Great Myths of the Great Depression

Many volumes have been written about the Great Depression of 1929-1941 and its impact on the lives of millions of Americans. Historians, economists and politicians have all combed the wreckage searching for the “black box” that will reveal the cause of the calamity. Sadly, all too many of them decide to abandon their search, finding it easier perhaps to circulate a host of false and harmful conclusions about the events of seven decades ago. Consequently, many people today continue to accept critiques of free-market capitalism that are unjustified and support government policies that are economically destructive.

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How bad was the Great Depression? Over the four years from 1929 to 1933, production at the nation’s factories, mines and utilities fell by more than half. People’s real disposable incomes dropped 28 percent. Stock prices collapsed to one-tenth of their pre-crash height. The number of unemployed Americans rose from 1.6 million in 1929 to 12.8 million in 1933. One of every four workers was out of a job at the Depression’s nadir, and ugly rumors of revolt simmered for the first time since the Civil War.

“The terror of the Great Crash has been the failure to explain it,” writes economist Alan Reynolds. “People were left with the feeling that massive economic contractions could occur at any moment, without warning, without cause. That fear has been exploited ever since as the major justification for virtually unlimited federal intervention in economic affairs.”[1]

Old myths never die; they just keep showing up in economics and political science textbooks. With only an occasional exception, it is there you will find what may be the 20th century’s greatest myth: Capitalism and the free-market economy were responsible for the Great Depression, and only government intervention brought about America’s economic recovery.

A Modern Fairy Tale

According to this simplistic perspective, an important pillar of capitalism, the stock market, crashed and dragged America into depression. President Herbert Hoover, an advocate of “hands-off,” or laissez-faire, economic policy, refused to use the power of government and conditions worsened as a result. It was up to Hoover’s successor, Franklin Delano Roosevelt, to ride in on the white horse of government intervention and steer the nation toward recovery. The apparent lesson to be drawn is that capitalism cannot be trusted; government needs to take an active role in the economy to save us from inevitable decline.

But those who propagate this version of history might just as well top off their remarks by saying, “And Goldilocks found her way out of the forest, Dorothy made it from Oz back to Kansas, and Little Red Riding Hood won the New York State Lottery.” The popular account of the Depression as outlined above belongs in a book of fairy tales and not in a serious discussion of economic history.

The Great, Great,Great,Great Depression

To properly understand the events of the time, it is factually appropriate to view the Great Depression as not one, but four consecutive downturns rolled into one. These four “phases” are:[2]

I. Monetary Policy and the Business Cycle

II. The Disintegration of the World Economy

III. The New Deal

IV. The Wagner Act

The first phase covers why the crash of 1929 happened in the first place; the other three show how government intervention worsened it and kept the economy in a stupor for over a decade. Let’s consider each one in turn.

continue: http://www.fee.org/articles/great-myths-of-the-great-depression/

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Permalink Reply by Freedomrox on August 7, 2012 at 6:14pm

What this article fails to address is the actual need for a Federal Reserve that loans the Govt. paper script at interest, thus controlling expansion and contraction, thus, control of this whole nation's currency.

If a man or woman worked for a dollar's pay and received a dollar's worth of anything, commodities, an IOU for commodities, precious metals on an at-par value without ever having to deal with an interest rate devaluing the base currency, whatever that may be, then there would never be crashes and bubbles, because the base value would be fixed and not manipulated. That is why gold is not a good form of currency, nor is silver, since they both can be manipulated so easily. Salt, dirt even wood has been used throughout the ages, most especially the Tally Stick in the Middle Ages in Britain, and even then, taxes were garnered by the cut of the Exchequer. This was mostly in commercial usage and would be merited, but not upon personal usage. Believe it or not, this was the genesis of the modern Stock Exchange.

http://livingthehistoryelizabethchadwick.blogspot.com/2011/04/tally...

The very best of all systems ever in usage was the "Colonial Scipt" that was created by none other than Ben Franklin, and was devoid of interest of any kind. This is explained in Franklin's own account;

The English officials asked how it was the Colonies managed to collect enough taxes to build poor houses, and how they were able to handle the great burden of caring for the poor. Franklin's reply was most revealing: "We have no poor houses in the Colonies, and if we had, we would have no one to put in them, as in the Colonies there is not a single unemployed man, no poor and no vagabonds."

Think long and hard about this. In the American colonies before the American Revolution, there was "not a single unemployed man, no poor and no vagabonds". -- no one on Welfare, no one on Social Security, no homeless, no income tax, no alphabet agencies, No IRS, BATF, FBI, DEA, CIA, HEW, OSHA, SBA, and on and on and on to provide for the "general welfare" of our villages, towns, cities and states. How did Benjamin Franklin explain this to the British officials of his day?
How would he explain it to today's lawyers, judges, politicians and other government officials?

"It is because, in the Colonies, we issue our own paper money. We call it Colonial Script, and we issue only enough to move all goods freely from the producers to the Consumers; and as we create our money, we control the purchasing power of money, and have no interest to pay."

This is an excellent essay and can be found at: http://www.kamron.com/Liberty/colonial_script.htm

There really is another way, and if the so-called National Debt were repudiated today and Colonial Script again revived, this Nation would be a fountain of wealth overnight! That is why it had to be abolished in 1764, whereby the production of Colonial Script was made illegal by the Currency Act, passed into law in England (of course due to pressure from the Bank of England) prohibiting the Colonies from issuing their own money, ordering them to use only the money that was provided (in insufficient quantities) by the English bankers. Benjamin Franklin said,

“In one year, the conditions were so reversed that the era of prosperity ended, and a depression set in, to such an extent that the streets of the Colonies were filled with unemployed”.

This then is the face of your true enemy and the true power behind the Federal Reserve. Just as recent news has outed the LIBOR scandal which wound up being six or seven coffe mates in England that determined the interest rates on loans between each other's bank, so too does this out the whole system as one born of Feudalism and so long as we allow it, shall always be the tool of our enslavement.