America's Great Depression

The common story about the Great Depression posits that President Hoover chose to remain inactive in the face of the downturn, due to a misplaced faith in the ability of free markets to bring about recovery, and adherence to the gold standard. Only when he was replaced by Franklin Delano Roosevelt, who moved to an activist governmental role and sus

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As more and more producers are bidding for fewer capital goods and resources than they expect there to be, the natural outcome is a rise in the price of the capital goods during the production process. This is the point at which the manipulation is exposed, leading to the simultaneous collapse of several capital investments which suddenly become un

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The inflation of the 1920s had caused large asset bubbles to form in the housing and stock markets, causing an artificial rise in wages and prices. After the bubble burst, market prices sought readjustment via a drop in the value of the dollar compared to gold, and a drop in real wages and prices. The pigheadedness of deluded central planners who w

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You will certainly agree that such was the condition from 1929 to 1939. It was generally recognized and the government even went so far as to partially make up the spread between prices and income by direct relief—giving money away—and wages for made work—giving money away with a moralistic sugar coating. This would have been sensible had the gover

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Only briefly, Friedman and Schwartz mention that the price level had not risen too quickly during the 1920s, and thus conclude that the period was not inflationary and so the causes of the depression could not have been inflationary. But the 1920s witnessed very fast economic growth, which would lead to a drop in prices. There was also heavy moneta

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A precursory understanding of economics will make it clear that price controls are always counterproductive, resulting in surpluses and shortages. The problems faced by the American economy in the 1930s were inextricably linked to the fixing of wages and prices. Wages were set too high, resulting in a very high unemployment rate, reaching 25% at ce

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Recessions, for Keynes, are caused by abrupt reductions in the aggregate level of spending. Keynes was not very good with grasping the concept of causality and logical explanations, so he never quite bothered to explain why it is that spending levels might suddenly drop, instead just coining another of his famous clumsy and utterly meaningless figu

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