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Paul Krugman

2012-07-13T12:03:29Z

Daniel Hewitt: /* Krugman in Support of the 2000’s US Housing Bubble */

[[File:Paul Krugman.jpeg|thumb|right|Paul Krugman]]

'''Paul Krugman''' is an American economist and Nobel laureate. He is also an op-ed columnist and blogger for the [[New York Times]]. Krugman is well known for believing in the theories of [[John Maynard Keynes]] and continually advocates for more inflation and government intervention in the economy. Krugman's blog posts repeatedly display his opinion that [[inflation]] is a measurement of prices and not the quantity of money.<ref>[http://krugman.blogs.nytimes.com/2010/11/09/inflation-delusions-2/] "Inflation delusions"</ref><ref>[http://krugman.blogs.nytimes.com/2010/11/06/are-rising-commodity-prices-an-inflationary-signal/] "Are rising commodity prices an inflationary signal?"</ref><ref>[http://krugman.blogs.nytimes.com/2010/11/04/generating-inflation-expectations/] "Generating inflation expectations"</ref> For these and other views is Krugman frequently criticized by Austrian economists.{{Fact}} A blog created by [[William L. Anderson|William L. Anderson]] is devoted to "Analysis and criticism of America's most prominent public intellectual and champion of Keynesian economics."<ref name="Anderson_Krugman">William L. Anderson. [http://krugman-in-wonderland.blogspot.com/ "Krugman-in-Wonderland"], referenced 2010-11-16.</ref>

In October 2010, Krugman was challenged to a [[Murphy-Krugman debate|debate]] over Austrian vs. Keynesian business cycle theory by economist [[Robert Murphy]]. As of mid-November 2010 Krugman has not responded.

==Broken window fallacy==
The [[broken-window fallacy]] was seen in a column by Princeton University professor Paul Krugman after the terrorist attack on the World Trade Center:<ref name="Williams_lunacy">Walter. E. Williams. [http://www.washingtontimes.com/news/2004/nov/22/20041122-095742-3613r/ "Economic lunacy"], November 22, 2004, Washington Times. Referenced 2011-01-05.</ref> "Ghastly as it may seem to say this, the terror attack -- like the original day of infamy, which brought an end to the Great Depression -- could even do some economic good."<ref name="Krugman_Horror">Paul Krugman. [http://www.nytimes.com/2001/09/14/opinion/reckonings-after-the-horror.html "Reckonings; After The Horror"], September 14, 2001, The New York Times. Referenced 2011-01-05.</ref>

In 1998, Krugman said: "During phases of weak growth there are always those who say that lower interest rates will not help. They overlook the fact that low interest rates act through several channels. For instance, more housing is built, which expands the building sector. You must ask the opposite question: why in the world shouldn't you lower interest rates?" To the question "...because that would only promote inflation instead of growth?" he responded "There is no danger of that!"<ref name="Hanke_Zinsen">Thomas Hanke. [http://www.zeit.de/1998/51/Runter_mit_den_Zinsen_ "Runter mit den Zinsen!"] (in ''German'', "Down with the rates!"), ''Die Zeit'', 51/1998. [http://www.pkarchive.org/global/welt.html Translation by Peter Bartl]. Referenced 2011-01-05.</ref>

In June, 2011, Paul Krugman declared that a new war would solve the nation’s looming economic problems: "If we suddenly had a threat of war and a military build up, you’d be amazed how fast the economy would recover."<ref name="Krugman_ABC">Paul Krugman. [http://abcnews.go.com/ThisWeek/video/roundtable-jobs-13765518 "Roundtable: Where are the Jobs?"] (video, from ~4:56), ''ABC News'', 06/05/2011. 2011-06-09.</ref>

==Krugman on Austrian Economics==
In 1998, Krugman wrote that he regarded the "Austrian theory" of the [[Austrian Business Cycle Theory|business cycle]] "about as worthy of serious study as the phlogiston theory of fire".<ref name="Krugman_Hangover">Paul Krugman. [http://www.slate.com/id/9593 "The Hangover Theory"], ''Slate'', December 4, 1998. Referenced 2011-01-25.</ref> In 2011, he conceded that (in his understanding of) the Austrian explanation both is theoretically possible and actually happens in the real world:<ref name="Krugman_Reply">Robert P. Murphy. [http://mises.org/daily/4993 "My Reply to Krugman on Austrian Business-Cycle Theory"], ''Mises Daily'', January 24, 2011. Referenced 2011-01-25.</ref>

<blockquote>So what is the essence of this Austrian story? Basically, it says that what we call an economic boom is actually something like [[China|China's]] disastrous [[Great Leap Forward]], which led to a temporary surge in consumption but only at the expense of degradation of the country's underlying productive capacity. And the unemployment that follows is a result of that degradation: there's simply nothing useful for the unemployed workers to do.

I like this story, and there are probably other cases besides China 1958–1961 to which it applies. But what reason do we have to think that it has anything to do with the business cycles we actually see in market economies?<ref name="Krugman_Leaps">Paul Krugman. [http://krugman.blogs.nytimes.com/2011/01/19/great-leaps-backward/ "Great Leaps Backward"], ''The New York Times'', January 19, 2011. Referenced 2011-01-25.</ref></blockquote>

==Krugman in Support of the 2000’s US Housing Bubble==

===Recommending the Federal Reserve lower interest rates to create a housing bubble:===
undated:<blockquote> “During phases of weak growth there are always those who say that lower interest rates will not help. They overlook the fact that low interest rates act through several channels. For instance, more housing is built, which expands the building sector. You must ask the opposite question: why in the world shouldn’t you lower interest rates?” <ref name="Housing Bubble undated">Paul Krugman. [http://www.pkarchive.org/global/welt.html "DIE ZEIT"], ''DIE ZEIT- INTERVIEW WITH KRUGMAN - Translation by Peter Bartl'', undated. Referenced 2011-01-26.</ref></blockquote>

2001-05-02:<blockquote> I've always favored the let-bygones-be-bygones view over the crime-and-punishment view. That is, I've always believed that a speculative bubble need not lead to a recession, as long as interest rates are cut quickly enough to stimulate alternative investments. But I had to face the fact that speculative bubbles usually are followed by recessions. My excuse has been that this was because the policy makers moved too slowly -- that central banks were typically too slow to cut interest rates in the face of a burst bubble, giving the downturn time to build up a lot of momentum. That was why I, like many others, was frustrated at the smallish cut at the last Federal Open Market Committee meeting: I was pretty sure that Alan Greenspan had the tools to prevent a disastrous recession, but worried that he might be getting behind the curve.
However, let's give credit where credit is due: Mr. Greenspan has cut rates since then. And while some of us may have been urging him to move even faster, the Fed's four interest-rate cuts since the slowdown became apparent represent an unusually aggressive response by historical standards. It's still not clear that Mr. Greenspan has caught up with the curve -- let's have at least one more rate cut, please -- but the interest-rate cuts do, cross your fingers, seem to be having an effect.
If we succeed in avoiding recession, this will mark a big win for let-bygones-be-bygones, and a big loss for crime-and-punishment. And that will be very good news not just for this business cycle, but for business cycles to come. <ref name="Housing Bubble 2001-05-02">Paul Krugman. [http://www.nytimes.com/2001/05/02/opinion/reckonings-dodging-the-bullet.html "Reckonings; Dodging the Bullet"], ''The New York Times'', May 2, 2001. Referenced 2011-01-26.</ref></blockquote>

2001-07-18:<blockquote> KRUGMAN: "I think frankly it’s got to be — business investment is not going to be the driving force in this recovery. It has to come from things like housing, things that have not been (UNINTELLIGIBLE)."

DOBBS: "We see, Paul, housing at near record levels, we see automobile purchases near record levels. The consumer is still very much in this economy. Can he or she — or I should say he and she, can they bring back this economy?"

KRUGMAN: "Well, as far as the arithmetic goes, yes, it is possible. Will the Fed cut interest rates enough? Will long-term rates fall enough to get the consumer, get the housing sector there in time? We don’t know" <ref name="Housing Bubble 2001-07-18">Paul Krugman. [http://www.pkarchive.org/economy/ML071801.html "LOU DOBBS MONEYLINE"], ''LOU DOBBS MONEYLINE, July 18, 2001: Interview with Paul Krugman'', July 18, 2001. Referenced 2011-01-26.</ref></blockquote>

2001-08-14:<blockquote> Still, as former Treasury Secretary Larry Summers says, you don't have to refill a flat tire through the puncture. To reflate the economy, the Fed doesn't have to restore business investment; any kind of increase in demand will do. How might demand increase? Consumers, who already have low savings and high debt, probably can't contribute much. But housing, which is highly sensitive to interest rates, could help lead a recovery… But there has been a peculiar disconnect between Fed policy and the financial variables that affect housing and trade. Housing demand depends on long-term rather than short-term interest rates -- and though the Fed has cut short rates from 6.5 to 3.75 percent since the beginning of the year, the 10-year rate is slightly higher than it was on Jan. 1... Sooner or later, of course, investors will realize that 2001 isn't 1998. When they do, mortgage rates and the dollar will come way down, and the conditions for a recovery led by housing and exports will be in place. <ref name="Housing Bubble 2001-08-14">Paul Krugman. [http://www.nytimes.com/2001/08/14/opinion/reckonings-delusions-of-prosperity.html “Reckonings; Delusions of Prosperity''] ''The New York Times'', August 14, 2001. Referenced 2011-01-26.</ref></blockquote>

2001-08-22:<blockquote> KRUGMAN: "I’m a little depressed. You know, inventories, probably that’s over, the inventory slump. But you look at the things that could drive a recovery, business investment, nothing happening. Housing, long-term rates haven’t fallen enough to produce a boom there. The trade balance is going to get worst before it gets better because the dollar is still very strong. It’s not a happy picture." <ref name="Housing Bubble 2001-08-22">Paul Krugman. [http://www.pkarchive.org/economy/ML082201.html “LOU DOBBS MONEYLINE"], ''LOU DOBBS MONEYLINE, August 22, 2001: Interview with Paul Krugman'', August 22, 2001. Referenced 2011-01-26.</ref></blockquote>

2001-10-07:<blockquote> Post-terror nerves aside, what mainly ails the U.S. economy is too much of a good thing. During the bubble years businesses overspent on capital equipment; the resulting overhang of excess capacity is a drag on investment, and hence a drag on the economy as a whole.
In time this overhang will be worked off. Meanwhile, economic policy should encourage other spending to offset the temporary slump in business investment. Low interest rates, which promote spending on housing and other durable goods, are the main answer. <ref name="Housing Bubble 2001-10-07">Paul Krugman. [http://www.nytimes.com/2001/10/07/opinion/reckonings-fuzzy-math-returns.html “Reckonings; Fuzzy Math Returns"], ''The New York Times'', October 7, 2001. Referenced 2011-01-26.</ref></blockquote>

2001-12-28:<blockquote> The good news about the U.S. economy is that it fell into recession, but it didn't fall off a cliff. Most of the credit probably goes to the dogged optimism of American consumers, but the Fed's dramatic interest rate cuts helped keep housing strong even as business investment plunged. <ref name="Housing Bubble 2001-12-28">Paul Krugman. [http://www.nytimes.com/2001/12/28/opinion/could-ve-been-worse.html “Could've Been Worse"], ''The New York Times'', December 28, 2001. Referenced 2011-01-26.</ref></blockquote>

2002-08-02:<blockquote> The basic point is that the recession of 2001 wasn't a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble. <ref name="Housing Bubble 2002-08-02">Paul Krugman. [http://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip.html “Dubya's Double Dip?"], ''The New York Times'', August 2, 2002. Referenced 2011-01-26.</ref></blockquote>

===Opposing the Federal Reserve raising interest rates:===
2008-03-03:<blockquote>One argument I’ve been hearing a lot lately runs as follows: “Low interest rates got us into this mess, so it’s crazy to think that low interest rates are the solution.”
Now, I don’t actually buy the first premise: I blame Greenspan for ignoring warnings about subprime and housing, but I still think keeping the Fed funds rate at 1% for a long time was justified by the economy’s weakness, which lasted until late 2003 or even beyond. But it’s true that we had an orgy of over-borrowing in the housing market. So the question remains: does an effort to encourage even more borrowing make sense?
Yes. <ref name="Housing Bubble 2008-03-03">Paul Krugman. [http://krugman.blogs.nytimes.com/2008/03/03/hair-of-the-dog "Hair of the dog"], ''Conscience of a Liberal: New York Times Blog'', March 3, 2008. Referenced 2011-01-26.</ref></blockquote>

2004-08-10:<blockquote>Oh, and on a nonpolitical note: even before Friday's grim report on jobs, I was puzzled by Mr. Greenspan's eagerness to start raising interest rates. Now I don't understand his policy at all.<ref name="Housing Bubble 2004-08-10">Paul Krugman. [http://www.nytimes.com/2004/08/10/opinion/spin-the-payrolls.html "Spin The Payrolls"], ''The New York Times'', August 10, 2004. Referenced 2011-01-26.</ref></blockquote>

===Crediting the housing bubble for the mid-2000’s economic recovery:===
2008-02-19:<blockquote>In fact, I’d say that the sources of the economy’s expansion from 2003 to 2007 were, in order, the housing bubble, the war, and — very much in third place — tax cuts. <ref name="Housing Bubble 2008-02-19">Paul Krugman. [http://krugman.blogs.nytimes.com/2008/02/19/bush-is-right-about-something "Bush is right about something"], ''Conscience of a Liberal: New York Times Blog'', February 19, 2008. Referenced 2011-01-26.</ref></blockquote>

2008-01-24:<blockquote>What finally created a convincing recovery was the housing boom. But that turned into a bubble, which has burst big time. <ref name="Why worry">Paul Krugman. [http://krugman.blogs.nytimes.com/2008/01/24/why-worry-about-a-poor-stimulus-plan/ "Why Worry About a Poor Stimulus Plan"], ''Conscience of a Liberal: New York Times Blog'', January 24, 2008. Referenced 2011-08-11.</ref></blockquote>

2006-10-30:<blockquote>'''Neeraj Mehra, Amritsar, India''': Mr. Greenspan has done a disservice to the nation by creating the housing boom. As a layman-observer, that’s the lingering thought I’ve had. Your article reaffirms it.
The question I have is this: Did he do the right thing — acting morally by engineering a housing boom, more as a bridge loan, until something else showed up at the horizon to shore up the economy — because he didn’t have a choice, or did he undertake a path of mere political expediency? And, that’s a question that’s nagging me for a while.
Would appreciate it if you could shed some light.

'''Paul Krugman''': As Paul McCulley of PIMCO remarked when the tech boom crashed, Greenspan needed to create a housing bubble to replace the technology bubble. So within limits he may have done the right thing. But by late 2004 he should have seen the danger signs and warned against what was happening; such a warning could have taken the place of rising interest rates. He didn’t, and he left a terrible mess for Ben Bernanke.<ref name="Credit where credit is due">Paul Krugman. [http://krugman.blogs.nytimes.com/2006/10/30/credit-where-credit-is-due/ "Credit Where Credit is Due"], ''Conscience of a Liberal: New York Times Blog'', October 30, 2006. Referenced 2011-08-11.</ref></blockquote>

2005-05-27:<blockquote>As Mr. McCulley predicted, interest rate cuts led to soaring home prices, which led in turn not just to a construction boom but to high consumer spending, because homeowners used mortgage refinancing to go deeper into debt. All of this created jobs to make up for those lost when the stock bubble burst.
Now the question is what can replace the housing bubble.<ref name="Housing Bubble 2005-05-27">Paul Krugman. [http://www.nytimes.com/2005/05/27/opinion/27krugman.html "Running Out of Bubbles"], ''The New York Times'', May 5, 2007. Referenced 2011-01-26.</ref></blockquote>

===Denials:===
2012-07-03:<blockquote>Give me a break... If you actually read that [August 2, 2002] article, actually read it... I was joking. I was saying that, I was talking about, the difficulty of responding purely with monetary policy to the kind of slump that we were then experiencing. And it's a measure, I might say, of the intellectual bankruptcy of a large part of this debate, that the best they can do is keep on claiming that I was actually advocating the creation of a housing bubble. I obviously wasn't doing that.<ref name="Krugman_Housing_joke">Paul Krugman. [https://www.youtube.com/watch?v=EX55BH97quk&feature=player_embedded Paul Krugman: "¡Acabad ya con esta crisis!"] (video). Parts of the video are in Spanish; question starts at 1:40:00; Krugman's answer from 1:41:30. Discussion of the book "End This Depression Now!", held on July 3, 2012 at the ''Fundación Rafael del Pino''. Referenced 2012-07-11.</ref><ref name="Diego Sanchez">Diego Sánchez de la Cruz. [http://diego-sanchez-de-la-cruz.libremercado.com/2012/07/04/958/3 "Krugman el bromista"], ''LibreMercado'', July 4, 2012. Referenced 2012-07-13.</ref></blockquote>

2009-06-17:<blockquote>One of the funny aspects of being a somewhat, um, forceful writer is that I’m regularly accused of all sorts of villainy. I was personally responsible for the demise of Enron; my nonexistent son worked for Hillary; etc.. The latest seems to be that I called for the creation of a housing bubble — in fact, the bubble is my fault! The claim seems to be based on this piece.
Guys, read it again. It wasn’t a piece of policy advocacy, it was just economic analysis. What I said was that the only way the Fed could get traction would be if it could inflate a housing bubble. And that’s just what happened.<ref name="Grassy Knoll">Paul Krugman. [http://krugman.blogs.nytimes.com/2009/06/17/and-i-was-on-the-grassy-knoll-too/ "And I was on the grassy knoll, too"], ''Conscience of a Liberal: New York Times Blog'', June 17, 2009. Referenced 2012-07-13.</ref></blockquote>

==Criticism==
===Partisanism===

''[[The Economist]]'' cites critics of Krugman stating that "his relentless partisanship is getting in the way of his argument". In addition, a website (titled "Lying in Ponds") that tracks [[Partisan (political)|partisanship]] among public intellectuals rated Krugman second in the overall partisan slant of his columns, behind only [[Ann Coulter]].<ref name=economist/> As [[Richard Posner]] and economist [[Mark J. Perry]] note, the site, which uses careful statistical analysis to make assessments political partisanship, has ranked Paul Krugman the number 1 or number 2 most biased every single year from 2002-2008.<ref name=posner/><ref>{{Cite web | last = Perry | first = Mark J. | authorlink = Mark J. Perry | title = Paul Krugman: #1 Most Partisan Columnist in U.S. | date = 2008-10-14 | year = 2008 | url = http://mjperry.blogspot.com/2008/10/paul-krugman-1-most-partisan-columnist.html | accessdate = 2011-08-10}}</ref>

''The Economist'' magazine supported the finding, noting the vast majority of Krugman's columns feature attacks on [[Republican Party (United States)|Republicans]] and almost none criticize [[Democratic Party (United States)|Democrats]], making him "a sort of ivory-tower folk-hero of the American [[Left-wing politics|left]]—a thinking person's [[Michael Moore]]" and that "a glance through his past columns reveals a growing tendency to attribute all the world's ills to [[George W. Bush|George Bush]]."<ref name=economist>{{Citation | title = The one-handed economist | newspaper = [[The Economist]] | pages = | year = 2003 | date = 2003-11-13 | url = http://www.economist.com/node/2208841 | archiveurl = | archivedate = | accessdate = 2011-08-10}}</ref> And speaking on Krugman's recent "prophecy of doom" regarding the [[United States elections, 2010|2010 election]], the magazine calls it a "baseless partisan freakout".<ref>{{Citation | title = Krugman's prophecy of doom | newspaper = [[The Economist]] | year = 2010 | date = 2010-10-29 | url = http://www.economist.com/blogs/democracyinamerica/2010/10/another_partisan_freakout | archiveurl = | archivedate = | accessdate = 2011-08-10}}</ref>

