Post by RS Davis on Nov 1, 2003 19:28:17 GMT -5
[glow=red,2,300]H.A. Scott Trask[/glow]
We can now answer the question of why the Great Depression lasted so much longer (nearly ten years) and was so much more severe than previous depressions. Of the five nineteenth century business contractions, none lasted more than four years, and not one was marked by the sustained high levels of unemployment and sharp drops in industrial production experienced during the 1930s. If the monetarists are right that stagnation in the growth of money caused the Depression to last and grow progressively worse, then why did the far more immediate and significant shrinkages in the money supply occurring after nineteenth century panics not do the same?
During those periods, there were sharp reductions in bank deposits, bank notes, wages, and prices. Bankrupt and marginal firms, farms, corporations, and banks failed in large numbers. Banks called in loans and all but ceased new lending. However, within a short period, business and production revived, and, although times would remain "hard" for a number of years, people had little trouble finding productive work, or surviving businesses and farms borrowing money at rates of interest that reflected the supply of loanable funds and capital goods. What happened was that capital and labor was redirected from overdone or unprofitable areas to more productive and profitable ones.
This did not happen after the stock market crash of October 1929 because Hoover's proto-Keynesian fiscal policies and inflationary monetary policies drove down interest rates, kept up wage levels, prevented deflation, and delayed the liquidations and adjustments needed to lay the groundwork for a sound recovery. That such would be the result of Hoover's policies was recognized at the time by a number of writers and economists quoted by Rothbard. For example, in August 1930, Dr. Benjamin Anderson of Chase National Bank warned that the "depression has been prolonged and not alleviated by delay in making necessary readjustments." In 1933, Dr. Seymour Harris agreed that Hoover's policies had "retarded the process of liquidation … and … accentuated the depression."
It is too early to see the full consequences of the Bush-Greenspan reflation, but if the past is any guide we can expect the next decade to more resemble the 1970s than the 1990s.
We can now answer the question of why the Great Depression lasted so much longer (nearly ten years) and was so much more severe than previous depressions. Of the five nineteenth century business contractions, none lasted more than four years, and not one was marked by the sustained high levels of unemployment and sharp drops in industrial production experienced during the 1930s. If the monetarists are right that stagnation in the growth of money caused the Depression to last and grow progressively worse, then why did the far more immediate and significant shrinkages in the money supply occurring after nineteenth century panics not do the same?
During those periods, there were sharp reductions in bank deposits, bank notes, wages, and prices. Bankrupt and marginal firms, farms, corporations, and banks failed in large numbers. Banks called in loans and all but ceased new lending. However, within a short period, business and production revived, and, although times would remain "hard" for a number of years, people had little trouble finding productive work, or surviving businesses and farms borrowing money at rates of interest that reflected the supply of loanable funds and capital goods. What happened was that capital and labor was redirected from overdone or unprofitable areas to more productive and profitable ones.
This did not happen after the stock market crash of October 1929 because Hoover's proto-Keynesian fiscal policies and inflationary monetary policies drove down interest rates, kept up wage levels, prevented deflation, and delayed the liquidations and adjustments needed to lay the groundwork for a sound recovery. That such would be the result of Hoover's policies was recognized at the time by a number of writers and economists quoted by Rothbard. For example, in August 1930, Dr. Benjamin Anderson of Chase National Bank warned that the "depression has been prolonged and not alleviated by delay in making necessary readjustments." In 1933, Dr. Seymour Harris agreed that Hoover's policies had "retarded the process of liquidation … and … accentuated the depression."
It is too early to see the full consequences of the Bush-Greenspan reflation, but if the past is any guide we can expect the next decade to more resemble the 1970s than the 1990s.
A must read!
- Rick