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America's Great Depression 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 hile the problem of 1929 has long been of interest to myself as well as most Americans, my attention was Wfirst 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 under- taking. 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
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