A study published in the [[peer-reviewed]] ''[[Econ Journal Watch]]'' examined statements from 17 economists from 1981 through 2009, and gauged the consistency of their stances on deficit spending and reduction during Republican and Democratic administrations. According to the study, Krugman was the only economist of the 17 to "significantly" change his stance on the federal budget deficit for partisan reasons.<ref>{{Citation | last = Barkley | first = Brett | title = When the White House Changes Party, Do Economists Change Their Tune on Budget Deficits? | journal = [[Econ Journal Watch]] | volume = 7 | issue = 2 | pages = 119-156 | date = 2010-05 | year = 2010 | month = May | url = http://econjwatch.org/articles/when-the-white-house-changes-party-do-economists-change-their-tune-on-budget-deficits | jstor = | doi = | id = | mr = | zbl = | jfm = }}</ref>

This finding of inconsistency was supported when ''[[The Wall Street Journal]]'' (WSJ) showed that Krugman contradicted his own findings in order to criticize Republican policy. When Republican [[United States Senate|Senator]] [[Jon Kyl]] stated that unemployment relief doesn't create new jobs and in fact is a disincentive for unemployed individuals to seek new work, Krugman called it a "bizarre point of view" and stated that "What Democrats believe is what textbook economics says [...] But that's not how Republicans see it". [[James Taranto]] of the WSJ reproduced a passage from a textbook called ''Macroeconomics'' which states: "The drawback to [unemployment benefits] is that it reduces a worker's incentive to quickly find a new job." The authors of the textbook are Paul Krugman and [[Robin Wells Krugman|his wife]].<ref>{{Citation | last = Taranto | first = James | author-link = James Taranto | title = Mirror, Mirror | newspaper = [[The Wall Street Journal]] | year = 2010 | date = 2010-03-05 | url = http://online.wsj.com/article/SB10001424052748703915204575103720332317434.html | archiveurl = | archivedate = | accessdate = 2011-08-10}}</ref> This led [[John H. Hinderaker|John Hinderaker]] of the [[Conservatism in the United States|conservative]] [[Claremont Institute]] to proclaim: "only the existence of [[Frank Rich]] prevents Krugman from being the world’s worst columnist."<ref>{{Cite web | last = Hinderaker
| first = John | authorlink = John H. Hinderaker | title = Krugman Vs. Krugman | publisher = [[Power Line]] | date = 2010-03-06 | url = http://www.powerlineblog.com/archives/2010/03/025752.php | accessdate = 2011-08-10}}</ref>

In 2008, economist [[Peter Boettke]] noted: "[Over the years] Krugman's work devolved from science to [[ideology]] and finally to political partisanship" and that Krugman "has used his platform as an economist and as a columnist for the New York Times for his Democratic partisanship purposes."<ref>{{Cite web | last = Boettke | first = Peter | authorlink = Peter Boettke | title = Political Economist | publisher = [[Forbes]] | date = 2008-10-13 | archiveurl = http://web.archive.org/web/20081016034623/http://www.forbes.com/opinions/2008/10/13/krugman-nobel-economics-oped-cx_pb_1013boettke.html | archivedate = 2008-10-16 | url = http://www.forbes.com/opinions/2008/10/13/krugman-nobel-economics-oped-cx_pb_1013boettke.html | accessdate = 2011-08-10}}</ref>

Author and [[United States Court of Appeals for the Seventh Circuit|federal appeals court judge]] [[Richard Posner]] called Krugman "an unabashed Democratic partisan who often goes overboard in his hatred of the Republians." [sic]<ref name=posner>{{Citation | last = Posner | first = Richard | author-link = Richard Posner | title = The Good Paul Krugman and the Bad Paul Krugman | newspaper = [[The Atlantic]] | year = 2009 | date = 2009-06-03 | url = http://www.theatlantic.com/business/archive/2009/06/the-good-paul-krugman-and-the-bad-paul-krugman/18718/ | archiveurl = | archivedate = | accessdate = 2011-08-10}}</ref>

Economist [[Donald J. Boudreaux|Donald Boudreaux]] has stated that Krugman does "a disservice to non-'liberal' scholars as well as to scholarship generally" by asserting that serious thinking is done only by Krugman himself and other liberals.<ref>{{Citation | last = Boudreaux | first = Don | author-link = Donald J. Boudreaux | title = Open Letter to Paul Krugman | date = 2011-06-19 | year = 2011 | url = http://cafehayek.com/2011/06/open-letter-to-paul-krugman-2.html | accessdate = 2011-08-10}}</ref>

Liberal journalists also openly point out Krugman's obvious political bias: ''[[New York Magazine]]'' called Krugman "the leading exponent of a kind of liberal purism" that he is "not altogether comfortable with, but it is [a role] he has sought."<ref name=nymag>{{Citation | last = Wallace-Wells | first = Benjamin | author-link = | title = What’s Left of the Left | newspaper = [[New York Magazine]] | pages = | year = 2011 | date = 2011-04-24 | url = http://nymag.com/news/politics/paul-krugman-2011-5/ | archiveurl = | archivedate = | accessdate = 2011-08-10}}</ref> [[American liberalism|Liberal]] journalist and author [[Michael Tomasky]] in ''[[The New York Review of Books]]'' stated "Many liberals would name Paul Krugman of The New York Times as perhaps the most consistent and courageous—and unapologetic—liberal partisan in American journalism."<ref>{{Citation | last = Tomasky | first = Michael | author-link = Michael Tomasky | title = The Partisan | newspaper = [[The New York Review of Books]] | year = 2007 | date = 2007-11-22 | url = http://www.nybooks.com/articles/archives/2007/nov/22/the-partisan/ | archiveurl = | archivedate = | accessdate = 2011-08-10}}</ref>

Liberal historian [[Michael Kazin]] has stated Krugman’s account of the [[Right-wing politics|right]] succumbed to the [[Marxist]] flaw of false consciousness: "Unlike what Krugman says, conservatism is not some kind of smoke screen for another agenda."<ref name=nymag/>

===Contradictions===
Krugman has garnered a reputation for contradicting himself on many occasions. When documenting such inconsistencies several writers have made references to such an occurrence being commonplace: "It's not newsworthy when Paul Krugman contradicts himself."<ref name=states/> "Not that you needed any more evidence that New York Times columnist Paul Krugman is a flip-flopping charlatan..."<ref name=entitlement/> "This just in: New York Times columnist Paul Krugman is a raging hypocrite. You'll be shocked to find out, I'm sure."<ref>{{Citation | last = Markay | first = Lachlan | author-link = | title = Paul Krugman Favored Raising Retirement Age Until GOP Proposed It | newspaper = [[NewsBusters]] | date = 2011-04-26 | url = http://www.newsbusters.org/blogs/lachlan-markay/2011/04/26/paul-krugman-favored-raising-retirement-age-until-gop-proposed-it | archiveurl = | archivedate = | accessdate = 2011-08-10}}</ref>

In addition to the instance reported in the WSJ ([[Paul Krugman#Partisanism|see above]]), a single article published in the conservative online magazine ''[[The American Thinker]]'' documents Krugman making contradictory statements in a wide variety of topics. He is documented as stating that when [[deficit]]s are high [[interest rate]]s are low, and when governments run up a deficit, interest rates rise. He argued that higher [[national debt]] and spending were bad for people early in their careers, as they would have to pay for it later in life, and nearly twenty-five years later, he argues that the national debt is not a problem, as it never needs to be paid off. Krugman argued it is not the debt that matters, but rather the [[debt-to-GDP ratio]]. But in an open letter to [[Alan Greenspan]] he asserted, "...you obviously realize that the ratio of debt to G.D.P. is a highly misleading number." He has argued that [[Social Security]] is sustainable and unsustainable, opposed government-run health care before supporting government-run health care, and opposed the bailout of [[Fannie Mae]] before congratulating the government for the bailout of Fannie Mae.<ref name=contradiction/>

Krugman has stated [[labor unions]] and higher wages cause [[unemployment]], as well as stating labor unions create a stable [[middle class]], and lower wages have a [[Recession|contractionary]] effect on the economy (which is characterized in part by unemployment). He has argued that governments do not cause recessions and are not responsible for [[business cycle]]s, but he also blames the [[Presidency of George W. Bush|Bush administration]] for the current [[recession]]. Krugman claimed that nothing the government has done has had an impact on the economy, and states that government actions are like using a water pistol to shoot an elephant -- but he also claims that "big government" saved the economy. He declared that workers' fears of losing jobs to workers in China and India due to [[globalization]] aren't irrational, when he earlier stated that those who blamed the global economy for the loss of jobs were "silly."<ref name=contradiction>{{Citation | last = Kumar | first = Arvind | title = Paul Krugman, the Self-Contradicting Economist | newspaper = [[The American Thinker]] | year = 2010 | date = 2010-06-23 | url = http://www.americanthinker.com/2010/06/paul_krugman_the_selfcontradic.html | archiveurl = http://www.webcitation.org/60M5qaItY | archivedate = 2011-07-21 | accessdate = 2011-08-10}}</ref>

[[Conservatism in the United States|Conservative]] blogger and political commentator [[Michelle Malkin]] noted that in April 2011, Krugman assailed [[entitlement]] reform advocates, lamenting that "the fervor with which Washington types call for raising eligibility ages is a ‘tell’: it shows how disconnected they are from the way the other half lives (and dies)" and called life expectancy "more and more a class-related issue." But in 1996 he called similar proposals (such as raising the age of eligibility for federal entitlements) "sensible".<ref name=entitlement>{{Cite web | last = Malkin | first = Michelle | authorlink = Michelle Malkin | title = Paul Krugman: For entitlement reform before he was against it | date = 2011-04-26 | year = 2011 | url = http://michellemalkin.com/2011/04/26/paul-krugman-for-entitlement-reform-before-he-was-against-it/ | accessdate = 2011-08-10}}</ref>

In 2007, Krugman berated then-Senator [[Barack Obama]] for worrying about the future of Social Security, stating Obama had been misled by "decades of scare-mongering about Social Security’s future from conservative [[ideologue]]s." Economist and former Chairman of the [[Council of Economic Advisors]] [[N. Gregory Mankiw|Greg Mankiw]] responded by stating that "Paul's interpretation seems to be based on either a faulty memory or an especially inclusive definition of what constitutes a conservative ideologue", pointing out that not only did [[Democratic Party (United States)|Democratic]] President [[Bill Clinton]] voice similar concerns, but that he was under advisement of well-known economist and non-conservative [[Edward Gramlich]], whom Krugman had in the past praised as being particularly prescient.<ref>{{Cite web | last = Mankiw | first = Greg | authorlink = N. Gregory Mankiw | title = In Search of Ideologues | date = 2007-11-16 | url = http://gregmankiw.blogspot.com/2007/11/in-search-of-ideologues.html | accessdate = 2011-08-10}}</ref> In addition, less than a month prior, Mankiw had previously pointed out Krugman's contradiction on Social Security when he quoted from an interview in which Krugman stated it is "one of the best" federal government programs in terms of funding, and that it's not for certain the program has a problem. However, as Mankiw shows, Krugman himself stated ten years earlier that crisis loomed ahead when the baby boomers would start to retire around year 2010.<ref>{{Cite web | last = Mankiw | first = Greg | authorlink = N. Gregory Mankiw | title = Krugman vs Obama | date = 2007-10-28 | url = http://gregmankiw.blogspot.com/2007/10/krugman-vs-obama.html | accessdate = 2011-08-10}}</ref>

In an open letter to ''[[The New York Times]]'' [[Donald J. Boudreaux|Donald Boudreaux]] pointed out that Krugman suggested trade with low-wage countries poses real problems for high-wage America, despite years earlier penning a paper stating that wages are determined by worker productivity.<ref>{{Cite web | last = Boudreaux | first = Donald J. | authorlink = Donald J. Boudreaux | title = Strange Case of Dr. K and Mr. K | date = 2008-01-05 | url = http://cafehayek.com/2008/01/strange-case-of.html | accessdate = 2011-08-10}}</ref>

Columnist Tom Bevan asked in 2009 how Krugman reconciles a call for [[economic stimulus]] while at the same time arguing that additional environmental regulations and taxes are needed to avert the "utter catastrophe", outlining that stricter environmental policies such as carbon taxes, capping emissions, and additional regulations come at a cost to the economy.<ref>{{Citation | last = Bevan | first = Tom | author-link = | title = Krugman's Contradiction | newspaper = [[RealClearPolitics]] | date = 2009-07-13 | url = http://www.realclearpolitics.com/articles/2009/07/13/krugmans_contradiction_97433.html | archiveurl = | archivedate = | accessdate = 2011-08-10}}</ref>

Economist [[Robert P. Murphy|Robert Murphy]] has documented so many contradictions made by Krugman that he has coined the term "Krugman Kontradiction" or "Klassic Krugman".<ref name=states>{{Cite web
| last = Murphy
| first = Robert P.
| authorlink = Robert P. Murphy
| title = Caught: Krugman's Shifting Arguments
| work =
| publisher = [[Ludwig von Mises Institute]]
| date = 2011-03-03
| url = http://mises.org/daily/5086
| accessdate = 2011-08-10}}</ref>
<ref name=austerity>{{Cite web
| last = Murphy
| first = Robert P.
| authorlink = Robert P. Murphy
| title = A Krugman Kontradiction?
| date = 2010-06-10
| url = http://consultingbyrpm.com/blog/2010/06/a-krugman-kontradiction.html
| accessdate = 2011-08-10}}</ref>
<ref name=QEcontra>{{Cite web
| last = Murphy
| first = Robert P.
| authorlink = Robert P. Murphy
| title = Yet Another Krugman Kontradiction
| date = 2010-11-23
| url = http://consultingbyrpm.com/blog/2010/11/yet-another-krugman-kontradiction.html
| accessdate = 2011-08-10}}</ref>
<ref name=PIGS>{{Cite web
| last = Murphy
| first = Robert P.
| authorlink = Robert P. Murphy
| title = Yet Another Krugman Kontradiction?
| date = 2011-03-30
| url = http://consultingbyrpm.com/blog/2011/03/yet-another-krugman-kontradiction-2.html
| accessdate = 2011-08-10}}</ref>
<ref name=stimulus>{{Cite web
| last = Murphy
| first = Robert P.
| authorlink = Robert P. Murphy
| title = Klassic Krugman Kontradiction
| date = 2011-05-19
| url = http://consultingbyrpm.com/blog/2011/05/klassic-krugman-kontradiction.html
| accessdate = 2011-08-10}}</ref>
<ref name=WW2>{{Cite web
| last = Murphy
| first = Robert P.
| authorlink = Robert P. Murphy
| title = Another Krugman Kontradiction?
| date = 2010-07-07
| url = http://consultingbyrpm.com/blog/2010/07/another-krugman-kontradiction.html
| accessdate = 2011-08-10}}</ref>
<ref name=hangover>{{Cite web
| last = Murphy
| first = Robert P.
| authorlink = Robert P. Murphy
| title = Krugman In Support of the Hangover Theory?
| date = 2010-12-30
| url = http://consultingbyrpm.com/blog/2010/12/krugman-hangover-theory.html
| accessdate = 2011-08-10}}</ref>
<ref name=hangover>{{Cite web
| last = Murphy
| first = Robert P.
| authorlink = Robert P. Murphy
| title = Krugman Has Booted the Hackers From His Blog Account
| date = 2010-06-11
| url = http://consultingbyrpm.com/blog/2010/06/krugman-has-booted-the-hackers-from-his-blog-account.html
| accessdate = 2011-08-10}}</ref>

===False claims===
Columnist Richard Baehr has written several pieces documenting false and contradictory statements by Krugman. In August 2005, Baehr published a series of articles detailing Krugman's continuous misrepresentation of facts surrounding the [[United States presidential election, 2000|2000 Presidential election]] and votes cast in Florida.<ref name=biglie>{{Citation | last = Baehr | first = Richard | title = Krugman's Big Lie | newspaper = [[The American Thinker]] | date = 2005-08-20 | url = http://www.americanthinker.com/2005/08/krugmans_big_lie.html | archiveurl = | archivedate = | accessdate = 2011-08-10}}</ref><ref>{{Citation | last = Baehr | first = Richard | title = More baloney from Krugman | newspaper = [[The American Thinker]] | date = 2005-08-23 | url = http://www.americanthinker.com/2005/08/more_baloney_from_krugman.html | archiveurl = | archivedate = | accessdate = 2011-08-10}}</ref> (A gaffe that was also noted by [[Michelle Malkin]]<ref>{{Cite web | last = Malkin | first = Michelle | authorlink = Michelle Malkin | title = The Krugman Correction | date = 2005-08-26 | url = http://michellemalkin.com/2005/08/26/the-krugman-correction/ | accessdate = 2011-08-10}}</ref><ref>{{Cite web | last = Malkin | first = Michelle | authorlink = Michelle Malkin | title = Krugman's Correction | date = 2005-09-15 | url = http://michellemalkin.com/2005/09/15/krugmans-correction/ | accessdate = 2011-08-10}}</ref><ref>{{Cite web | last = Malkin | first = Michelle | authorlink = Michelle Malkin | title = Yet Another Krugman Korrection | date = 2005-10-02 | url = http://michellemalkin.com/2005/10/02/yet-another-krugman-korrection/ | accessdate = 2011-08-10}}</ref>, [[Donald Luskin]]<ref>{{Citation | last = Luskin | first = Donald | author-link = Donald Luskin | title = It’s the Truth that Counts | newspaper = [[National Review]] | date = 2005-08-24 | url = http://www.nationalreview.com/nrof_luskin/luskin200508240848.asp | accessdate = 2011-08-10}}</ref><ref>{{Cite web | last = Luskin | first = Donald | authorlink = Donald Luskin | title = Krugman Officially Corrects His Florida 2000 Lies | newspaper = | date = 2005-08-26 | url = http://www.poorandstupid.com/2005_08_21_chronArchive.asp#112503484243947813 | accessdate = 2011-08-10}}</ref><ref>{{Citation | last = Luskin | first = Donald | author-link = Donald Luskin | title = Third Time’s Not a Charm | newspaper = [[National Review]] | date = 2005-09-13 | url = http://old.nationalreview.com/nrof_luskin/luskin200509130821.asp | accessdate = 2011-08-10}}</ref><ref>{{Cite web | last = Luskin | first = Donald | authorlink = Donald Luskin | title = Hell Freezes Over at The New York Times | newspaper = | date = 2005-10-01 | url = http://www.poorandstupid.com/2005_09_25_chronArchive.asp#112822299822124760 | accessdate = 2011-08-10}}</ref>, [[Mickey Kaus]]<ref>{{Citation | last = Kaus | first = Mickey | author-link = Mickey Kaus | title = The "Two Atta" Theory | newspaper = [[Slate (magazine)|Slate]] | date = 2005-08-21 | url = http://www.slate.com/?id=2124546&%2523overfisk | accessdate = 2011-08-10}}</ref>, and Patterico<ref>{{Cite web | last = Patterico | first = | title = Paul Krugman Just Can’t Get It Right | date = 2005-08-26 | url = http://patterico.com/2005/08/26/paul-krugman-just-cant-get-it-right/ | accessdate = 2011-08-10}}</ref><ref>{{Cite web | last = Patterico | first = | title = Paul Krugman Prettifies His Own History of Misstatements | date = 2005-09-16 | url = http://patterico.com/2005/09/16/paul-krugman-prettifies-his-own-history-of-misstatements/ | accessdate = 2011-08-10}}</ref>, among others.) Baehr closed the series stating: "The continuous rise of the internet has enabled critics to hyperlink source material proving Krugman's lack of integrity. Krugman simply could not get away with his lies if he were required to post hyperlinks [...] Why is the New York Times still employing a serial liar in its op ed pages?"<ref>{{Citation | last = Baehr | first = Richard | title = More Krugman lies: the Great Unraveling continues | newspaper = [[The American Thinker]] | date = 2005-08-26 | url = http://www.americanthinker.com/2005/08/more_krugman_lies_the_great_un.html | archiveurl = | archivedate = | accessdate = 2011-08-10}}</ref>

In 2010 Baehr detailed Krugman's August 23 column on extending the Bush tax cuts as being "not merely misleading; it is an outright and deliberate fabrication."<ref>{{Citation | last = Baehr | first = Richard | title = Paul Krugman Is a Liar: Does the New York Times Care? | newspaper = [[The American Thinker]] | date = 2010-08-23 | url = http://www.americanthinker.com/2010/08/paul_krugman_is_a_liar_does_th.html | archiveurl = | archivedate = | accessdate = 2011-08-10}}</ref>

