What caused the Great Depression? Your most pithy answer, please

Economics Economics Questions
1

I was asked this recently, and I didn’t answer by saying “It was a negative shock”.

But the answer I provided was long and drawn out, and I am sure my questioner’s eyes glazed over.

Help please?

2

The government fought the indomitable market.

3

the roaring twenties was an easy credit boom(The Fed), caused malinvestment, could not last for ever, led to crash, and when you fight the crash, you get a depression.

4

Consumers changed their time preferences slightly causing a drop in asset prices. Hoover and Rosevelt caused the Depression trying to correct it.

5

Initially the recession was caused by excessively easy credit policy of the 1920s. The 1920s were a period of artificial prosperity and malinvestment. When interest rates rose subsequently, there was a recession. The federal government (including the Fed) took many actions that prolonged the recession and converted it into a Great Depression.

The key book to understand the monetary inflation of the 1920s is Murray Rothbard’s America’s Great Depression. However, Milton Friedman and Anna Schwartz’s A Monetary History of the United States explains all the stupid things the Fed did after 1929.

Peter Boetkke (an Austrian) believes that the explanations by Friedman and Rothbard can be read as complementary in certain respects: they simply describe different periods. See his most recent interview at the Library of Economics & Liberty.

6

I would suggest buying Rothbard’s America’s Great Depression. Although Folsom’s New Deal or Raw Deal? is a good book in regards to explaining how the New Deal prolonged the Great Depression, it’s not so great when it comes to suggesting how the Great Depression came into being (although he does blame the Fed) and how the Great Depression was ultimately resolved. Regardless, I would also suggest buying that book. I am currently working on a paper that has to do with the Great Depression, what caused it, how the New Deal prolonged it, and how Obama’s bail out will take a similar course. It will be available on my blog.

7

Thanks.

I heard the Boettke interview, and I was disappointed in it for one reason: the interview was about the ABCT but Boettke never gave an outline of the theory, as for example, Tom Woods did in the first 14:31 of this lecture.