformation until it is to late, and it results in the crippling, or even total failure of the project, wiping out jobs and resources needlessly. This problem is compounded when the federal reserve prints money and lends it to banks.

In the same way that organisms who instinctually act in favor of the propagation of their own species work in tandem with other organisms doing the same causes a balanced ecosystem to emerge via evolution, voluntary human interactions aimed at maximizing utility will cause balanced economic growth to emerge via the free market.

Links:

On the Bussiness Cycle
“http://en.wikipedia.org/wiki/Austrian_business_cycle_theory”

Fractional Reserve Banking
“http://en.wikipedia.org/wiki/Fractional-reserve_banking”

Federal Reserve System
“http://en.wikipedia.org/wiki/Federal_Reserve_System”

Emergence
“http://en.wikipedia.org/wiki/Emergence”

to which he replied with

How would you explain the multiple Panics/Depressions before the creation of the Federal Reserve, likewise, in other countries who did the same.

Link: http://en.wikipedia.org/wiki/Austrian_business_cycle_theory#Critiques

On another note, if indeed state regulation creates depressions and the like, then how could it be that the Soviet Union did not suffer during the great depression and was actually looked up to? similarly to how Canada, a far more socialist nation than that of the United States, is during our current crisis.

Link: http://en.wikipedia.org/wiki/Great_depression#Soviet_Union

Link: http://www.theepochtimes.com/n2/content/view/39826/

Link: http://www.minnpost.com/globalpost/2010/08/02/20145/canada_has_regained_almost_all_the_jobs_it_lost_since_the_2008_downturn

Link: http://www.upi.com/Top_News/International/2010/07/30/Canadas-economy-grows-slightly/UPI-11701280524828/

Furthermore, I advise you read Jeffrey Rogers Hummel’s six criticisms of Austrian economics in his article, “Problems with Austrian Business Cycle Theory”.

Link: http://www.reasonpapers.com/pdf/05/rp_5_4.pdf

Now, I know that the first point is a straw man becuase I never claimed the federal reserve was the only thing that leads to the boom/bust, and I specifically said that fractional reserve banking leads to boom/busts. So that is not a problem. What I do not understand is his point about the soviet union and current mixed economy states like Canada. Did the Soviet Union really do well during the Great Depression? Is Canda actually recovering its jobs, or did they just create a bunch of unsustainable ones via the state? Any help would be greatly appreciated.

2

Communism does not have distinct depressions as because it is in permanent depression.

Canada is not far more anything than the U.S. There is no more similar place to the U.S. than Canada. Gov spending as % of GDP is only 5 higher. Everything about the financial system in Canada is essentially identical and the recession here was officially much bigger than it was there. Unemployment is still rising where I live (near Toronto). Probably the only thing “growing” in Canada is Alberta’s energy sector, where people make $20/h waiting tables for petroleum engineers.

3

Canada is about to have its housing bust (China too, but that is beside the point).

As for the XIX century boom and bust point him to the banking regulation approved by Lincoln just before the end of the civil war, that centralized credit in the banks of New York.

His claims are bogus.

4

Many Americans did immigrate to the Soviet Union during the 1930’s… They soon wished they hadn’t.

The Soviet Union underwent rapid industrialization, similar to that of China under Mao. Millions were forced to migrate to the cities and become factory workers. Agriculture continued to be collectivized and production continued to decline. The people in the cities were given priority over the rural population for food, of course, so in a symbolic gesture, the producer died feeding the parasite. Stalin got his factories, but they didn’t produce anything efficiently, or respective of the demands of the consumer. The death figures are in the tens of millions.

As for the Soviet Union being better off than the rest of world, not true in any shape. The only reason you could possibly say it was, is if you trust the government figures, almost all of which were vastly exaggerated, or fabricated.

If you are a Keynesian, I would suppose the Soviet Union did look good:

O% Unemployment.

5

“Communism does not have distinct depressions as because it is in permanent depression.”

Great line.

6

Hummel is a libertarian - he even has a Mises Daily on this site - so how can statists reference his work to buttress statist causes?

Secondly, Canada now ranks higher than the US in the index of economic freedom, and it spends less on the military and has a smaller population than the US - two factors which help it out which aren’t adequately represented in the index rankings - meaning Canada is ahead of the US, all things considered. (and of course, Canada has lots of oil and gas)

In terms of Canada not really having a financial slump like other countries, their lax regulation and lack of social engineering was a credit to them: http://online.wsj.com/article/NA_WSJ_PUB:SB124165325829393691.html

7

" then how could it be that the Soviet Union did not suffer during the great depression and was actually looked up to? "

Look up the Holodomor, a period between 1932-1933 where in the Soviet Union (Ukraine) a total amount of 3million to 10million people died of hunger. Just because the numbers that were government-produced were rising doesn’t mean that the people inside the Soviet Union were doing fine or that they had a well-functioning economy.

Yes, the great depression was horrible for the U.S. (not a result of too much “capitalism” btw, quite on the contrary), but it’s nothing compared to what the populations of the Soviet Union and also of China had to go through. The government may not call it a depression or even a problem, but I think that’s beside the point.

8

As far as the great depression and Canda, I haven’t read anything, but I have heard a couple of references in speeches that said things like Canada didn’t have central banking during the depression, and they didn’t do anything as radical as the New Deal, and thats is why they were far more stable.

9

i believe it was paul samuleson (sp) - still popular college text book- who said with great certainty that the USSR was in great shape in 1987. their numbers were better than the west’s and it would soon over take us in everything. - he belived the governemnt numbers because he neded to validate his love for socialism.

10

Someone needs to publish an article saying that no one has any idea what was really going on in Russia. Sure we can look at individual cities/industries and see good (but mostly bad) things. We don’t have real GDP or any other general figures…

11

If you compare the following systems:

A. Let free markets do their magic, than screw up

B. Don’t let free markets do their magic

Than yeah, system A has the potential of bigger downfalls, because there is more to take away by screwing up.

12

That WSJ article is wrong about Canada not having a Freddie Mac. It has Canada Mortgage and Housing Corporation.

The Bank of Canada was created in 1934, which means that Canada didn’t even have anything to create a depression to begin with. Mackenzie King:

“Once a nation parts with the control of its currency and credit, it matters not who makes that nation’s laws. Usury, once in control, will wreck any nation. Until the control of the issue of currency and credit is restored to government and recognized as its most conspicuous and sacred responsibility, all talk of the sovereignty of Parliament and of democracy is idle and futile.

“The Liberal Party believes that credit is a public matter, not of interest to bankers only, but of direct concern to every citizen. The Liberal Party declares itself in favour of the immediate establishment of a duly constituted national bank for the control of the issue of money in terms of public needs. The flow of money must be in relation with the domestic, social, and industrial needs of the Canadian people.”

Though the BoC was actually crought in by a Conservative, along with the Communist Broadcasting Corporation. Conservativism at its finest.