In 2003 Krugman falsely accused conservatives of embracing the [[lump of labour fallacy]], when the paper he cited did not commit the error.<ref name=economist/>

James D. Agresti documented Krugman claiming total government spending had fallen under the Obama administration, then changing his claim to say it had remained flat, both of which were shown to be false according to the data published by the federal [[Bureau of Economic Analysis]].<ref>{{Citation | last = Agresti | first = James D. | author-link = | title = Paul Krugman's Jihad | newspaper = [[The American Thinker]] | date = 2010-10-27 | url = http://www.americanthinker.com/2010/10/paul_krugmans_jihad_1.html | archiveurl = | archivedate = | accessdate = 2011-08-10}}</ref> This led economist [[Robert P. Murphy|Robert Murphy]] to ask: "Is Krugman just lying now?"<ref>{{Cite web | last = Murphy | first = Robert P. | authorlink = Robert P. Murphy | title = Is Krugman Just Lying Now? | date = 2010-10-11 | url = http://consultingbyrpm.com/blog/2010/10/is-krugman-just-lying-now.html | accessdate = 2011-08-10}}</ref>

Economist [[Robert Higgs]] noted that in a telephone news conference Krugman commented the [[Late-2000s recession]] "in fact" resembles the [[Great Depression]]. Higgs mentions various measures, including the [[unemployment rate]], [[Gross domestic product|GDP]] decline, commercial bank failures, and others, all which empirically contradict Krugman's claim.<ref name=depression/>

===Economics===

''[[The Economist]]'' notes that in addition to his obvious partisanism, "even [Krugman's] economics is sometimes stretched." He used [[game theory]] to argue that [[George W. Bush|President Bush]] was probably encouraging [[North Korea]] to become a more dangerous nuclear power. The magazine notes that while "this probably did not convince most game theorists", it still in effect gives lay readers "the illusion that Mr Krugman's perfectly respectable personal political beliefs can somehow be derived empirically from economic theory." Krugman is also said to have embraced the concept of the [[There ain't no such thing as a free lunch|free lunch]]—"even though as an economist he should know better."<ref name=economist/>

Economist and former [[United States Secretary of the Treasury]] [[Lawrence Summers|Larry Summers]] has stated Krugman has a tendency to favor more extreme policy recommendations because "it’s much more interesting than agreement when you’re involved in commenting on rather than making policy."<ref name=nymag/>

Krugman's contradictions and alleged poor economic reasoning have led to much attention, particularly in the [[blogosphere]] and the economics community. "[Krugman] has made a habit of distortion [...] Several website [sic] have sprung up to deconstruct each Krugman column,and others respond to specific errors, which are routine."<ref name=biglie/> Economist [[William L. Anderson|Bill Anderson]] maintains a website dedicated solely to documenting Krugman's errors and inconsistencies, called "Krugman-in-Wonderland".<ref>{{Cite web | last = Anderson | first = William L. | authorlink = William L. Anderson | title = Welcome to Krugman-in-Wonderland! | date = 2010-01-20 | url = http://krugman-in-wonderland.blogspot.com/2010/01/welcome-to-krugman-in-wonderland.html | accessdate = 2011-08-10}}</ref> [[United States House of Representatives elections in Massachusetts, 2012|U.S. House Republican candidate]] Jeff Semon founded a similar website titled "KrugmanIsWrong.com" to document Krugman's inaccuracies.<ref>{{Cite web | last = Semon | first = Jeff | authorlink = | title = About | work = | publisher = KrugmanIsWrong.com | url = http://www.krugmaniswrong.com/about/ | format = | accessdate = 2011-08-10}}</ref>

Calling him a "doctor of (bad) economics", [[Sheldon Richman]] has pointed out inconsistencies and conflicting notions in Krugman's prescription for [[international trade]] and domestic [[social safety net]]s.<ref>{{Citation | last = Richman | first = Sheldon | author-link = Sheldon Richman | title = Paul Krugman, Doctor of (Bad) Economics | newspaper = [[The Freeman]] | date = 2008-01-04 | url = http://www.thefreemanonline.org/columns/tgif/the-goal-is-freedom-paul-krugman-doctor-of-bad-economics/ | archiveurl = | archivedate = | accessdate = 2011-08-10}}</ref>

In 2002 [[William L. Anderson|Bill Anderson]] documented Krugman's notion that health care is the only industry in which improvements in knowledge and the development and acquisition of capital drive ''up'' costs, not reduce them, as laws of economics dictate. Anderson says Krugman's assessment "provides ample proof that one can be called an 'economist,' yet not know much about economics."<ref>{{Cite web | last = Anderson | first = William L. | authorlink = William L. Anderson | title = "Bad Medicine" or Bad Economics? | publisher = [[Ludwig von Mises Institute]] | date = 2002-03-20 | url = http://mises.org/daily/917 | accessdate = 2011-08-10}}</ref>

Economist and former Chairman of the [[Council of Economic Advisors]] [[N. Gregory Mankiw|Greg Mankiw]] stated he was left scratching his head when Krugman claimed a [[Tobin tax]] on foreign exchange trades is possible because "modern trading is a highly centralized affair", with a majority of transactions settled at a single London-based institution. Mankiw points out that if taxes made transacting in London even slightly more expensive, companies could easily move elsewhere, thus making the tax useless, and Krugman's claim null.<ref>{{Citation | last = Mankiw
| first = Greg | author-link = N. Gregory Mankiw | title = Is a Tobin Tax feasible? | date = 2009-11-27 | year = 2009 | url = http://gregmankiw.blogspot.com/2009/11/is-tobin-tax-feasible_27.html | accessdate = 2011-08-10}}</ref>

Investor and businessman [[Jim Rogers]] said of Krugman "He doesn't know anything about economics. He's an idiot."<ref>{{Cite video | people = [[Jim Rogers]] | title = Freedom Watch | medium = Television production | format = [[Flash video]] | publisher = [[Fox Business Network]] | url = http://www.youtube.com/watch?v=fWe3jyqRo-4 | location = [[New York City]] | date = 2010-10-16 | accessdate = 2011-08-10}}</ref>

===Nobel Prize===
Upon Krugman's award of the [[Nobel Memorial Prize in Economic Sciences|Nobel Memorial Prize in Economics]], many in the economic community voiced disapproval. [[Peter Boettke]] stated "the Swedes just made perhaps the worst decision in the history of the prize today in naming Paul Krugman the 2008 award winner [...] today I would say is a sad day for economics, not a day to be celebrated."<ref>{{Cite web | last = Boettke | first = Peter | authorlink = Peter Boettke | title = You Cannot Be Serious! Paul Krugman's Nobel Prize | date = 2008-10-13 | url = http://austrianeconomists.typepad.com/weblog/2008/10/you-cannot-be-s.html | accessdate = 2011-08-10}}</ref> Economist [[William L. Anderson|Bill Anderson]] deemed the announcement indicative "that outright political partisanship is not a deterrent to winning."<ref>{{Citation | last = Anderson | first = William L. | author-link = William L. Anderson | title = A Socialist Laureate | newspaper = [[Forbes]] | date = 2008-10-13 | url = http://www.forbes.com/2008/10/13/krugman-nobel-economics-oped-cx_wla_1013anderson.html | archiveurl = | archivedate = | accessdate = 2011-08-10}}</ref> [[Russell Roberts (economist)|Russell Roberts]] of [[George Mason University]] called it "just another reminder that those of us who believe in liberty are in for a long time in the intellectual wilderness."<ref>{{Cite web | last = Roberts | first = Russell | authorlink = Russell Roberts (economist) | title = Krugman's prize | date = 2008-10-13 | url = http://cafehayek.com/2008/10/krugmans-prize.html | accessdate = 2011-08-10}}</ref> [[Robert Higgs]] stated Krugman’s selection made a travesty of the prize and constitutes "an insult to the few excellent economists [...] who have received the prize in the past." Higgs wrote: "For economists who would like the Nobel Prize to mean something, today is a very sad day."<ref name=depression>{{Cite web | last = Higgs | first = Robert | authorlink = Robert Higgs | title = Krugman’s Bizarre Comparison | publisher = [[The Independent Institute]] | date = 2008-10-13 | url = http://blog.independent.org/2008/10/13/krugmans-bizarre-comparison/ | accessdate = 2011-08-10}}</ref>

In a 2010 [[video blog]], [[investment broker]] and financial-economic commentator [[Peter Schiff]] stated "if they ever took away Nobel Prizes for something that shows a complete lack of understanding of economics, certainly Paul Krugman would be the first candidate where the commission asked for their Nobel Prize back."<ref>{{cite video |people = [[Peter Schiff]] |date = 2010-03-16 |title = Dollar, Paul Krugman |url = http://www.youtube.com/watch?v=11WlFlO_mDg |format = [[Flash video]] |publisher = Schiff Report |medium = [[Video Blog]] |location = [[Stamford, Connecticut|Stamford]] |archiveurl =|archivedate= |accessdate = 2011-08-10}}</ref>

==Notes==
{{reflist}}

==Links==
* [http://mises.org/daily/3194 Consumers Don't Cause Recessions] by Robert P. Murphy, November 2008, about 'demand-side' economics
* [[Wikipedia:Paul Krugman|Paul Krugman]] on Wikipedia
* [http://topics.nytimes.com/top/opinion/editorialsandoped/oped/columnists/paulkrugman/index.html "Paul Krugman Columnist Page - The New York Times"]
* [http://pkarchive.org/ "pkarchive - The Unofficial Paul Krugman Archive"]
* {{md|105|Epstein Responds|Gene Epstein|December 1998}}
* [http://mises.org/journals/qjae/pdf/qjae6_4_2.pdf Apoplithorismosphobia] (pdf) by Mark Thornton, 2003
* [http://mises.org/daily/5296/The-Good-Krugman The Good Krugman] by James E. Miller, May 2011
* [http://mises.org/daily/5086/Caught-Krugmans-Shifting-Arguments Caught: Krugman's Shifting Arguments] by Robert P. Murphy, March 2011
* [http://mises.org/daily/4121 Krugman Fails to "Get It" on Japan] by William L. Anderson, March 2010
* [http://web.mit.edu/krugman/www/ricardo.htm Ricardo's Difficult Idea] by Paul Krugman, March 1996
* {{cb|2012/04/paul-vs-paul-the-video/|Paul vs. Paul: the Video|Daniel J. Sanchez|April 2012}}
* {{md|6055|Charting Fun with Krugman|Robert P. Murphy|May 2012}}
* [http://www.valuewalk.com/2012/06/paul-krugman-versus-kenneth-rogoff-on-europe/ Paul Krugman versus Kenneth Rogoff on Europe] by Jacob Wolinsky, June 2012
* [https://www.youtube.com/watch?v=EX55BH97quk&feature=player_embedded Paul Krugman: "¡Acabad ya con esta crisis!"] (video, partially in Spanish; esp. watch from 35:20 economist Pedro Schwartz; from 48:20 Krugman's reply)

{{DEFAULTSORT:Krugman, Paul}}
[[Category:Economists]]
[[Category:Nobel Prize in Economics]]

User talk:Daniel Hewitt

2011-08-20T00:23:52Z

Daniel Hewitt: /* After the Depression */

'''Welcome!'''

Hello, Daniel Hewitt, and welcome to the [[MisesWiki:About|Mises Wiki]]! Thanks for signing up – we're glad to have you! If you need help [[Help:Getting started|getting started]], take a look at our [[Help:Contents|help pages]].

Community discussion takes place at the [[MisesWiki:Commons|MisesWiki Commons]], so feel free to post any questions you might have there or on my talk page. Please sign your messages on talk and discussion pages using four tildes (<nowiki>~~~~</nowiki>); this will automatically insert your username and the date. Again, welcome! --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 21:28, 27 January 2011 (CST)

Could you please quote page numbers and use inline citations [http://wiki.mises.org/mediawiki/index.php?title=Vladimir_Lenin&action=historysubmit&diff=7020&oldid=7000] For here although you added a reference you did not provide a page number :( [[User:Mark|Mark]] 05:27, 30 January 2011 (CST)

==Great Depression==
Hallo Daniel,

just wanted to say thank you for all the great referencing you've done on the page of the [[Great Depression]]. Keep up the great work! Don't have much time, but if you need help with something, please let me know. :)

Have a nice day,<br />
[[User:Pestergaines|Pestergaines]] 13:31, 1 April 2011 (MSD)
: Thanks a lot, it's been fun to learn and I'm glad to be able to make some small contributions....makes for a good work break. [[User:Daniel Hewitt|Daniel Hewitt]] 18:27, 1 April 2011 (MSD)

{| style="border: 2px solid gray; background-color: #fdffe7;"
|rowspan="2" valign="top" | [[File:{{#ifeq:{{{2}}}|alt|Citation Barnstar Hires.png|Barnstar_quill.png}}|100px|The Citation Barnstar]]
|rowspan="2" |
|style="font-size: x-large; padding: 0; vertical-align: bottom; height: 1.1em; color: black" | '''The Citation Barnstar'''
|-
|style="vertical-align: top; border-top: 1px solid gray; color: black" | For your great persistence in digging out forgotten resources and so greatly improving important articles, I give you the Citation Barnstar! [[User:Pestergaines|Pestergaines]] 11:57, 28 July 2011 (MSD)
|}
: Cool, thanks for the thought! [[User:Daniel Hewitt|Daniel Hewitt]] 13:56, 29 July 2011 (MSD)

==After the Depression==
Hallo Daniel, a [http://mises.org/daily/5559/Keynes-and-Space-Aliens new article] mentions the following:
:"Yes, boys and girls, that's what the Keynesians were saying back then: how reckless was the new Congress, elected in 1946, to rapidly demobilize, end rationing and wage and price controls, slash spending, cut taxes, and generally to roll back the New Deal."
Do you happen to know if there are any sources on this - on claims of economists, that cutting spending would have catastrophic consequences? [[User:Pestergaines|Pestergaines]] 17:31, 19 August 2011 (MSD)
:I listened to one of Tom Woods' speeches a while back on this topic, where he read some quotes of economists predicting disaster. If I remember correctly (and I could be wrong!) Arthur Okun was one of the Keynesians that Woods quoted. [[User:Daniel Hewitt|Daniel Hewitt]] 02:16, 20 August 2011 (MSD)
::Found it...here's the speech http://mises.org/media/4579/Keynesian-Predictions-vs-American-History [[User:Daniel Hewitt|Daniel Hewitt]] 04:23, 20 August 2011 (MSD)

User talk:Daniel Hewitt

2011-08-19T22:16:23Z

Daniel Hewitt: /* After the Depression */

Parable of the broken window

2011-08-17T12:37:16Z

Daniel Hewitt:

The '''parable of the broken window''', also known as the '''broken window fallacy''', was originally given in [[Frédéric Bastiat]]'s 1850 essay, ''Ce qu'on voit et ce qu'on ne voit pas'' ("[[That Which Is Seen, and That Which Is Not Seen]]"). It demonstrates the costs to society that occur when property is destroyed, and illustrates the law of unintended consequences with respect to economic activity.

The book ''[[Economics in One Lesson]]'' by [[Henry Hazlitt]] was inspired by this parable.

== The Parable ==

{{quote|
Have you ever witnessed the anger of the good shopkeeper, James B., when his careless son happened to break a square of glass? If you have been present at such a scene, you will most assuredly bear witness to the fact, that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation—"It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?"

Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions.

Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier's trade—that it encourages that trade to the amount of six francs—I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is ''that which is seen''.

But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, "Stop there! your theory is confined to that ''which is seen''; it takes no account of that ''which is not seen''."

''It is not seen'' that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. ''It is not seen'' that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented.}}

==Contemporary Examples==
[[Paul Krugman]], September 11, 2001 terror attacks:<ref name="Krugman_Horror">Paul Krugman. [http://www.nytimes.com/2001/09/14/opinion/reckonings-after-the-horror.html "Reckonings; After The Horror"], September 14, 2001, The New York Times. Referenced 2011-01-05.</ref><blockquote>Ghastly as it may seem to say this, the terror attack -- like the original day of infamy, which brought an end to the Great Depression -- could even do some economic good....

First, the driving force behind the economic slowdown has been a plunge in business investment. Now, all of a sudden, we need some new office buildings. As I've already indicated, the destruction isn't big compared with the economy, but rebuilding will generate at least some increase in business spending.</blockquote>

The Economist, "Cash For Clunkers" program:<ref name="Economist">"Clunky but effective: Why cash-for-clunkers schemes make sense right now," The Economist, accessed 2011-03-13, [http://www.economist.com/node/14162193?story_id=14162193 http://www.economist.com/node/14162193?story_id=14162193].</ref><blockquote>The boost in demand that the rebates have brought about is exactly the sort of stimulus that is urgently needed to escape what John Maynard Keynes called a “liquidity trap”. According to his theory, consumers may become so worried about the economy that they cling to as much liquid wealth as possible, cutting their spending sharply and thereby triggering precisely the slump they feared. Moreover, as stimulus policies go, cash-for-clunkers looks to be unusually effective.</blockquote>

Lawrence Summers, March 2011 Japan earthquake:<ref name="Summers">"Earthquake May Boost Economy Short Term: Summers," CNBC, accessed 2011-03-13, [http://www.cnbc.com/id/42002647 http://www.cnbc.com/id/42002647].</ref><blockquote>Friday's massive earthquake is yet another challenge to Japan's recovery but it may provide a jolt to the economy over the short term, Lawrence Summers, president emeritus of Harvard University and former director of the White House National Economic Council, told CNBC.

The biggest earthquake in 140 years hit Japan Friday, triggering 10-meter high tsunami waves.

"If you look, this is clearly going to add complexity to Japan's challenge of economic recovery," Summers said. "It may lead to some temporary increments, ironically, to GDP, as a process of rebuilding takes place."

After the Kobe earthquake in 1995 Japan actually gained some economic strength due to the process of reconstruction, he added.</blockquote>

[[Brad DeLong]], Hoover Dam construction:<ref name="DeLong Hoover">DeLong, J.Bradford. [http://delong.typepad.com/sdj/2011/06/infrastructure-investment-fake-numbers-about-the-hoover-dam-from-former-biden-chief-of-staff-ron-klain.html "infrastructure Investment: Fake Numbers About the Hoover Dam from Former Biden Chief of Staff Ron Klain..."] ''Grasping Reality With Both Hands''. June 14, 2011. Referenced 2011-06-16.</ref><blockquote>The total appropriations for the Hoover Dam were $50 million in nominal. With nominal GDP per worker of $1000 per year back in the 1930s, that means that the immediate employment impact of the Hoover dam was vastly more than 5000 workers. Figure that 50,000 employment-years of useful paid labor were generated by the dam: the people who worked on the dam, and the people who brought materials to the dam, and the people who made the machines that the people who worked on the dam used, and the people who made the materials that were brought to the dam, et cetera, et cetera.

And then there are the multiplier effects: The people who worked on the dam had higher incomes than they would otherwise have had, and they spent those extra incomes, and the businesses that sold them products hired more workers to meet the added demand and hired workers and boosted their incomes, and spent their incomes on extra goods, and businesses then hired more workers to produce those extra goods.

Figure a multiplier of 3, and thus an impact of the Hoover Dam during the Great Depression of 150,000 employment-years of useful work relative to what would have been the case had the appropriation been cancelled and the resources devoted to "deficit reduction."</blockquote>

[[Paul Krugman]], on military buildups:<ref name="Space Aliens">Krugman, Paul. [http://www.youtube.com/watch?v=E1Fzzs7oVaA] CNN interview, August 14, 2011.</ref><blockquote>'''PAUL KRUGMAN, NEW YORK TIMES''': Think about World War II, right? That was actually negative social product spending, and yet it brought us out.

I mean, probably because you want to put these things together, if we say, "Look, we could use some inflation." Ken and I are both saying that, which is, of course, anathema to a lot of people in Washington but is, in fact, what the basic logic says.

It's very hard to get inflation in a depressed economy. But if you had a program of government spending plus an expansionary policy by the Fed, you could get that. So, if you think about using all of these things together, you could accomplish, you know, a great deal.

