Revisionist History: Violation of Economic Laws, Why You've Never Heard of the Great Depression of 1920
Economics / Economic Theory May 23, 2010 - 04:16 AM GMTBy: Submissions
Lets take a look at what happens when economic laws are violated. Revisionist history is a useful, potent tool. The cats out of the bag and everyone knows Obama is a closet socialist, but lets take a look at a American favorite, Franklin D. Roosevelt.
Despite all his spending programs, public works, quick fix legislations, radio talks, etc., it solved nothing. Years after his programs were in full swing even his Treasury Secretary, Henry Morgenthau admitted, "We have tried spending money. We are spending more than we have ever spent before and it does not work ... After eight years of this Administration we have just as much unemployment as when we started ... And an enormous debt to boot!". To wit - at least back then a high government official payed lip service to the truth.
The problem is government not us. Small government would be a delight, but only if it can stay that way. That could possibly be a oxymoron. Now if you take a look at Herbert Hoover, that supposed "did nothing to help the economy" president, you will find the opposite. Hoover actually was a active president, and intervened more than those history books in school tell us. In fact, FDR expanded many programs from the Hoover Administration and created some disastrous ones of his own. Hoover started the government coercion, and FDR expanded it. Price fixing, credit expansion, central banking, fractional reserve banking, monopolizing in legal tender, socialism, re distributive wealth, any taxation, public works, subsidies, etc.; it's all the different products of the government, and all are unproductive and work against us. The government needs us, not the other way around.
The Great Depression became "Great" because of those spending programs. In comparison we can take a look at the fortunately, not-so-great Depression of 1920-21. The first year of this depression was worse unemployment wise and yet despite no quick fix spending programs, we were out of it in about a years time. In fact, the government drastically cut spending and lowered taxes. This 1920-21 depression alone can be used to show the paradox of government intervention.
The Hoover/FDR programs kicked the can down the road, and prevented businesses from adjusting to new reality or to put it another way, cleaning the system of mal-investments. Every boom must have a bust. We must embrace the bust, the problem is the boom. The 1920s boom started with credit expansion initiated from the Federal Reserve system (established 1914). The business cycle explanation can be summed up by Gary North:
"The Austrian theory of the business cycle, developed by Ludwig von Mises in 1912, teaches that when central banks inflate, in order to hold down interest rates, this creates false price signals. Specifically, it creates false signals regarding the price and availability of capital. This in turn leads entrepreneurs to borrow money and invest in new projects. When the central bank ceases to inflate, these projects are revealed as unprofitable ventures."
The bust was inevitable, but prolonged due to unnecessary government intervention. How can we all of a sudden in the 1920s have a boom, the likes never before seen in the history of the world? Businesses are popping up like never before. Then in the 1930s businesses are going bankrupt like never before. It's a simple answer: central banking, and a coercively powerful one at that.
Now, the Bush/Greenspan and Obama/Bernanke programs are huge compared to FDR's New Deal. One can only speculate as to how long it will take us to get out of this mess. Unfortunately the worst is not over.
By Viresh Amin
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