If we discovered that, you know, space aliens were planning to attack and we needed a massive buildup to counter the space alien threat and really inflation and budget deficits took secondary place to that, this slump would be over in 18 months. And then if we discovered, oops, we made a mistake, there aren't any aliens, we'd be better –

'''ROGOFF''': And we need Orson Welles, is what you're saying.

'''KRUGMAN''': No, there was a "Twilight Zone" episode like this in which scientists fake an alien threat in order to achieve world peace. Well, this time, we don't need it, we need it in order to get some fiscal stimulus.</blockquote>

==References==
{{Reflist}}

==Links==
{{wikisource|That Which Is Seen, and That Which Is Not Seen}}
{{store|http://mises.org/store/Bastiat-Collection-Pocket-Edition-P10458.aspx|The Bastiat Collection (Pocket Edition)}}
* [http://bastiat.org/fr/cqovecqonvp.html "Ce qu'on voit et ce qu'on ne voit pas"] (original essay, in ''French'')
* [http://bastiat.org/en/twisatwins.html That Which is Seen, and That Which is Not Seen] (essay in English)
* [http://blog.mises.org/13436/the-broken-window-2/ "The Broken Window Fallacy" video] ([http://www.youtube.com/watch?v=QG4jhlPLVVs "no accents" version])
* [http://www.youtube.com/watch?v=erJEaFpS9ls "The Broken Window Fallacy"] by [[Art Carden]] with LearnLiberty.org

{{DEFAULTSORT:Parable Of The Broken Window}}

[[Category:Economic concepts]]
[[Category:Fallacies]]

Parable of the broken window

2011-08-17T12:35:33Z

Daniel Hewitt: /* Contemporary Examples */

The '''parable of the broken window''', also known as the '''broken window fallacy''', was originally given in [[Frédéric Bastiat]]'s 1850 essay, ''Ce qu'on voit et ce qu'on ne voit pas'' ("[[That Which Is Seen, and That Which Is Not Seen]]"). It demonstrates the costs to society that occur when property is destroyed, and illustrates the law of unintended consequences with respect to economic activity.

The book ''[[Economics in One Lesson]]'' by [[Henry Hazlitt]] was inspired by this parable.

== The Parable ==

{{quote|
Have you ever witnessed the anger of the good shopkeeper, James B., when his careless son happened to break a square of glass? If you have been present at such a scene, you will most assuredly bear witness to the fact, that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation—"It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?"

Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions.

Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier's trade—that it encourages that trade to the amount of six francs—I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is ''that which is seen''.

But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, "Stop there! your theory is confined to that ''which is seen''; it takes no account of that ''which is not seen''."

''It is not seen'' that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. ''It is not seen'' that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented.}}

==Contemporary Examples==
[[Paul Krugman]], September 11, 2001 terror attacks:<ref name="Krugman_Horror">Paul Krugman. [http://www.nytimes.com/2001/09/14/opinion/reckonings-after-the-horror.html "Reckonings; After The Horror"], September 14, 2001, The New York Times. Referenced 2011-01-05.</ref><blockquote>Ghastly as it may seem to say this, the terror attack -- like the original day of infamy, which brought an end to the Great Depression -- could even do some economic good....

First, the driving force behind the economic slowdown has been a plunge in business investment. Now, all of a sudden, we need some new office buildings. As I've already indicated, the destruction isn't big compared with the economy, but rebuilding will generate at least some increase in business spending.</blockquote>

The Economist, "Cash For Clunkers" program:<ref name="Economist">"Clunky but effective: Why cash-for-clunkers schemes make sense right now," The Economist, accessed 2011-03-13, [http://www.economist.com/node/14162193?story_id=14162193 http://www.economist.com/node/14162193?story_id=14162193].</ref><blockquote>The boost in demand that the rebates have brought about is exactly the sort of stimulus that is urgently needed to escape what John Maynard Keynes called a “liquidity trap”. According to his theory, consumers may become so worried about the economy that they cling to as much liquid wealth as possible, cutting their spending sharply and thereby triggering precisely the slump they feared. Moreover, as stimulus policies go, cash-for-clunkers looks to be unusually effective.</blockquote>

Lawrence Summers, March 2011 Japan earthquake:<ref name="Summers">"Earthquake May Boost Economy Short Term: Summers," CNBC, accessed 2011-03-13, [http://www.cnbc.com/id/42002647 http://www.cnbc.com/id/42002647].</ref><blockquote>Friday's massive earthquake is yet another challenge to Japan's recovery but it may provide a jolt to the economy over the short term, Lawrence Summers, president emeritus of Harvard University and former director of the White House National Economic Council, told CNBC.

The biggest earthquake in 140 years hit Japan Friday, triggering 10-meter high tsunami waves.

"If you look, this is clearly going to add complexity to Japan's challenge of economic recovery," Summers said. "It may lead to some temporary increments, ironically, to GDP, as a process of rebuilding takes place."

After the Kobe earthquake in 1995 Japan actually gained some economic strength due to the process of reconstruction, he added.</blockquote>

[[Brad DeLong]], Hoover Dam construction:<ref name="DeLong Hoover">DeLong, J.Bradford. [http://delong.typepad.com/sdj/2011/06/infrastructure-investment-fake-numbers-about-the-hoover-dam-from-former-biden-chief-of-staff-ron-klain.html "infrastructure Investment: Fake Numbers About the Hoover Dam from Former Biden Chief of Staff Ron Klain..."] ''Grasping Reality With Both Hands''. June 14, 2011. Referenced 2011-06-16.</ref><blockquote>The total appropriations for the Hoover Dam were $50 million in nominal. With nominal GDP per worker of $1000 per year back in the 1930s, that means that the immediate employment impact of the Hoover dam was vastly more than 5000 workers. Figure that 50,000 employment-years of useful paid labor were generated by the dam: the people who worked on the dam, and the people who brought materials to the dam, and the people who made the machines that the people who worked on the dam used, and the people who made the materials that were brought to the dam, et cetera, et cetera.

And then there are the multiplier effects: The people who worked on the dam had higher incomes than they would otherwise have had, and they spent those extra incomes, and the businesses that sold them products hired more workers to meet the added demand and hired workers and boosted their incomes, and spent their incomes on extra goods, and businesses then hired more workers to produce those extra goods.

Figure a multiplier of 3, and thus an impact of the Hoover Dam during the Great Depression of 150,000 employment-years of useful work relative to what would have been the case had the appropriation been cancelled and the resources devoted to "deficit reduction."</blockquote>

[[Paul Krugman]], on military buildups:<ref name="Space Aliens">Krugman, Paul. [http://www.youtube.com/watch?v=E1Fzzs7oVaA] ''CNN interview, August 14, 2011''.</ref><blockquote>'''PAUL KRUGMAN, NEW YORK TIMES''': Think about World War II, right? That was actually negative social product spending, and yet it brought us out.

I mean, probably because you want to put these things together, if we say, "Look, we could use some inflation." Ken and I are both saying that, which is, of course, anathema to a lot of people in Washington but is, in fact, what the basic logic says.

It's very hard to get inflation in a depressed economy. But if you had a program of government spending plus an expansionary policy by the Fed, you could get that. So, if you think about using all of these things together, you could accomplish, you know, a great deal.

If we discovered that, you know, space aliens were planning to attack and we needed a massive buildup to counter the space alien threat and really inflation and budget deficits took secondary place to that, this slump would be over in 18 months. And then if we discovered, oops, we made a mistake, there aren't any aliens, we'd be better –

'''ROGOFF''': And we need Orson Welles, is what you're saying.

'''KRUGMAN''': No, there was a "Twilight Zone" episode like this in which scientists fake an alien threat in order to achieve world peace. Well, this time, we don't need it, we need it in order to get some fiscal stimulus.</blockquote>

==References==
{{Reflist}}

==Links==
{{wikisource|That Which Is Seen, and That Which Is Not Seen}}
{{store|http://mises.org/store/Bastiat-Collection-Pocket-Edition-P10458.aspx|The Bastiat Collection (Pocket Edition)}}
* [http://bastiat.org/fr/cqovecqonvp.html "Ce qu'on voit et ce qu'on ne voit pas"] (original essay, in ''French'')
* [http://bastiat.org/en/twisatwins.html That Which is Seen, and That Which is Not Seen] (essay in English)
* [http://blog.mises.org/13436/the-broken-window-2/ "The Broken Window Fallacy" video] ([http://www.youtube.com/watch?v=QG4jhlPLVVs "no accents" version])
* [http://www.youtube.com/watch?v=erJEaFpS9ls "The Broken Window Fallacy"] by [[Art Carden]] with LearnLiberty.org

{{DEFAULTSORT:Parable Of The Broken Window}}

[[Category:Economic concepts]]
[[Category:Fallacies]]

Paul Krugman

2011-08-11T12:58:26Z

Daniel Hewitt: /* Crediting the housing bubble for the mid-2000’s economic recovery: */

[[File:Paul Krugman.jpeg|thumb|right|Paul Krugman]]

'''Paul Krugman''' is an American economist and Nobel laureate. He is also an op-ed columnist and blogger for the [[New York Times]]. Krugman is well known for believing in the theories of [[John Maynard Keynes]] and continually advocates for more inflation and government intervention in the economy. Krugman's blog posts repeatedly display his opinion that [[inflation]] is a measurement of prices and not the quantity of money.<ref>[http://krugman.blogs.nytimes.com/2010/11/09/inflation-delusions-2/] "Inflation delusions"</ref><ref>[http://krugman.blogs.nytimes.com/2010/11/06/are-rising-commodity-prices-an-inflationary-signal/] "Are rising commodity prices an inflationary signal?"</ref><ref>[http://krugman.blogs.nytimes.com/2010/11/04/generating-inflation-expectations/] "Generating inflation expectations"</ref> For these and other views is Krugman frequently criticized by Austrian economists.{{Fact}} A blog created by [[William L. Anderson|William L. Anderson]] is devoted to "Analysis and criticism of America's most prominent public intellectual and champion of Keynesian economics."<ref name="Anderson_Krugman">William L. Anderson. [http://krugman-in-wonderland.blogspot.com/ "Krugman-in-Wonderland"], referenced 2010-11-16.</ref>

In October 2010, Krugman was challenged to a [[Murphy-Krugman debate|debate]] over Austrian vs. Keynesian business cycle theory by economist [[Robert Murphy]]. As of mid-November 2010 Krugman has not responded.

==Broken window fallacy==
The [[broken-window fallacy]] was seen in a column by Princeton University professor Paul Krugman after the terrorist attack on the World Trade Center:<ref name="Williams_lunacy">Walter. E. Williams. [http://www.washingtontimes.com/news/2004/nov/22/20041122-095742-3613r/ "Economic lunacy"], November 22, 2004, Washington Times. Referenced 2011-01-05.</ref> "Ghastly as it may seem to say this, the terror attack -- like the original day of infamy, which brought an end to the Great Depression -- could even do some economic good."<ref name="Krugman_Horror">Paul Krugman. [http://www.nytimes.com/2001/09/14/opinion/reckonings-after-the-horror.html "Reckonings; After The Horror"], September 14, 2001, The New York Times. Referenced 2011-01-05.</ref>

In 1998, Krugman said: "During phases of weak growth there are always those who say that lower interest rates will not help. They overlook the fact that low interest rates act through several channels. For instance, more housing is built, which expands the building sector. You must ask the opposite question: why in the world shouldn't you lower interest rates?" To the question "...because that would only promote inflation instead of growth?" he responded "There is no danger of that!"<ref name="Hanke_Zinsen">Thomas Hanke. [http://www.zeit.de/1998/51/Runter_mit_den_Zinsen_ "Runter mit den Zinsen!"] (in ''German'', "Down with the rates!"), ''Die Zeit'', 51/1998. [http://www.pkarchive.org/global/welt.html Translation by Peter Bartl]. Referenced 2011-01-05.</ref>

In June, 2011, Paul Krugman declared that a new war would solve the nation’s looming economic problems: "If we suddenly had a threat of war and a military build up, you’d be amazed how fast the economy would recover."<ref name="Krugman_ABC">Paul Krugman. [http://abcnews.go.com/ThisWeek/video/roundtable-jobs-13765518 "Roundtable: Where are the Jobs?"] (video, from ~4:56), ''ABC News'', 06/05/2011. 2011-06-09.</ref>

==Krugman on Austrian Economics==
In 1998, Krugman wrote that he regarded the "Austrian theory" of the [[Austrian Business Cycle Theory|business cycle]] "about as worthy of serious study as the phlogiston theory of fire".<ref name="Krugman_Hangover">Paul Krugman. [http://www.slate.com/id/9593 "The Hangover Theory"], ''Slate'', December 4, 1998. Referenced 2011-01-25.</ref> In 2011, he conceded that (in his understanding of) the Austrian explanation both is theoretically possible and actually happens in the real world:<ref name="Krugman_Reply">Robert P. Murphy. [http://mises.org/daily/4993 "My Reply to Krugman on Austrian Business-Cycle Theory"], ''Mises Daily'', January 24, 2011. Referenced 2011-01-25.</ref>

<blockquote>So what is the essence of this Austrian story? Basically, it says that what we call an economic boom is actually something like [[China|China's]] disastrous [[Great Leap Forward]], which led to a temporary surge in consumption but only at the expense of degradation of the country's underlying productive capacity. And the unemployment that follows is a result of that degradation: there's simply nothing useful for the unemployed workers to do.

I like this story, and there are probably other cases besides China 1958–1961 to which it applies. But what reason do we have to think that it has anything to do with the business cycles we actually see in market economies?<ref name="Krugman_Leaps">Paul Krugman. [http://krugman.blogs.nytimes.com/2011/01/19/great-leaps-backward/ "Great Leaps Backward"], ''The New York Times'', January 19, 2011. Referenced 2011-01-25.</ref></blockquote>

==Krugman in Support of the 2000’s US Housing Bubble==

===Recommending the Federal Reserve lower interest rates to create a housing bubble:===
undated:<blockquote> “During phases of weak growth there are always those who say that lower interest rates will not help. They overlook the fact that low interest rates act through several channels. For instance, more housing is built, which expands the building sector. You must ask the opposite question: why in the world shouldn’t you lower interest rates?” <ref name="Housing Bubble undated">Paul Krugman. [http://www.pkarchive.org/global/welt.html "DIE ZEIT"], ''DIE ZEIT- INTERVIEW WITH KRUGMAN - Translation by Peter Bartl'', undated. Referenced 2011-01-26.</ref></blockquote>

2001-05-02:<blockquote> I've always favored the let-bygones-be-bygones view over the crime-and-punishment view. That is, I've always believed that a speculative bubble need not lead to a recession, as long as interest rates are cut quickly enough to stimulate alternative investments. But I had to face the fact that speculative bubbles usually are followed by recessions. My excuse has been that this was because the policy makers moved too slowly -- that central banks were typically too slow to cut interest rates in the face of a burst bubble, giving the downturn time to build up a lot of momentum. That was why I, like many others, was frustrated at the smallish cut at the last Federal Open Market Committee meeting: I was pretty sure that Alan Greenspan had the tools to prevent a disastrous recession, but worried that he might be getting behind the curve.
However, let's give credit where credit is due: Mr. Greenspan has cut rates since then. And while some of us may have been urging him to move even faster, the Fed's four interest-rate cuts since the slowdown became apparent represent an unusually aggressive response by historical standards. It's still not clear that Mr. Greenspan has caught up with the curve -- let's have at least one more rate cut, please -- but the interest-rate cuts do, cross your fingers, seem to be having an effect.
If we succeed in avoiding recession, this will mark a big win for let-bygones-be-bygones, and a big loss for crime-and-punishment. And that will be very good news not just for this business cycle, but for business cycles to come. <ref name="Housing Bubble 2001-05-02">Paul Krugman. [http://www.nytimes.com/2001/05/02/opinion/reckonings-dodging-the-bullet.html "Reckonings; Dodging the Bullet"], ''The New York Times'', May 2, 2001. Referenced 2011-01-26.</ref></blockquote>

2001-07-18:<blockquote> KRUGMAN: "I think frankly it’s got to be — business investment is not going to be the driving force in this recovery. It has to come from things like housing, things that have not been (UNINTELLIGIBLE)."

DOBBS: "We see, Paul, housing at near record levels, we see automobile purchases near record levels. The consumer is still very much in this economy. Can he or she — or I should say he and she, can they bring back this economy?"

KRUGMAN: "Well, as far as the arithmetic goes, yes, it is possible. Will the Fed cut interest rates enough? Will long-term rates fall enough to get the consumer, get the housing sector there in time? We don’t know" <ref name="Housing Bubble 2001-07-18">Paul Krugman. [http://www.pkarchive.org/economy/ML071801.html "LOU DOBBS MONEYLINE"], ''LOU DOBBS MONEYLINE, July 18, 2001: Interview with Paul Krugman'', July 18, 2001. Referenced 2011-01-26.</ref></blockquote>

2001-08-14:<blockquote> Still, as former Treasury Secretary Larry Summers says, you don't have to refill a flat tire through the puncture. To reflate the economy, the Fed doesn't have to restore business investment; any kind of increase in demand will do. How might demand increase? Consumers, who already have low savings and high debt, probably can't contribute much. But housing, which is highly sensitive to interest rates, could help lead a recovery… But there has been a peculiar disconnect between Fed policy and the financial variables that affect housing and trade. Housing demand depends on long-term rather than short-term interest rates -- and though the Fed has cut short rates from 6.5 to 3.75 percent since the beginning of the year, the 10-year rate is slightly higher than it was on Jan. 1... Sooner or later, of course, investors will realize that 2001 isn't 1998. When they do, mortgage rates and the dollar will come way down, and the conditions for a recovery led by housing and exports will be in place. <ref name="Housing Bubble 2001-08-14">Paul Krugman. [http://www.nytimes.com/2001/08/14/opinion/reckonings-delusions-of-prosperity.html “Reckonings; Delusions of Prosperity''] ''The New York Times'', August 14, 2001. Referenced 2011-01-26.</ref></blockquote>

2001-08-22:<blockquote> KRUGMAN: "I’m a little depressed. You know, inventories, probably that’s over, the inventory slump. But you look at the things that could drive a recovery, business investment, nothing happening. Housing, long-term rates haven’t fallen enough to produce a boom there. The trade balance is going to get worst before it gets better because the dollar is still very strong. It’s not a happy picture." <ref name="Housing Bubble 2001-08-22">Paul Krugman. [http://www.pkarchive.org/economy/ML082201.html “LOU DOBBS MONEYLINE"], ''LOU DOBBS MONEYLINE, August 22, 2001: Interview with Paul Krugman'', August 22, 2001. Referenced 2011-01-26.</ref></blockquote>

2001-10-07:<blockquote> Post-terror nerves aside, what mainly ails the U.S. economy is too much of a good thing. During the bubble years businesses overspent on capital equipment; the resulting overhang of excess capacity is a drag on investment, and hence a drag on the economy as a whole.
In time this overhang will be worked off. Meanwhile, economic policy should encourage other spending to offset the temporary slump in business investment. Low interest rates, which promote spending on housing and other durable goods, are the main answer. <ref name="Housing Bubble 2001-10-07">Paul Krugman. [http://www.nytimes.com/2001/10/07/opinion/reckonings-fuzzy-math-returns.html “Reckonings; Fuzzy Math Returns"], ''The New York Times'', October 7, 2001. Referenced 2011-01-26.</ref></blockquote>

2001-12-28:<blockquote> The good news about the U.S. economy is that it fell into recession, but it didn't fall off a cliff. Most of the credit probably goes to the dogged optimism of American consumers, but the Fed's dramatic interest rate cuts helped keep housing strong even as business investment plunged. <ref name="Housing Bubble 2001-12-28">Paul Krugman. [http://www.nytimes.com/2001/12/28/opinion/could-ve-been-worse.html “Could've Been Worse"], ''The New York Times'', December 28, 2001. Referenced 2011-01-26.</ref></blockquote>

2002-08-02:<blockquote> The basic point is that the recession of 2001 wasn't a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble. <ref name="Housing Bubble 2002-08-02">Paul Krugman. [http://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip.html “Dubya's Double Dip?"], ''The New York Times'', August 2, 2002. Referenced 2011-01-26.</ref></blockquote>

===Opposing the Federal Reserve raising interest rates:===
2008-03-03:<blockquote>One argument I’ve been hearing a lot lately runs as follows: “Low interest rates got us into this mess, so it’s crazy to think that low interest rates are the solution.”
Now, I don’t actually buy the first premise: I blame Greenspan for ignoring warnings about subprime and housing, but I still think keeping the Fed funds rate at 1% for a long time was justified by the economy’s weakness, which lasted until late 2003 or even beyond. But it’s true that we had an orgy of over-borrowing in the housing market. So the question remains: does an effort to encourage even more borrowing make sense?
Yes. <ref name="Housing Bubble 2008-03-03">Paul Krugman. [http://krugman.blogs.nytimes.com/2008/03/03/hair-of-the-dog "Hair of the dog"], ''Conscience of a Liberal: New York Times Blog'', March 3, 2008. Referenced 2011-01-26.</ref></blockquote>

2004-08-10:<blockquote>Oh, and on a nonpolitical note: even before Friday's grim report on jobs, I was puzzled by Mr. Greenspan's eagerness to start raising interest rates. Now I don't understand his policy at all.<ref name="Housing Bubble 2004-08-10">Paul Krugman. [http://www.nytimes.com/2004/08/10/opinion/spin-the-payrolls.html "Spin The Payrolls"], ''The New York Times'', August 10, 2004. Referenced 2011-01-26.</ref></blockquote>

===Crediting the housing bubble for the mid-2000’s economic recovery:===
2008-02-19:<blockquote>In fact, I’d say that the sources of the economy’s expansion from 2003 to 2007 were, in order, the housing bubble, the war, and — very much in third place — tax cuts. <ref name="Housing Bubble 2008-02-19">Paul Krugman. [http://krugman.blogs.nytimes.com/2008/02/19/bush-is-right-about-something "Bush is right about something"], ''Conscience of a Liberal: New York Times Blog'', February 19, 2008. Referenced 2011-01-26.</ref></blockquote>

2008-01-24:<blockquote>What finally created a convincing recovery was the housing boom. But that turned into a bubble, which has burst big time. <ref name="Why worry">Paul Krugman. [http://krugman.blogs.nytimes.com/2008/01/24/why-worry-about-a-poor-stimulus-plan/ "Why Worry About a Poor Stimulus Plan"], ''Conscience of a Liberal: New York Times Blog'', January 24, 2008. Referenced 2011-08-11.</ref></blockquote>

2006-10-30:<blockquote>'''Neeraj Mehra, Amritsar, India''': Mr. Greenspan has done a disservice to the nation by creating the housing boom. As a layman-observer, that’s the lingering thought I’ve had. Your article reaffirms it.
The question I have is this: Did he do the right thing — acting morally by engineering a housing boom, more as a bridge loan, until something else showed up at the horizon to shore up the economy — because he didn’t have a choice, or did he undertake a path of mere political expediency? And, that’s a question that’s nagging me for a while.
Would appreciate it if you could shed some light.

'''Paul Krugman''': As Paul McCulley of PIMCO remarked when the tech boom crashed, Greenspan needed to create a housing bubble to replace the technology bubble. So within limits he may have done the right thing. But by late 2004 he should have seen the danger signs and warned against what was happening; such a warning could have taken the place of rising interest rates. He didn’t, and he left a terrible mess for Ben Bernanke.<ref name="Credit where credit is due">Paul Krugman. [http://krugman.blogs.nytimes.com/2006/10/30/credit-where-credit-is-due/ "Credit Where Credit is Due"], ''Conscience of a Liberal: New York Times Blog'', October 30, 2006. Referenced 2011-08-11.</ref></blockquote>

2005-05-27:<blockquote>As Mr. McCulley predicted, interest rate cuts led to soaring home prices, which led in turn not just to a construction boom but to high consumer spending, because homeowners used mortgage refinancing to go deeper into debt. All of this created jobs to make up for those lost when the stock bubble burst.
Now the question is what can replace the housing bubble.<ref name="Housing Bubble 2005-05-27">Paul Krugman. [http://www.nytimes.com/2005/05/27/opinion/27krugman.html "Running Out of Bubbles"], ''The New York Times'', May 5, 2007. Referenced 2011-01-26.</ref></blockquote>

==Criticism==
===Partisanism===

''[[The Economist]]'' cites critics of Krugman stating that "his relentless partisanship is getting in the way of his argument". In addition, a website (titled "Lying in Ponds") that tracks [[Partisan (political)|partisanship]] among public intellectuals rated Krugman second in the overall partisan slant of his columns, behind only [[Ann Coulter]].<ref name=economist/> As [[Richard Posner]] and economist [[Mark J. Perry]] note, the site, which uses careful statistical analysis to make assessments political partisanship, has ranked Paul Krugman the number 1 or number 2 most biased every single year from 2002-2008.<ref name=posner/><ref>{{Cite web | last = Perry | first = Mark J. | authorlink = Mark J. Perry | title = Paul Krugman: #1 Most Partisan Columnist in U.S. | date = 2008-10-14 | year = 2008 | url = http://mjperry.blogspot.com/2008/10/paul-krugman-1-most-partisan-columnist.html | accessdate = 2011-08-10}}</ref>

''The Economist'' magazine supported the finding, noting the vast majority of Krugman's columns feature attacks on [[Republican Party (United States)|Republicans]] and almost none criticize [[Democratic Party (United States)|Democrats]], making him "a sort of ivory-tower folk-hero of the American [[Left-wing politics|left]]—a thinking person's [[Michael Moore]]" and that "a glance through his past columns reveals a growing tendency to attribute all the world's ills to [[George W. Bush|George Bush]]."<ref name=economist>{{Citation | title = The one-handed economist | newspaper = [[The Economist]] | pages = | year = 2003 | date = 2003-11-13 | url = http://www.economist.com/node/2208841 | archiveurl = | archivedate = | accessdate = 2011-08-10}}</ref> And speaking on Krugman's recent "prophecy of doom" regarding the [[United States elections, 2010|2010 election]], the magazine calls it a "baseless partisan freakout".<ref>{{Citation | title = Krugman's prophecy of doom | newspaper = [[The Economist]] | year = 2010 | date = 2010-10-29 | url = http://www.economist.com/blogs/democracyinamerica/2010/10/another_partisan_freakout | archiveurl = | archivedate = | accessdate = 2011-08-10}}</ref>

A study published in the [[peer-reviewed]] ''[[Econ Journal Watch]]'' examined statements from 17 economists from 1981 through 2009, and gauged the consistency of their stances on deficit spending and reduction during Republican and Democratic administrations. According to the study, Krugman was the only economist of the 17 to "significantly" change his stance on the federal budget deficit for partisan reasons.<ref>{{Citation | last = Barkley | first = Brett | title = When the White House Changes Party, Do Economists Change Their Tune on Budget Deficits? | journal = [[Econ Journal Watch]] | volume = 7 | issue = 2 | pages = 119-156 | date = 2010-05 | year = 2010 | month = May | url = http://econjwatch.org/articles/when-the-white-house-changes-party-do-economists-change-their-tune-on-budget-deficits | jstor = | doi = | id = | mr = | zbl = | jfm = }}</ref>

This finding of inconsistency was supported when ''[[The Wall Street Journal]]'' (WSJ) showed that Krugman contradicted his own findings in order to criticize Republican policy. When Republican [[United States Senate|Senator]] [[Jon Kyl]] stated that unemployment relief doesn't create new jobs and in fact is a disincentive for unemployed individuals to seek new work, Krugman called it a "bizarre point of view" and stated that "What Democrats believe is what textbook economics says [...] But that's not how Republicans see it". [[James Taranto]] of the WSJ reproduced a passage from a textbook called ''Macroeconomics'' which states: "The drawback to [unemployment benefits] is that it reduces a worker's incentive to quickly find a new job." The authors of the textbook are Paul Krugman and [[Robin Wells Krugman|his wife]].<ref>{{Citation | last = Taranto | first = James | author-link = James Taranto | title = Mirror, Mirror | newspaper = [[The Wall Street Journal]] | year = 2010 | date = 2010-03-05 | url = http://online.wsj.com/article/SB10001424052748703915204575103720332317434.html | archiveurl = | archivedate = | accessdate = 2011-08-10}}</ref> This led [[John H. Hinderaker|John Hinderaker]] of the [[Conservatism in the United States|conservative]] [[Claremont Institute]] to proclaim: "only the existence of [[Frank Rich]] prevents Krugman from being the world’s worst columnist."<ref>{{Cite web | last = Hinderaker
| first = John | authorlink = John H. Hinderaker | title = Krugman Vs. Krugman | publisher = [[Power Line]] | date = 2010-03-06 | url = http://www.powerlineblog.com/archives/2010/03/025752.php | accessdate = 2011-08-10}}</ref>

In 2008, economist [[Peter Boettke]] noted: "[Over the years] Krugman's work devolved from science to [[ideology]] and finally to political partisanship" and that Krugman "has used his platform as an economist and as a columnist for the New York Times for his Democratic partisanship purposes."<ref>{{Cite web | last = Boettke | first = Peter | authorlink = Peter Boettke | title = Political Economist | publisher = [[Forbes]] | date = 2008-10-13 | archiveurl = http://web.archive.org/web/20081016034623/http://www.forbes.com/opinions/2008/10/13/krugman-nobel-economics-oped-cx_pb_1013boettke.html | archivedate = 2008-10-16 | url = http://www.forbes.com/opinions/2008/10/13/krugman-nobel-economics-oped-cx_pb_1013boettke.html | accessdate = 2011-08-10}}</ref>

Author and [[United States Court of Appeals for the Seventh Circuit|federal appeals court judge]] [[Richard Posner]] called Krugman "an unabashed Democratic partisan who often goes overboard in his hatred of the Republians." [sic]<ref name=posner>{{Citation | last = Posner | first = Richard | author-link = Richard Posner | title = The Good Paul Krugman and the Bad Paul Krugman | newspaper = [[The Atlantic]] | year = 2009 | date = 2009-06-03 | url = http://www.theatlantic.com/business/archive/2009/06/the-good-paul-krugman-and-the-bad-paul-krugman/18718/ | archiveurl = | archivedate = | accessdate = 2011-08-10}}</ref>

Economist [[Donald J. Boudreaux|Donald Boudreaux]] has stated that Krugman does "a disservice to non-'liberal' scholars as well as to scholarship generally" by asserting that serious thinking is done only by Krugman himself and other liberals.<ref>{{Citation | last = Boudreaux | first = Don | author-link = Donald J. Boudreaux | title = Open Letter to Paul Krugman | date = 2011-06-19 | year = 2011 | url = http://cafehayek.com/2011/06/open-letter-to-paul-krugman-2.html | accessdate = 2011-08-10}}</ref>

Liberal journalists also openly point out Krugman's obvious political bias: ''[[New York Magazine]]'' called Krugman "the leading exponent of a kind of liberal purism" that he is "not altogether comfortable with, but it is [a role] he has sought."<ref name=nymag>{{Citation | last = Wallace-Wells | first = Benjamin | author-link = | title = What’s Left of the Left | newspaper = [[New York Magazine]] | pages = | year = 2011 | date = 2011-04-24 | url = http://nymag.com/news/politics/paul-krugman-2011-5/ | archiveurl = | archivedate = | accessdate = 2011-08-10}}</ref> [[American liberalism|Liberal]] journalist and author [[Michael Tomasky]] in ''[[The New York Review of Books]]'' stated "Many liberals would name Paul Krugman of The New York Times as perhaps the most consistent and courageous—and unapologetic—liberal partisan in American journalism."<ref>{{Citation | last = Tomasky | first = Michael | author-link = Michael Tomasky | title = The Partisan | newspaper = [[The New York Review of Books]] | year = 2007 | date = 2007-11-22 | url = http://www.nybooks.com/articles/archives/2007/nov/22/the-partisan/ | archiveurl = | archivedate = | accessdate = 2011-08-10}}</ref>

Liberal historian [[Michael Kazin]] has stated Krugman’s account of the [[Right-wing politics|right]] succumbed to the [[Marxist]] flaw of false consciousness: "Unlike what Krugman says, conservatism is not some kind of smoke screen for another agenda."<ref name=nymag/>

===Contradictions===
Krugman has garnered a reputation for contradicting himself on many occasions. When documenting such inconsistencies several writers have made references to such an occurrence being commonplace: "It's not newsworthy when Paul Krugman contradicts himself."<ref name=states/> "Not that you needed any more evidence that New York Times columnist Paul Krugman is a flip-flopping charlatan..."<ref name=entitlement/> "This just in: New York Times columnist Paul Krugman is a raging hypocrite. You'll be shocked to find out, I'm sure."<ref>{{Citation | last = Markay | first = Lachlan | author-link = | title = Paul Krugman Favored Raising Retirement Age Until GOP Proposed It | newspaper = [[NewsBusters]] | date = 2011-04-26 | url = http://www.newsbusters.org/blogs/lachlan-markay/2011/04/26/paul-krugman-favored-raising-retirement-age-until-gop-proposed-it | archiveurl = | archivedate = | accessdate = 2011-08-10}}</ref>

In addition to the instance reported in the WSJ ([[Paul Krugman#Partisanism|see above]]), a single article published in the conservative online magazine ''[[The American Thinker]]'' documents Krugman making contradictory statements in a wide variety of topics. He is documented as stating that when [[deficit]]s are high [[interest rate]]s are low, and when governments run up a deficit, interest rates rise. He argued that higher [[national debt]] and spending were bad for people early in their careers, as they would have to pay for it later in life, and nearly twenty-five years later, he argues that the national debt is not a problem, as it never needs to be paid off. Krugman argued it is not the debt that matters, but rather the [[debt-to-GDP ratio]]. But in an open letter to [[Alan Greenspan]] he asserted, "...you obviously realize that the ratio of debt to G.D.P. is a highly misleading number." He has argued that [[Social Security]] is sustainable and unsustainable, opposed government-run health care before supporting government-run health care, and opposed the bailout of [[Fannie Mae]] before congratulating the government for the bailout of Fannie Mae.<ref name=contradiction/>

Krugman has stated [[labor unions]] and higher wages cause [[unemployment]], as well as stating labor unions create a stable [[middle class]], and lower wages have a [[Recession|contractionary]] effect on the economy (which is characterized in part by unemployment). He has argued that governments do not cause recessions and are not responsible for [[business cycle]]s, but he also blames the [[Presidency of George W. Bush|Bush administration]] for the current [[recession]]. Krugman claimed that nothing the government has done has had an impact on the economy, and states that government actions are like using a water pistol to shoot an elephant -- but he also claims that "big government" saved the economy. He declared that workers' fears of losing jobs to workers in China and India due to [[globalization]] aren't irrational, when he earlier stated that those who blamed the global economy for the loss of jobs were "silly."<ref name=contradiction>{{Citation | last = Kumar | first = Arvind | title = Paul Krugman, the Self-Contradicting Economist | newspaper = [[The American Thinker]] | year = 2010 | date = 2010-06-23 | url = http://www.americanthinker.com/2010/06/paul_krugman_the_selfcontradic.html | archiveurl = http://www.webcitation.org/60M5qaItY | archivedate = 2011-07-21 | accessdate = 2011-08-10}}</ref>

[[Conservatism in the United States|Conservative]] blogger and political commentator [[Michelle Malkin]] noted that in April 2011, Krugman assailed [[entitlement]] reform advocates, lamenting that "the fervor with which Washington types call for raising eligibility ages is a ‘tell’: it shows how disconnected they are from the way the other half lives (and dies)" and called life expectancy "more and more a class-related issue." But in 1996 he called similar proposals (such as raising the age of eligibility for federal entitlements) "sensible".<ref name=entitlement>{{Cite web | last = Malkin | first = Michelle | authorlink = Michelle Malkin | title = Paul Krugman: For entitlement reform before he was against it | date = 2011-04-26 | year = 2011 | url = http://michellemalkin.com/2011/04/26/paul-krugman-for-entitlement-reform-before-he-was-against-it/ | accessdate = 2011-08-10}}</ref>

In 2007, Krugman berated then-Senator [[Barack Obama]] for worrying about the future of Social Security, stating Obama had been misled by "decades of scare-mongering about Social Security’s future from conservative [[ideologue]]s." Economist and former Chairman of the [[Council of Economic Advisors]] [[N. Gregory Mankiw|Greg Mankiw]] responded by stating that "Paul's interpretation seems to be based on either a faulty memory or an especially inclusive definition of what constitutes a conservative ideologue", pointing out that not only did [[Democratic Party (United States)|Democratic]] President [[Bill Clinton]] voice similar concerns, but that he was under advisement of well-known economist and non-conservative [[Edward Gramlich]], whom Krugman had in the past praised as being particularly prescient.<ref>{{Cite web | last = Mankiw | first = Greg | authorlink = N. Gregory Mankiw | title = In Search of Ideologues | date = 2007-11-16 | url = http://gregmankiw.blogspot.com/2007/11/in-search-of-ideologues.html | accessdate = 2011-08-10}}</ref> In addition, less than a month prior, Mankiw had previously pointed out Krugman's contradiction on Social Security when he quoted from an interview in which Krugman stated it is "one of the best" federal government programs in terms of funding, and that it's not for certain the program has a problem. However, as Mankiw shows, Krugman himself stated ten years earlier that crisis loomed ahead when the baby boomers would start to retire around year 2010.<ref>{{Cite web | last = Mankiw | first = Greg | authorlink = N. Gregory Mankiw | title = Krugman vs Obama | date = 2007-10-28 | url = http://gregmankiw.blogspot.com/2007/10/krugman-vs-obama.html | accessdate = 2011-08-10}}</ref>

In an open letter to ''[[The New York Times]]'' [[Donald J. Boudreaux|Donald Boudreaux]] pointed out that Krugman suggested trade with low-wage countries poses real problems for high-wage America, despite years earlier penning a paper stating that wages are determined by worker productivity.<ref>{{Cite web | last = Boudreaux | first = Donald J. | authorlink = Donald J. Boudreaux | title = Strange Case of Dr. K and Mr. K | date = 2008-01-05 | url = http://cafehayek.com/2008/01/strange-case-of.html | accessdate = 2011-08-10}}</ref>

Columnist Tom Bevan asked in 2009 how Krugman reconciles a call for [[economic stimulus]] while at the same time arguing that additional environmental regulations and taxes are needed to avert the "utter catastrophe", outlining that stricter environmental policies such as carbon taxes, capping emissions, and additional regulations come at a cost to the economy.<ref>{{Citation | last = Bevan | first = Tom | author-link = | title = Krugman's Contradiction | newspaper = [[RealClearPolitics]] | date = 2009-07-13 | url = http://www.realclearpolitics.com/articles/2009/07/13/krugmans_contradiction_97433.html | archiveurl = | archivedate = | accessdate = 2011-08-10}}</ref>

Economist [[Robert P. Murphy|Robert Murphy]] has documented so many contradictions made by Krugman that he has coined the term "Krugman Kontradiction" or "Klassic Krugman".<ref name=states>{{Cite web
| last = Murphy
| first = Robert P.
| authorlink = Robert P. Murphy
| title = Caught: Krugman's Shifting Arguments
| work =
| publisher = [[Ludwig von Mises Institute]]
| date = 2011-03-03
| url = http://mises.org/daily/5086
| accessdate = 2011-08-10}}</ref>
<ref name=austerity>{{Cite web
| last = Murphy
| first = Robert P.
| authorlink = Robert P. Murphy
| title = A Krugman Kontradiction?
| date = 2010-06-10
| url = http://consultingbyrpm.com/blog/2010/06/a-krugman-kontradiction.html
| accessdate = 2011-08-10}}</ref>
<ref name=QEcontra>{{Cite web
| last = Murphy
| first = Robert P.
| authorlink = Robert P. Murphy
| title = Yet Another Krugman Kontradiction
| date = 2010-11-23
| url = http://consultingbyrpm.com/blog/2010/11/yet-another-krugman-kontradiction.html
| accessdate = 2011-08-10}}</ref>
<ref name=PIGS>{{Cite web
| last = Murphy
| first = Robert P.
| authorlink = Robert P. Murphy
| title = Yet Another Krugman Kontradiction?
| date = 2011-03-30
| url = http://consultingbyrpm.com/blog/2011/03/yet-another-krugman-kontradiction-2.html
| accessdate = 2011-08-10}}</ref>
<ref name=stimulus>{{Cite web
| last = Murphy
| first = Robert P.
| authorlink = Robert P. Murphy
| title = Klassic Krugman Kontradiction
| date = 2011-05-19
| url = http://consultingbyrpm.com/blog/2011/05/klassic-krugman-kontradiction.html
| accessdate = 2011-08-10}}</ref>
<ref name=WW2>{{Cite web
| last = Murphy
| first = Robert P.
| authorlink = Robert P. Murphy
| title = Another Krugman Kontradiction?
| date = 2010-07-07
| url = http://consultingbyrpm.com/blog/2010/07/another-krugman-kontradiction.html
| accessdate = 2011-08-10}}</ref>
<ref name=hangover>{{Cite web
| last = Murphy
| first = Robert P.
| authorlink = Robert P. Murphy
| title = Krugman In Support of the Hangover Theory?
| date = 2010-12-30
| url = http://consultingbyrpm.com/blog/2010/12/krugman-hangover-theory.html
| accessdate = 2011-08-10}}</ref>
<ref name=hangover>{{Cite web
| last = Murphy
| first = Robert P.
| authorlink = Robert P. Murphy
| title = Krugman Has Booted the Hackers From His Blog Account
| date = 2010-06-11
| url = http://consultingbyrpm.com/blog/2010/06/krugman-has-booted-the-hackers-from-his-blog-account.html
| accessdate = 2011-08-10}}</ref>

===False claims===
Columnist Richard Baehr has written several pieces documenting false and contradictory statements by Krugman. In August 2005, Baehr published a series of articles detailing Krugman's continuous misrepresentation of facts surrounding the [[United States presidential election, 2000|2000 Presidential election]] and votes cast in Florida.<ref name=biglie>{{Citation | last = Baehr | first = Richard | title = Krugman's Big Lie | newspaper = [[The American Thinker]] | date = 2005-08-20 | url = http://www.americanthinker.com/2005/08/krugmans_big_lie.html | archiveurl = | archivedate = | accessdate = 2011-08-10}}</ref><ref>{{Citation | last = Baehr | first = Richard | title = More baloney from Krugman | newspaper = [[The American Thinker]] | date = 2005-08-23 | url = http://www.americanthinker.com/2005/08/more_baloney_from_krugman.html | archiveurl = | archivedate = | accessdate = 2011-08-10}}</ref> (A gaffe that was also noted by [[Michelle Malkin]]<ref>{{Cite web | last = Malkin | first = Michelle | authorlink = Michelle Malkin | title = The Krugman Correction | date = 2005-08-26 | url = http://michellemalkin.com/2005/08/26/the-krugman-correction/ | accessdate = 2011-08-10}}</ref><ref>{{Cite web | last = Malkin | first = Michelle | authorlink = Michelle Malkin | title = Krugman's Correction | date = 2005-09-15 | url = http://michellemalkin.com/2005/09/15/krugmans-correction/ | accessdate = 2011-08-10}}</ref><ref>{{Cite web | last = Malkin | first = Michelle | authorlink = Michelle Malkin | title = Yet Another Krugman Korrection | date = 2005-10-02 | url = http://michellemalkin.com/2005/10/02/yet-another-krugman-korrection/ | accessdate = 2011-08-10}}</ref>, [[Donald Luskin]]<ref>{{Citation | last = Luskin | first = Donald | author-link = Donald Luskin | title = It’s the Truth that Counts | newspaper = [[National Review]] | date = 2005-08-24 | url = http://www.nationalreview.com/nrof_luskin/luskin200508240848.asp | accessdate = 2011-08-10}}</ref><ref>{{Cite web | last = Luskin | first = Donald | authorlink = Donald Luskin | title = Krugman Officially Corrects His Florida 2000 Lies | newspaper = | date = 2005-08-26 | url = http://www.poorandstupid.com/2005_08_21_chronArchive.asp#112503484243947813 | accessdate = 2011-08-10}}</ref><ref>{{Citation | last = Luskin | first = Donald | author-link = Donald Luskin | title = Third Time’s Not a Charm | newspaper = [[National Review]] | date = 2005-09-13 | url = http://old.nationalreview.com/nrof_luskin/luskin200509130821.asp | accessdate = 2011-08-10}}</ref><ref>{{Cite web | last = Luskin | first = Donald | authorlink = Donald Luskin | title = Hell Freezes Over at The New York Times | newspaper = | date = 2005-10-01 | url = http://www.poorandstupid.com/2005_09_25_chronArchive.asp#112822299822124760 | accessdate = 2011-08-10}}</ref>, [[Mickey Kaus]]<ref>{{Citation | last = Kaus | first = Mickey | author-link = Mickey Kaus | title = The "Two Atta" Theory | newspaper = [[Slate (magazine)|Slate]] | date = 2005-08-21 | url = http://www.slate.com/?id=2124546&%2523overfisk | accessdate = 2011-08-10}}</ref>, and Patterico<ref>{{Cite web | last = Patterico | first = | title = Paul Krugman Just Can’t Get It Right | date = 2005-08-26 | url = http://patterico.com/2005/08/26/paul-krugman-just-cant-get-it-right/ | accessdate = 2011-08-10}}</ref><ref>{{Cite web | last = Patterico | first = | title = Paul Krugman Prettifies His Own History of Misstatements | date = 2005-09-16 | url = http://patterico.com/2005/09/16/paul-krugman-prettifies-his-own-history-of-misstatements/ | accessdate = 2011-08-10}}</ref>, among others.) Baehr closed the series stating: "The continuous rise of the internet has enabled critics to hyperlink source material proving Krugman's lack of integrity. Krugman simply could not get away with his lies if he were required to post hyperlinks [...] Why is the New York Times still employing a serial liar in its op ed pages?"<ref>{{Citation | last = Baehr | first = Richard | title = More Krugman lies: the Great Unraveling continues | newspaper = [[The American Thinker]] | date = 2005-08-26 | url = http://www.americanthinker.com/2005/08/more_krugman_lies_the_great_un.html | archiveurl = | archivedate = | accessdate = 2011-08-10}}</ref>

In 2010 Baehr detailed Krugman's August 23 column on extending the Bush tax cuts as being "not merely misleading; it is an outright and deliberate fabrication."<ref>{{Citation | last = Baehr | first = Richard | title = Paul Krugman Is a Liar: Does the New York Times Care? | newspaper = [[The American Thinker]] | date = 2010-08-23 | url = http://www.americanthinker.com/2010/08/paul_krugman_is_a_liar_does_th.html | archiveurl = | archivedate = | accessdate = 2011-08-10}}</ref>

In 2003 Krugman falsely accused conservatives of embracing the [[lump of labour fallacy]], when the paper he cited did not commit the error.<ref name=economist/>

James D. Agresti documented Krugman claiming total government spending had fallen under the Obama administration, then changing his claim to say it had remained flat, both of which were shown to be false according to the data published by the federal [[Bureau of Economic Analysis]].<ref>{{Citation | last = Agresti | first = James D. | author-link = | title = Paul Krugman's Jihad | newspaper = [[The American Thinker]] | date = 2010-10-27 | url = http://www.americanthinker.com/2010/10/paul_krugmans_jihad_1.html | archiveurl = | archivedate = | accessdate = 2011-08-10}}</ref> This led economist [[Robert P. Murphy|Robert Murphy]] to ask: "Is Krugman just lying now?"<ref>{{Cite web | last = Murphy | first = Robert P. | authorlink = Robert P. Murphy | title = Is Krugman Just Lying Now? | date = 2010-10-11 | url = http://consultingbyrpm.com/blog/2010/10/is-krugman-just-lying-now.html | accessdate = 2011-08-10}}</ref>

Economist [[Robert Higgs]] noted that in a telephone news conference Krugman commented the [[Late-2000s recession]] "in fact" resembles the [[Great Depression]]. Higgs mentions various measures, including the [[unemployment rate]], [[Gross domestic product|GDP]] decline, commercial bank failures, and others, all which empirically contradict Krugman's claim.<ref name=depression/>

===Economics===

''[[The Economist]]'' notes that in addition to his obvious partisanism, "even [Krugman's] economics is sometimes stretched." He used [[game theory]] to argue that [[George W. Bush|President Bush]] was probably encouraging [[North Korea]] to become a more dangerous nuclear power. The magazine notes that while "this probably did not convince most game theorists", it still in effect gives lay readers "the illusion that Mr Krugman's perfectly respectable personal political beliefs can somehow be derived empirically from economic theory." Krugman is also said to have embraced the concept of the [[There ain't no such thing as a free lunch|free lunch]]—"even though as an economist he should know better."<ref name=economist/>

Economist and former [[United States Secretary of the Treasury]] [[Lawrence Summers|Larry Summers]] has stated Krugman has a tendency to favor more extreme policy recommendations because "it’s much more interesting than agreement when you’re involved in commenting on rather than making policy."<ref name=nymag/>

Krugman's contradictions and alleged poor economic reasoning have led to much attention, particularly in the [[blogosphere]] and the economics community. "[Krugman] has made a habit of distortion [...] Several website [sic] have sprung up to deconstruct each Krugman column,and others respond to specific errors, which are routine."<ref name=biglie/> Economist [[William L. Anderson|Bill Anderson]] maintains a website dedicated solely to documenting Krugman's errors and inconsistencies, called "Krugman-in-Wonderland".<ref>{{Cite web | last = Anderson | first = William L. | authorlink = William L. Anderson | title = Welcome to Krugman-in-Wonderland! | date = 2010-01-20 | url = http://krugman-in-wonderland.blogspot.com/2010/01/welcome-to-krugman-in-wonderland.html | accessdate = 2011-08-10}}</ref> [[United States House of Representatives elections in Massachusetts, 2012|U.S. House Republican candidate]] Jeff Semon founded a similar website titled "KrugmanIsWrong.com" to document Krugman's inaccuracies.<ref>{{Cite web | last = Semon | first = Jeff | authorlink = | title = About | work = | publisher = KrugmanIsWrong.com | url = http://www.krugmaniswrong.com/about/ | format = | accessdate = 2011-08-10}}</ref>

Calling him a "doctor of (bad) economics", [[Sheldon Richman]] has pointed out inconsistencies and conflicting notions in Krugman's prescription for [[international trade]] and domestic [[social safety net]]s.<ref>{{Citation | last = Richman | first = Sheldon | author-link = Sheldon Richman | title = Paul Krugman, Doctor of (Bad) Economics | newspaper = [[The Freeman]] | date = 2008-01-04 | url = http://www.thefreemanonline.org/columns/tgif/the-goal-is-freedom-paul-krugman-doctor-of-bad-economics/ | archiveurl = | archivedate = | accessdate = 2011-08-10}}</ref>

In 2002 [[William L. Anderson|Bill Anderson]] documented Krugman's notion that health care is the only industry in which improvements in knowledge and the development and acquisition of capital drive ''up'' costs, not reduce them, as laws of economics dictate. Anderson says Krugman's assessment "provides ample proof that one can be called an 'economist,' yet not know much about economics."<ref>{{Cite web | last = Anderson | first = William L. | authorlink = William L. Anderson | title = "Bad Medicine" or Bad Economics? | publisher = [[Ludwig von Mises Institute]] | date = 2002-03-20 | url = http://mises.org/daily/917 | accessdate = 2011-08-10}}</ref>

Economist and former Chairman of the [[Council of Economic Advisors]] [[N. Gregory Mankiw|Greg Mankiw]] stated he was left scratching his head when Krugman claimed a [[Tobin tax]] on foreign exchange trades is possible because "modern trading is a highly centralized affair", with a majority of transactions settled at a single London-based institution. Mankiw points out that if taxes made transacting in London even slightly more expensive, companies could easily move elsewhere, thus making the tax useless, and Krugman's claim null.<ref>{{Citation | last = Mankiw
| first = Greg | author-link = N. Gregory Mankiw | title = Is a Tobin Tax feasible? | date = 2009-11-27 | year = 2009 | url = http://gregmankiw.blogspot.com/2009/11/is-tobin-tax-feasible_27.html | accessdate = 2011-08-10}}</ref>

Investor and businessman [[Jim Rogers]] said of Krugman "He doesn't know anything about economics. He's an idiot."<ref>{{Cite video | people = [[Jim Rogers]] | title = Freedom Watch | medium = Television production | format = [[Flash video]] | publisher = [[Fox Business Network]] | url = http://www.youtube.com/watch?v=fWe3jyqRo-4 | location = [[New York City]] | date = 2010-10-16 | accessdate = 2011-08-10}}</ref>

===Nobel Prize===
Upon Krugman's award of the [[Nobel Memorial Prize in Economic Sciences|Nobel Memorial Prize in Economics]], many in the economic community voiced disapproval. [[Peter Boettke]] stated "the Swedes just made perhaps the worst decision in the history of the prize today in naming Paul Krugman the 2008 award winner [...] today I would say is a sad day for economics, not a day to be celebrated."<ref>{{Cite web | last = Boettke | first = Peter | authorlink = Peter Boettke | title = You Cannot Be Serious! Paul Krugman's Nobel Prize | date = 2008-10-13 | url = http://austrianeconomists.typepad.com/weblog/2008/10/you-cannot-be-s.html | accessdate = 2011-08-10}}</ref> Economist [[William L. Anderson|Bill Anderson]] deemed the announcement indicative "that outright political partisanship is not a deterrent to winning."<ref>{{Citation | last = Anderson | first = William L. | author-link = William L. Anderson | title = A Socialist Laureate | newspaper = [[Forbes]] | date = 2008-10-13 | url = http://www.forbes.com/2008/10/13/krugman-nobel-economics-oped-cx_wla_1013anderson.html | archiveurl = | archivedate = | accessdate = 2011-08-10}}</ref> [[Russell Roberts (economist)|Russell Roberts]] of [[George Mason University]] called it "just another reminder that those of us who believe in liberty are in for a long time in the intellectual wilderness."<ref>{{Cite web | last = Roberts | first = Russell | authorlink = Russell Roberts (economist) | title = Krugman's prize | date = 2008-10-13 | url = http://cafehayek.com/2008/10/krugmans-prize.html | accessdate = 2011-08-10}}</ref> [[Robert Higgs]] stated Krugman’s selection made a travesty of the prize and constitutes "an insult to the few excellent economists [...] who have received the prize in the past." Higgs wrote: "For economists who would like the Nobel Prize to mean something, today is a very sad day."<ref name=depression>{{Cite web | last = Higgs | first = Robert | authorlink = Robert Higgs | title = Krugman’s Bizarre Comparison | publisher = [[The Independent Institute]] | date = 2008-10-13 | url = http://blog.independent.org/2008/10/13/krugmans-bizarre-comparison/ | accessdate = 2011-08-10}}</ref>

In a 2010 [[video blog]], [[investment broker]] and financial-economic commentator [[Peter Schiff]] stated "if they ever took away Nobel Prizes for something that shows a complete lack of understanding of economics, certainly Paul Krugman would be the first candidate where the commission asked for their Nobel Prize back."<ref>{{cite video |people = [[Peter Schiff]] |date = 2010-03-16 |title = Dollar, Paul Krugman |url = http://www.youtube.com/watch?v=11WlFlO_mDg |format = [[Flash video]] |publisher = Schiff Report |medium = [[Video Blog]] |location = [[Stamford, Connecticut|Stamford]] |archiveurl =|archivedate= |accessdate = 2011-08-10}}</ref>

==Notes==
{{reflist}}

==Links==
* [http://mises.org/daily/3194 Consumers Don't Cause Recessions] by Robert P. Murphy, November 2008, about 'demand-side' economics
* [[Wikipedia:Paul Krugman|Paul Krugman]] on Wikipedia
* [http://topics.nytimes.com/top/opinion/editorialsandoped/oped/columnists/paulkrugman/index.html "Paul Krugman Columnist Page - The New York Times"]
* [http://pkarchive.org/ "pkarchive - The Unofficial Paul Krugman Archive"]
* [http://mises.org/journals/qjae/pdf/qjae6_4_2.pdf Apoplithorismosphobia] (pdf) by Mark Thornton, 2003
* [http://mises.org/daily/5296/The-Good-Krugman The Good Krugman] by James E. Miller, May 2011
* [http://mises.org/daily/5086/Caught-Krugmans-Shifting-Arguments Caught: Krugman's Shifting Arguments] by Robert P. Murphy, March 2011
* [http://mises.org/daily/4121 Krugman Fails to "Get It" on Japan] by William L. Anderson, March 2010

{{DEFAULTSORT:Krugman, Paul}}
[[Category:Economists]]
[[Category:Nobel Prize in Economics]]

User talk:Daniel Hewitt

2011-07-29T09:56:42Z

Daniel Hewitt: /* Great Depression */

Brad DeLong

2011-06-28T11:02:09Z

Daniel Hewitt:

{{stub}}
'''James Bradford DeLong''' (born June 24, 1960) is an American economist, and Professor of Economics at the [[University of California]] at Berkeley. He received a Ph.D. from [[Harvard University]] in 1987, and has previously served as Deputy Assistant Secretary for Economic Policy, [[United States]] Department of the Treasury, from April 1993 to May 1995. <ref name="Academic CV"> [http://delong.typepad.com/sdj/j_bradford_delongs_academ.html "J. Bradford DeLong Academic CV"], “Grasping Reality with Eight Tentacles”. Referenced 2011-01-29.</ref>

Unfortunately, DeLong is also known for frequently deleting or truncating comments on his blog ''Grasping Reality…'', that refute or object to the premise of his assertions.<ref name=”Horwitz”> Horwitz, Steve.[http://austrianeconomists.typepad.com/weblog/2009/03/why-not-to-bother-with-brad-delong.html “Why not to bother with Brad DeLong”] ''Coordination Problem''. March 6, 2009. Referenced 2011-01-29.</ref><ref name=”Murphy”>Murphy, Robert.[http://consultingbyrpm.com/blog/2008/12/brad-delong-doesnt-even-know-who-hes-dealing-with.html “Brad DeLong Doesn’t Even Know Who He’s Dealing With”], ''Free Advice''. December 3, 2008. Referenced 2011-01-29.</ref><ref name="DeLong on Nozick">Gordon, David. [http://blog.mises.org/17433/dellong-on-nozick/ "DeLong on Nozick"] ''Mises Economics Blog''. June 26, 2011 . Referenced June 28, 2011.</ref>

These apparent lapses in scholarship are important to [[free market]] thinkers because DeLong, a [[John Maynard Keynes|Keynesian]],{{fact}} has cited the “liquidationist” philosophy of [[Herbert Hoover]] as so-called "proof" that Hoover preferred a [[laissez faire]] approach to fighting the [[Great Depression]], and "proof" that it failed. He has quoted selected portions of Hoover’s memoirs:

<blockquote>Now Prof. Boldrin is following a very old trail, all right, his trail was in fact the ruling theory behind the Hoover Administration’s policies in the 1930s. And to quote from President Herbert Hoover’s autobiography, during his administration economic policy was made by quote "the leave-it-alone liquidationists headed by my Secretary of the Treasury [[Andrew W. Mellon|[Andrew W.] Mellon]], who felt the government must keep its hands off the economy and let the slump liquidate itself."<ref name=”Hoover Quotes”> [http://www.iga.ucdavis.edu/Events/stimulus-smackdown-can-deficit-spending-save-the-economy “Stimulus SmackDown: Can Deficit Spending Save the Economy?”], A Debate Between Michele Boldrin and J. Bradford Delong, March 4, 2009. Referenced 2011-01-29.</ref></blockquote>

while ''omitting'' Hoover’s conclusion three paragraphs later:
<blockquote>But other members of the Administration, also having economic responsibilities–Under Secretary of the Treasury Mills, Governor Young of the Reserve Board, Secretary of Commerce Lamont and Secretary of Agriculture Hyde–believed with me that we should use the powers of government to cushion the situation.<ref name=”Hoover Memoirs”> Hoover, Herbert (2007). The Memoirs Of Herbert Hoover: The Great Depression, 1929-1941. Kessinger Publishing, LLC. ISBN 78-0548453933</ref></blockquote>

==References==
<references/>

==Links==
*[http://delong.typepad.com/sdj/ “Grasping Reality…] by The Semi-Daily Journal of Economist J. Bradford DeLong: Fair, Balanced, and Reality-Based

[[Category:Economists]]
[[Category:Interventionists]]

Parable of the broken window

2011-06-16T12:04:28Z

Daniel Hewitt: /* Contemporary Examples */ added one more

The '''parable of the broken window''', also known as the '''broken window fallacy''', was originally given in [[Frédéric Bastiat]]'s 1850 essay, ''Ce qu'on voit et ce qu'on ne voit pas'' ("[[That Which Is Seen, and That Which Is Not Seen]]"). It demonstrates the costs to society that occur when property is destroyed, and illustrates the law of unintended consequences with respect to economic activity.

The book ''[[Economics in One Lesson]]'' by [[Henry Hazlitt]] was inspired by this parable.

== The Parable ==

{{quote|
Have you ever witnessed the anger of the good shopkeeper, James B., when his careless son happened to break a square of glass? If you have been present at such a scene, you will most assuredly bear witness to the fact, that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation—"It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?"

Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions.

Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier's trade—that it encourages that trade to the amount of six francs—I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is ''that which is seen''.

But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, "Stop there! your theory is confined to that ''which is seen''; it takes no account of that ''which is not seen''."

''It is not seen'' that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. ''It is not seen'' that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented.}}

==Contemporary Examples==
[[Paul Krugman]], September 11, 2001 terror attacks:<ref name="Krugman_Horror">Paul Krugman. [http://www.nytimes.com/2001/09/14/opinion/reckonings-after-the-horror.html "Reckonings; After The Horror"], September 14, 2001, The New York Times. Referenced 2011-01-05.</ref><blockquote>Ghastly as it may seem to say this, the terror attack -- like the original day of infamy, which brought an end to the Great Depression -- could even do some economic good....

First, the driving force behind the economic slowdown has been a plunge in business investment. Now, all of a sudden, we need some new office buildings. As I've already indicated, the destruction isn't big compared with the economy, but rebuilding will generate at least some increase in business spending.</blockquote>

The Economist, "Cash For Clunkers" program:<ref name="Economist">"Clunky but effective: Why cash-for-clunkers schemes make sense right now," The Economist, accessed 2011-03-13, [http://www.economist.com/node/14162193?story_id=14162193 http://www.economist.com/node/14162193?story_id=14162193].</ref><blockquote>The boost in demand that the rebates have brought about is exactly the sort of stimulus that is urgently needed to escape what John Maynard Keynes called a “liquidity trap”. According to his theory, consumers may become so worried about the economy that they cling to as much liquid wealth as possible, cutting their spending sharply and thereby triggering precisely the slump they feared. Moreover, as stimulus policies go, cash-for-clunkers looks to be unusually effective.</blockquote>

Lawrence Summers, March 2011 Japan earthquake:<ref name="Summers">"Earthquake May Boost Economy Short Term: Summers," CNBC, accessed 2011-03-13, [http://www.cnbc.com/id/42002647 http://www.cnbc.com/id/42002647].</ref><blockquote>Friday's massive earthquake is yet another challenge to Japan's recovery but it may provide a jolt to the economy over the short term, Lawrence Summers, president emeritus of Harvard University and former director of the White House National Economic Council, told CNBC.

The biggest earthquake in 140 years hit Japan Friday, triggering 10-meter high tsunami waves.

"If you look, this is clearly going to add complexity to Japan's challenge of economic recovery," Summers said. "It may lead to some temporary increments, ironically, to GDP, as a process of rebuilding takes place."

After the Kobe earthquake in 1995 Japan actually gained some economic strength due to the process of reconstruction, he added.</blockquote>

[[Brad DeLong]], Hoover Dam construction:<ref name="DeLong Hoover">DeLong, J.Bradford. [http://delong.typepad.com/sdj/2011/06/infrastructure-investment-fake-numbers-about-the-hoover-dam-from-former-biden-chief-of-staff-ron-klain.html "infrastructure Investment: Fake Numbers About the Hoover Dam from Former Biden Chief of Staff Ron Klain..."] ''Grasping Reality With Both Hands''. June 14, 2011. Referenced 2011-06-16.</ref><blockquote>The total appropriations for the Hoover Dam were $50 million in nominal. With nominal GDP per worker of $1000 per year back in the 1930s, that means that the immediate employment impact of the Hoover dam was vastly more than 5000 workers. Figure that 50,000 employment-years of useful paid labor were generated by the dam: the people who worked on the dam, and the people who brought materials to the dam, and the people who made the machines that the people who worked on the dam used, and the people who made the materials that were brought to the dam, et cetera, et cetera.

And then there are the multiplier effects: The people who worked on the dam had higher incomes than they would otherwise have had, and they spent those extra incomes, and the businesses that sold them products hired more workers to meet the added demand and hired workers and boosted their incomes, and spent their incomes on extra goods, and businesses then hired more workers to produce those extra goods.

Figure a multiplier of 3, and thus an impact of the Hoover Dam during the Great Depression of 150,000 employment-years of useful work relative to what would have been the case had the appropriation been cancelled and the resources devoted to "deficit reduction."</blockquote>

==References==
{{Reflist}}

==Links==
{{wikisource|That Which Is Seen, and That Which Is Not Seen}}
* [http://bastiat.org/fr/cqovecqonvp.html "Ce qu'on voit et ce qu'on ne voit pas"] (original essay, in ''French'')
* [http://bastiat.org/en/twisatwins.html That Which is Seen, and That Which is Not Seen] (essay in English)
* [http://blog.mises.org/13436/the-broken-window-2/ "The Broken Window Fallacy" video] ([http://www.youtube.com/watch?v=QG4jhlPLVVs "no accents" version])

{{DEFAULTSORT:Parable Of The Broken Window}}

[[Category:Economic concepts]]
[[Category:Fallacies]]

Comparative advantage

2011-04-30T01:00:50Z

Daniel Hewitt: add links

{{rightTOC}}

{{cleanup}}

'''Comparative Advantage''' refers to the ability of an entity (individual, company, or country) to produce a [[good]] or service at a lower [[opportunity cost]] than another one. It is the ability to produce a product with an highest ''relative'' efficiency than one's trade partner, given all the other products that could be produced. It can be contrasted with [[Absolute Advantage]] which refers to the ability of one to produce a particular good or service at a lower absolute cost than another.

'''Comparative Advantage''' is also know as '''comparative cost''', '''the law of association''' or the '''Ricardian Law of Association'''.<ref name="Mises_law_of_association"></ref>

==Origins and Original Example==

In ''[[Principles of Political Economy and Taxation]]'', [[David Ricardo]] uses the example of wine production in [[Portugal]] and cloth production in [[England]] to illustrate '''comparative advantage'''. Unlike many contemporary examples, [[Ricardo]] uses labor to distinguish '''comparative advantage''' rather than quantity of goods. [[England]] can produce a certain quantity of cloth with 100 men for one year or a certain quantity of wine with 120 men in the same time. [[Portugal]], on the other hand, may only require 90 men for one year to produce the same quantity of cloth and 80 men for one year to produce the wine. [[Portugal]], in [[Richardo's]] example, has an [[absolute advantage]]: it makes both wine and cloth more efficiently than [[England]]. Yet, [[Ricardo]] concludes:

<blockquote>Though [Portugal] could make cloth with the labor of 90 men, she would import it from a country where it requires the labor of 100 men to produce it, because it would be advantageous to her rather to employ her capital in production of wine, for which she would obtain more cloth from [[England]], than she could produce by diverting a portion of her capital from cultivation of vines to the manufacture of cloth.<ref name="Ricardo_comparative_advantage">[[David Ricardo]] [[Principles of Political Economy and Taxation]], VII. On Foreign Trade, (Amherst, New York: Prometheus Books) 94-95</ref></blockquote>

If [[Portugal]] did not trade, she would need to produce the cloth locally, therefore devoting part of her capital to the manufacture of cloth, "which she would thus obtain probably inferior in quality as well as quantity."<ref name="Ricardo_comparative_advantage"></ref> The conclusion to be drawn is that the benefits of [[division of labor]] and [[specialization]] apply to international trade as well as to domestic trade.

==Examples==
In addressing the "paradox" where it is worthwhile for a country with [[absolute advantage]] to trade with a country who has ''absolute disadvantage (i.e., is more efficient in nothing)'', [[Paul Samuelson]] writes:

<blockquote>
A traditional example used to illustrate this paradox of comparative advantage is the case of the best lawyer in town who is also the best typist in town. Will she not specialize in law and leave typing to a secretary? How can she afford to give up precious time from the legal field, where her comparative advantage is very great, to perform typing activities in which she is efficient but in which she lacks ''comparative'' advantage? Or look at it from the secretary's point of view. She is less efficient than the lawyer in both activities; but her relative disadvantage compared with the lawyer's is least in typing. Relatively speaking, the secretary has a '''comparative advantage''' in typing.<ref name="samelson_comparative_advantage">[[Paul Samuelson]], ''Economics'' (McGraw-Hill, 1973) p. 669</ref></blockquote>

==The Meaning of Comparative Advantage==

Ricardo's explication is a particular instance of the more universal law of association: all [[division of labor]] brings advantages. Demonstrated above, cooperation between the more able and the less able brings advantages to both. The law of association allows us to understand the progressive increase in human cooperation and the intensification of the division of labor.<ref name="Mises_law_of_association">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec4.asp VIII. Human Society], 4. The Ricardian Law of Association, [[Human Action]], online version, referenced 2011-02-06.</ref>

==Assumptions==

Comparative cost between countries is true under the assumption that capital and labor are immobile.<ref name="Ricardo_comparative_advantage"></ref><ref name="Mises_law_of_association"></ref>After his publication labor and capital increased in mobility, and countries with absolute advantages saw increases in migration and capital movements in the late 1800's. Towards the late 20th century capital and labor increasingly become less mobile. The mobility labor and capital can make it more advantageous for labor and capital to migrate in the case of [[absolute advantage]] rather than stay and trade under conditions of [[comparative advantage]].<ref name="Mises_law_of_association_ce">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec4.asp VIII. Human Society], 4. The Ricardian Law of Association: ''Current Errors Concerning the Law of Association'', [[Human Action]], online version, referenced 2011-02-07.</ref>

==References==
{{reflist}}

==Links==
* [http://www.econlib.org/library/Ricardo/ricP.html ''On the Principles of Political Economy and Taxation''], by David Ricardo. Complete, fully-searchable text at the Library of Economics and Liberty.
* [http://web.mit.edu/krugman/www/ricardo.htm Ricardo's Difficult Idea]
* [http://mises.org/daily/3744 Tire Trade Tirade]
* [http://blog.mises.org/13753/gains-from-trade-with-extreme-differences/ Gains From Trade With Extreme Differences]
* [http://blog.mises.org/13752/gains-from-trade-an-example/ Gains From Trade: An Example]
* [http://www.youtube.com/watch?v=y0gGyeA-8C4&feature=player_embedded Trade is Made of Win, Part 1: Wealth Creation]
* [http://www.youtube.com/watch?v=7yOHjRThM_o&feature=player_embedded Trade is Made of Win, Part 2: Cooperation]
* [http://www.youtube.com/watch?v=qdcQLWGaJoM&feature=player_embedded Trade is Made of Win, Part 3: Conservation]

[[Category:Economic concepts]]

Great Depression

2011-04-03T16:17:28Z

Daniel Hewitt: /* 1931, "The Tragic Year" */ add ref

{{RightTOC}}
The '''Great Depression''' was the longest and most severe economic depression ever experienced by the Western world.<ref name="Britannica_debt">Encyclopædia Britannica. [http://www.britannica.com/EBchecked/topic/243118/Great-Depression "Great Depression"], Encyclopædia Britannica Online, referenced 2010-06-12.</ref>

==Prelude==
In the forty years 1890 to 1930, the population of the United States doubled, the value of farm property increased three and a half times, pig iron production four and a half times, exports five times, coal production five times, and freight traffic five and a half times, but commercial bank deposits increased over seventeen and a half times. Thus, while the gold stock had increased proportionally with the increase of industrial production, the expansion in bank credit had far outstripped both and had thus been at the expense of a thinning gold reserve. The monetary gold stock available to support and redeem this tremendous amount of bank liabilities that was being created, which had been 25.3 per cent of total note and deposit liabilities of banks in 1865, and 23.9 per cent in 1880, steadily dropped under the pressure of the public upon the banking interest for more and more credit, standing in 1900 at 20.4 per cent, in 1910 at 14.2 per cent and in 1930 at 10.4 per cent. Such had been the diminution of reserves that by the decade 1920-1930, banking was being conducted "on a shoestring." In 1900 the ratio of vault cash to deposit liabilities of commercial banks had dropped to 14.8 per cent, and in 1910 to 12.7 per cent—vault cash in those years being respectively $706,302,000 and $1,366,164,000.<ref name="Groseclose_Money">Elgin Groseclose. [http://mises.org/resources/3138/Money-and-Man Money and Man], 1934, p.209-210. Referenced 2011-03-24.</ref>

From June 1914 to January 1920, when [[Demand deposits|demand deposits]] grew by 96.9 percent, [[Time deposits|time deposits]] rose by 126.1 percent. In the great boom of the 1920s, that started after the [[Depression of 1920–21|recession of 1920–21]] (a short recession, thanks to the budget cutting and lowering of taxes by [[Warren Harding]]<ref name="Woods_Harding">Thomas E. Woods, Jr. [http://www.firstprinciplesjournal.com/articles.aspx?article=1322&theme=home&loc=b "Warren Harding and the Forgotten Depression of 1920"], First Principles, Fall 2009 issue of The Intercollegiate Review. See also the [http://www.youtube.com/watch?v=czcUmnsprQI video]. Referenced 2009-10-11.</ref>), total demand deposits rose from 1921 to 1929 by 36.5 percent. Time deposits in banks expanded in the same period by 75.9 percent. The great boom of the 1920s (also called "[[Roaring Twenties]]") was largely fueled by credit expansion going into time deposits. The greatest expansion of time deposits came in Central Reserve Cities (New York and Chicago), where the [[Federal Reserve System|Fed]]’s open market operations were all conducted, as opposed to Reserve Cities and Country Banks. As acknowledged by Federal Reserve officials, time or savings deposits were then, for all practical purposes, equivalent to demand deposits and should be paid on demand in case of a run on a bank.

With the passage of the [[Federal Reserve Act]], [[Woodrow Wilson|President Wilson]] appointed [[Benjamin Strong, Jr.|Benjamin Strong]] to the most powerful post in the Federal Reserve System, Governor of the [[Reserve Bank of New York|Federal Reserve Bank of New York]]. He made quickly this position dominant in the System and decided on Fed policy without consulting or even against the wishes of the Federal Reserve Board in Washington. Strong was the dominant leader of the Fed from 1914 until his death in 1928. He pursued an inflationary policy, to finance the war effort for [[World War I|WWI]], connected to the interests of the [[J.P. Morgan & Co.|House of Morgan]]. Another motivation was the attempt to prop up the [[Bank of England]] in the 1920s, when it returned to the [[gold standard]] with an overvalued pound. To prevent the loss of gold to the States, its governor [[Montagu Norman, 1st Baron Norman|Montagu Norman]] secretly convinced Strong to inflate in order to help England. The expansion ended only after Strong's death and the '''Great Depression''' followed soon after. In 1928 Strong admitted that "very few people indeed realized that we were now paying the penalty for the decision which was reached early in 1924 to help the rest of the world back to a sound financial and monetary basis" - that is, to help Britain maintain a phony and inflationary form of gold standard.<ref name="Rothbard_Federal_Reserve">[[Murray N. Rothbard]]. [http://mises.org/books/mysteryofbanking.pdf "The Mystery of Banking"] (pdf), Chapter XVI: Central banking in the United States IV: The Federal Reserve System, p.235-246, referenced 2009-10-03.</ref>

The inflation was also motivated by a desire to help American exporters (particularly farmers), by stimulation of foreign lending. At the same time the U.S. turned to a sharp protectionist policy with the [[Fordney–McCumber Tariff]] of 1922. In the foreign lending boom, other countries were hampered in trying to sell their goods to the United States, but were encouraged to borrow dollars. The government did not have any peacetime authority to interfere with loans, but did so illegally. In 1921, President [[Warren G. Harding|Harding]] and his cabinet conferred with several American investment bankers, at the instigation of Secretary of Commerce [[Herbert Hoover|Hoover]], to be informed in advance of foreign loans, so that the government "might express itself regarding them". The bankers agreed. Hoover commented that even bad loans helped American exports and provided a cheap form of relief and employment. Later Hoover demanded from bankers, that foreign loans would be inspected by agents of the [[Department of Commerce]]. Both requests were mostly ignored. While admitted to be legally unenforceable, it was all in the name of "national interests".<ref name="Rothbard_pre_Depression">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 5. The Development of the Inflation, p. 137-167, referenced 2009-11-17.</ref>

{{See also|Federal Reserve System}}

===Housing bubble===
An outlet for the excessive credit created by the banking system was in financing an urban real estate boom in the U.S. During the decade 1920-1930, people were moving in a constant stream into the cities; the population of the sixty-three metropolitan zones (cities of 100,000 or more plus adjacent counties) rose from 46,491,000 to 59,118,000, or from 44 per cent of total population to 48 per cent. Seventy-four per cent of the increase in total population during the decade occurred in the metropolitan areas.

A huge building boom followed, the Federal Reserve Board index of building contracts awarded, 1923-1925 taken as 100, rising from 63 in 1920 to 122 in 1925, and 135 in 1928. This boom occurred chiefly in skyscraper offices and expensive apartment house developments, whose notes were more readily marketable, rather than in the modest single family accommodations. The result was that when the era had passed the slums still existed. In New York City, for instance, where at least four skyscrapers were built in these years with the only object, apparently, of surpassing the record for the world's tallest building, from a quarter to a third of the population, say 1,800,000 persons, still occupied houses that had been outlawed thirty-three years earlier by the Tenement House Act of 1901.<ref name="Groseclose_Money">Elgin Groseclose. [http://mises.org/resources/3138/Money-and-Man Money and Man], 1934, p.225, 244. Referenced 2011-03-24.</ref>

==The Crash==
{{Main|Wall Street Crash of 1929}}
The great boom of the 1920s began around July, 1921, after a year or more of sharp recession, and ended about July, 1929, when the production and business activity began to decline, although the [[Wall Street Crash of 1929|famous stock market crash]] came in October of that year. [[Herbert Hoover]], an avid proponent of interventionism became President. Characteristic for him were "voluntary" measures that the government desired, with the implicit threat that if business did not "volunteer" properly, compulsory controls would soon follow.<ref name="Rothbard_1920s_boom">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 5. The Development of Hoover's Interventionism: Unemployment, p. 188-189, referenced 2009-11-20.</ref>

After the stock-market crash, Hoover began a series of conferences with big business and labor leaders, telling them that cutting wage rates (the standard response in previous depressions) would be disastrous, because then the workers wouldn't make enough to buy the products.<ref name="Hoover 11-15-29 NC">John T. Woolley and Gerhard Peters, ''The American Presidency Project'' [online]. Santa Barbara, CA. Available from World Wide Web: http://www.presidency.ucsb.edu/ws/?pid=22005.</ref> This "liquidation" of labor would only deepen the depression by reducing their "purchasing power". Leading industrialists pledged to maintain wage rates, expand construction, and share any reduced work,<ref name="Hoover CC remarks">John T. Woolley and Gerhard Peters, ''The American Presidency Project'' [online]. Santa Barbara, CA. Available from World Wide Web: http://www.presidency.ucsb.edu/ws/?pid=22023.</ref><ref name="Telegraph-Herald 11-21-29">[http://news.google.com/newspapers?id=T51FAAAAIBAJ&sjid=C70MAAAAIBAJ&dq=hoover%20wage&pg=6813%2C5825398 "Credit President With Pledge to Keep Wages Up"], ''The Telegraph-Herald and Times-Journal,'' November 21, 1929.</ref><ref name="Sarasota Herald-Tribune 11-22-29">[http://news.google.com/newspapers?id=LYQcAAAAIBAJ&sjid=MmQEAAAAIBAJ&dq=hoover%20wages%20business&pg=6694%2C4315629 "Agree To Keep Wage Level Up"], ''Sarasota Herald-Tribune,'' November 22, 1929.</ref><ref name="Gettysburg Times 11-22-29">[http://news.google.com/newspapers?id=DdElAAAAIBAJ&sjid=1PkFAAAAIBAJ&dq=hoover%20wage&pg=2000%2C1635972 "Conferences Please Hoover"], ''The Gettysburg Times,'' November 22, 1929.</ref><ref name="Lewiston Evening Journal 11-23-29">[http://news.google.com/newspapers?id=Iq01AAAAIBAJ&sjid=uWcFAAAAIBAJ&dq=hoover%20wage&pg=1270%2C4673686 "No Hard Times, Hoover Assures Wage Earners"], ''Lewiston Evening Journal,'' November 23, 1929.</ref><ref name="Tuscaloosa News 11-25-29">[http://news.google.com/newspapers?id=xYA-AAAAIBAJ&sjid=BkwMAAAAIBAJ&dq=hoover%20wage&pg=6182%2C3112525 "All Citizenry Asked To Help Progress Plan"], ''The Tuscaloosa News,'' November 25, 1929.</ref><ref name="Miami News 11-26-29">[http://news.google.com/newspapers?id=o7cuAAAAIBAJ&sjid=6tcFAAAAIBAJ&dq=hoover%20wage&pg=6639%2C4846533 "Hoover's Plan To Help Trade Gets Approval"], ''The Miami News,'' November 26, 1929.</ref> to fulfill Hoover's request that "the first shock must fall on profits and not on wages".<ref name="hoover44">Herbert Hoover, ''The Memoirs of Herbert Hoover: The great depression, 1929-41'', (New York: Macmillan, 1952) 44-45.</ref>

At the same time, the Federal Reserve expanded rapidly and lowered its interest rates. Its member banks expanded their deposits in the last week of October 1929 alone by 10%, mostly in New York. Hoover praised the Fed for the saving of shaky banks and restoring confidence.<ref name ="Hoover CC remarks" /> The depression should be over in a few months. A large public works program was also initiated.<ref name="Rothbard_public_works">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 8. The Depression Begins: President Hoover Takes Command, p. 209-217, referenced 2009-11-21.</ref><ref name="Hoover 1-3-20">John T. Woolley and Gerhard Peters, ''The American Presidency Project'' [online]. Santa Barbara, CA. Available from World Wide Web: http://www.presidency.ucsb.edu/ws/?pid=22468.</ref>

Hoover promised the farm bloc to support farm cooperatives and prices and established the [[Federal Farm Board]] (FFB). It would make all-purpose loans to farm cooperatives at low interest rates and establish "stabilization corporations" to control farm surpluses and bolster farm prices. Its board was dominated by representatives of these farm cooperatives. To combat falling prices, it made loans to farmers to keep wheat and cotton off the market and later started to buy the surpluses. For a while, prices were held up and farmers increased production, only to find that prices would fall even more. As America held wheat off the market, it lost its former share of the world’s wheat trade. The farmers were urged to decrease their acreage, while the government still promoted reclamation projects to increase farm production. The surpluses of wheat accumulated and prices fell to such a degree, that the FFB decided to dump wheat stocks abroad, resulting in a drastic fall in market prices. The attempts to keep up the price of cotton, wool, livestock, etc. failed as well. A "[[Farmers' Holiday Association|Farm Holiday]]" was declared to stop production, The movement soon turned to violence and failed to stop the falling farm prices. but succeeded to avoid some foreclosures of its members.<ref name="Rothbard_Agriculture">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), The New Deal Farm Program, p. 217-237, referenced 2009-11-21.</ref>

In 1930, the [[Smoot–Hawley Tariff Act|Smoot–Hawley Tariff]] was passed, despite objections of many economists and industrial leaders. Hoover originated a higher tariff on agricultural products to help farmers, but it was raised on many other products. Many other countries have retaliated with their own tariffs and foreign trade declined significantly. (From 1929 to 1932, U.S. imports from Europe decreased from $1,334 million to just $390 million, while U.S. exports to Europe decreased from $2,341 million to $784 million. Overall, world trade decreased by some 66% between 1929 and 1934.<ref>U.S. Department of State. [http://future.state.gov/when/timeline/1921_timeline/smoot_tariff.html Smoot-Hawley Tariff], referenced 2009-11-22.</ref>) Also, to relieve the unemployment problem, and to help keep wage rates up, the President effectively banned further immigration into the United States.<ref name="Rothbard_Depression_1930">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 9. 1930, p. 239-256, referenced 2009-11-22.</ref>

===In Europe===
In Europe, the crisis began in earnest with the ''Boden–Kredit Anstalt'', the most important bank in Austria and Eastern Europe. It had to merge with the [[Creditanstalt|Oesterreichische–Kredit–Anstalt]] after rescue attempts by its government and other banks. When Austria declared a customs union with Germany in March 1931, the French government feared this development and several French banks suddenly insisted on redemption of their debts from both countries. The bank collapsed. After more rescue attempts has the Austrian Government voted a $150 million guarantee to the bank, but the its credit was by the time worthless, and Austria soon declared national bankruptcy by going off the gold standard. Later, Germany, England, and most other European countries renounced their obligations and went off the gold standard as well. While the impact on United States was not very large due to the lowered international trade, it certainly did not help, neither did the many loans granted to prop up foreign banks.<ref name="Rothbard_Depression_1931_Europe">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 10. 1931—"The Tragic Year", p. 257-284, referenced 2009-11-27.</ref>

==1931, "The Tragic Year"==
The crisis worsened in the US in 1931. Production continued to fall drastically, as did prices and foreign trade, and unemployment ran up to almost 16 percent of the labor force. The Federal Reserve Board (FRB) index of manufacturing production, which had been 110 in 1929 and 90 in 1930, fell to 75 in 1931. Hardest hit, in accordance with Austrian [[ABCT|cycle theory]], were producers’ goods and higher order [[capital]] goods industries, rather than the consumer goods’ industries. Despite attempts to inflate, bank deposits and the aggregate [[money supply]] fell sharply, particularly at the end of the year. The British abandoning of the gold standard, bank failures abroad and the growing number of failures at home, caused a growing loss of confidence by Americans in their banking system. The wages were also beginning to fall, first secretly, then openly by the end of 1931.<ref name="Time 4-13-31p">"[http://www.time.com/time/magazine/article/0,9171,752764,00.html "THE PRESIDENCY: The Pledge"], ''TIME,'' April 13, 1931.</ref><ref name="Time 4-13-31i">[http://www.time.com/time/magazine/article/0,9171,752766,00.html "INDUSTRY: Next: Wages?"], ''TIME,'' April 13, 1931.</ref><ref name="Time 8-10-31">[http://www.time.com/time/magazine/article/0,9171,882003,00.html "LABOR: When Winter Comes"], ''TIME,'' August 10, 1931.</ref><ref name'"Time 10-5-31">[http://www.time.com/time/magazine/article/0,9171,753027-2,00.html "LABOR: Deflated"], ''TIME,'' October 5, 1931.</ref><ref name="Time 11-09-31">[http://www.time.com/time/magazine/article/0,9171,742546,00.html "LABOR: Rail Dickers"], ''TIME,'' November 9, 1931.</ref>

The gross national product fell from $91.1 billion in 1930, to $76.3 billion in 1931. Total government receipts fell from $13.5 billion to $12.4 billion, but total government expenditures rose from $13.9 billion to $15.2 billion, in federal, rather than state and local, spending (federal expenditures rose from $4.2 billion in 1930 to $5.5 billion in 1931). In the middle of a great depression when people needed to be relieved of governmental burdens, the dead weight of government rose from 16.4 percent to 21.5 percent of the gross private product. From a modest surplus in 1930, the Federal government so ran up a huge $2.2 billion deficit in 1931.<ref name="Rothbard_Depression_1931_Europe" />

Direct relief was just about the one sphere where President Hoover seemed to prefer voluntary to governmental action. The [[Red Cross]] opposed a bill, in early 1931, that would grant it $25 million for relief, declaring that it would "to a large extent destroy voluntary giving". Many private charity organizations, philanthropists, and social workers had the same views. Governmental unemployment relief was seen to have a role in creating and perpetuating unemployment in Britain (the "dole"). It was attacked by many business leaders, including [[Henry Ford]], the leaders of the [[National Association of Manufacturers]] and the [[United States Chamber of Commerce|Chamber of Commerce]], and former President [[Calvin Coolidge|Coolidge]].<ref name="Rothbard_Depression_1931_Europe" />

The [[Davis-Bacon Act]] was signed by President Hoover in 1931. It mandated that prevailing (union) wages be paid by the Federal Government for public works projects. It has been argued that the Davis-Bacon Act was a [[Jim Crow law]], since its intent <ref name=”williams”>Walter Williams, [http://www.jewishworldreview.com/cols/williams031203.asp "Congress' insidious discrimination"], ''Jewish World Review'' (March 12, 2003), accessed 2011-02-01.</ref> and its effect <ref name=”cato”> David Bernstein, [http://www.cato.org/pubs/briefs/bp-017.html "The Davis-Bacon Act: Let's Bring Jim Crow to an End"], ''Cato Institute Briefing Papers'' (January 18, 1993), accessed 2011-02-01.</ref> was to prevent lower-paid, non-unionized black laborers from competing against higher-paid, unionized white laborers. Hoover promoted and supported the legislation, as he believed that "[t]he very essence of great production is high wages...because it depends upon a widening range of consumption only to be obtained from the purchasing power of high real wages...." <ref name="hoover108">Herbert Hoover, ''The Memoirs of Herbert Hoover: Volume 2, The Cabinet and the Presidency, 1920-33'', (New York: Macmillan, 1952) 108.</ref>

==1932, The Hoover New Deal==
In an atmosphere of crisis, President Hoover called for more drastic measures, including more government aid and loans. With a $2 billion deficit during annual year 1931, Hoover felt that he had to do something to combat it and chose to increase the taxes. The [[Revenue Act of 1932]] was one of the greatest increases in taxation ever enacted in the United States in peacetime. Many wartime
excise taxes were revived, sales taxes were imposed on gasoline, tires, autos, electric energy, malt, toiletries, furs, jewelry, and other articles; admission and stock transfer taxes were increased; new taxes were levied on bank checks, bond transfers, telephone, telegraph, and radio messages; and the personal income tax was raised drastically as follows: the normal rate was increased from a range of 1½ percent–5 percent, to 4 percent–8 percent; personal exemptions were sharply reduced, and an earned credit of 25 percent eliminated; and surtaxes were raised enormously, from a maximum of 25 percent to 63 percent on the highest incomes. Furthermore, the corporate income tax was increased from 12 percent to 13: percent, and an exemption for small corporations eliminated; the estate tax was doubled, and the exemption floor halved; and the gift tax, which had been eliminated, was restored, and graduated up to 33⅓ percent. The postal rates were raised as well.

Despite the drastic increase in tax rates, total Federal revenue for 1932 declined because of the deepened depression—itself partly caused by the increase in tax rates. Total Federal receipts, excluding government enterprises, declined from $2.2 billion in 1931 to $1.9 billion in 1932; including government enterprises, Federal receipts fell from $3.4 billion to $3 billion.

Total government receipts fell from $12.4 billion to $11.5 billion. As a result, the huge Federal deficit continued despite a drop in government expenditures in 1932: Federal expenditures falling from $5.5 billion to $4.4 billion, and aggregate government expenditures falling from $15.2 billion to $13.2 billion (all numbers including government enterprises). Of the $1.7 billion in total government deficit, the bulk of it — $1.4 billion — was in the Federal government account. The state and local governments were forced to cut back their expenditures to near the level of their dwindling receipts. One of the most ominous projects for Federal spending during 1932 was a Congressional move for a huge $2 billion veterans bonus, to be financed by an issue of new currency. It was its final defeat in the Senate in June that did most to defeat a general clamor for much larger government spending.

Meanwhile, however, President Hoover himself was beginning to have doubts about one of his favorite policies: public works. In a conference at the end of February, Hoover admitted that his public works program, which had nearly doubled Federal construction since the start of the depression, had failed. It was very expensive, costing over $1200 per family aided, it was unavailable to the needy in remote regions and to those who were unable to perform such labor, which was, after all, unskilled make-work. By May, Hoover had openly reversed his earlier position. As a result, Federal public works only increased by $60 million in 1932, to reach the $333 million mark. Public works was not to come really to the fore again until the Roosevelt administration.

Holding firm to his interventionist belief that the downward pressure on wages must be resisted <ref name ="hoover108" />, Hoover signed the [[Norris-Laguardia Act]] into law on March 23, 1932. It banned "yellow-dog" contracts, removed federal courts’ authority to issue injunctions against labor disputes, and provided greater ease for workers to organize<ref name="enotes">[http://www.enotes.com/major-acts-congress/norris-laguardia-act "Norris-Laguardia Act (1932): Major Acts of Congress"], accessed 2011-02-01.</ref><ref name="Time 3-21-32">[http://www.time.com/time/magazine/article/0,9171,743381,00.html "LABOR: Yellow Dog's End"], ''TIME,'' March 21, 1932.</ref>; a landmark victory for organized labor.

If Hoover eagerly embraced other forms of [[intervention]], he gave ground but grudgingly on one issue where he had championed the voluntary approach: direct relief. Governor [[Franklin D. Roosevelt]] of New York led the way for state relief programs in the winter of 1931–1932, and he induced New York to establish the first state relief authority: the Temporary Emergency Relief Administration, equipped with $25 million. Other states followed this lead, and a bill was introduced for a $500 million federal relief program. The bill was defeated, but, with depression deepening and a Presidential election approaching, the administration all but surrendered, passing the [[Emergency Relief and Construction Act]] of July, 1932 — the nation’s first Federal relief legislation. All in all, total public relief in 120 of the nation’s leading urban areas amounted to $33 million in 1929, $173 million in 1931, and $308 million in 1932.

One thing Hoover was not reticent about: inflation. The administration first cleared the path for the program by passing the [[Glass–Steagall Act]] in February, which (a) greatly broadened the assets eligible for rediscounts with the Fed, and (b) permitted the Federal Reserve to use government bonds as collateral for its notes, in addition to commercial paper. At the end of February, 1932, total bank reserves had fallen to $1.85 billion. At that point, the [[Federal Reserve System|FRS]] launched a gigantic program of purchasing U.S. government securities. By the end of 1932, total reserves had been raised to $2.51 billion. This enormous increase of $660 million in reserves in less than a year is unprecedented in the previous history of the System. If the banks had kept loaned-up, the money supply of the nation would have increased by approximately $8 billion. Instead, the money supply fell by $3.5 billion during 1932, from $68.25 to $64.72 billion at the end of the year, and with the bank deposit component falling by $3.2 billion. Until the second quarter of 1932, the nation’s banks had always remained loaned up, with only negligible excess reserves. After, the banks accumulated excess reserves, and it is estimated that the proportion of excess to total bank reserves rose from 2.4 percent in the first quarter of 1932, to 10.7 percent in the second quarter. By the fourth quarter of 1932, excess reserves were estimated to a double of 20.3 percent of total bank reserves.

During the 1920s, a typical year might find 700 banks failing, with deposits totaling $170 million. In 1930, 1350 banks failed, with deposits of $837 million; in 1931, 2,293 banks collapsed, with deposits of $1,690 million; and in 1932, 1,453 banks failed, having $706 million in deposits. This enormous increase in bank failures was enough to give any bank pause—particularly when the bankers knew in their hearts that no bank (outside of the nonexisting ideal 100 percent bank) can ever withstand a determined run. Consequently, the banks permitted their commercial loans to run down without increasing their investments. Inflation by the government was turned into deflation by the policies of the public and the banks. The American economy reached the depths of depression during 1932 and 1933, and yet it had begun to turn upward by mid-1932. It is not far-fetched to believe that the considerable deflation of July 1931–July 1932, totaling $7.5 billion of currency and deposits, or 14 percent, was partly responsible for the mid-summer upturn.<ref name="Rothbard_Depression_1932">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 11. The Hoover New Deal of 1932, p. 285-320, referenced 2009-11-27.</ref>

As the Depression got worse and people lost their confidence in the banks, they decided to take custody of their cash. Seeing people in large numbers pulling their money out of banks — money the banks had promised to provide on demand — President Hoover blasted them for their "traitorous hoarding." He organized an antihoarding drive and delivered a radio address ([http://www.bobsuniverse.com/BWAH/31-Hoover/19320306a.pdf transcript], pdf) in which he pleaded with the public to stop hoarding (i.e., to stop converting their bank deposits into cash).<ref name="Smith_hoarding">George F. Smith. [http://mises.org/story/3707 "The Virtue of Hoarding"], Mises Daily, posted on October 09, 2009, referenced 2009-11-18.</ref>

Nominal paychecks fell much more slowly during the early years of the Great Depression than the general [[price]] level (wholesale prices fell by 10 percent in 1930, by 15 percent in 1931)<ref name="Rothbard_Depression_1931_Europe" /> - and those who kept their job experienced a higher increase in real (inflation-adjusted) wages, than during the Roaring 1920s!<ref name="ohanian"> Lee E. Ohanian, "What - or Who - Started the Great Depression?", ''NBER Working Paper No. 15258'' (August 2009). Free copy online [http://www.econ.ucla.edu/people/papers/Ohanian/Ohanian499.pdf here]</ref> And so has unemployment reached record highs during Hoover's first and only term. When FDR went back on the US government's promise to redeem dollars for gold, the Federal Reserve could flood the economy with new dollars, the prices began to rise again. Because wage rates were not allowed to fall to their new, market-clearing level, [[Inflation|inflating]] the currency has paradoxically reduced unemployment.<ref name="Murphy_Depression">Robert P. Murphy. [http://mises.org/story/3778 "The Gold Standard and the Great Depression"], Mises Daily, posted on October 30, 2009, referenced 2009-11-18.</ref>

The Fed has expanded bank reserves in the 1930s. Panicking at the inflationary potential, it doubled the minimum reserve requirements to 20 percent in 1938, sending the economy into a tailspin of credit liquidation. The Fed, ever since that period, has been very cautious about the degree of its changes and changed bank reserve requirements fairly often, but in very small steps, by fractions of one percent.<ref name="Rothbard_Fed_requirements">[[Murray N. Rothbard]]. [http://mises.org/books/fed.pdf "The Case Against the Fed"] (pdf), How the Fed Rules and Inflates, p. 144, referenced 2010-03-23.</ref>

After 1933, Federal Reserve Notes and deposits were no longer redeemable in gold coins to Americans, their gold was confiscated and exchanged for Federal Reserve Notes, which became legal tender; and Americans were stuck in a regime of fiat paper issued by the government and the Federal Reserve.<ref name="Rothbard_Fed_gold">[[Murray N. Rothbard]]. [http://mises.org/books/fed.pdf "The Case Against the Fed"] (pdf), The New Deal and the Displacement of the Morgans, p. 131-132, referenced 2010-05-10.</ref>

===Tax revolt in the USA===
There has been a widespread opposition to real estate taxes in cities across America and some Americans were in fact not paying their taxes. The movement declined quickly, some scholars acknowledge certain influence, but ultimately declare it a failure.<ref name="Beito_revolt">David T. Beito. [http://mises.org/books/taxpayersinrevolt.pdf Taxpayers in Revolt - Tax Resistance during the Great Depression] (pdf), referenced 2010-06-15.</ref> Others consider it a resounding success, however.

President Hoover's massive tax increase bill that passed into law as the [[Revenue Act of 1932]], with many new taxes. The most burdensome taxes for many Americans, however, was the property tax. Property taxes required taxpayers to make an explicit tax payment of significant size from which they could not evade without losing what was often their most significant piece of property and wealth. The property taxes have risen in the decade before the Depression; throughout the 1920s, the general property tax accounted for over 90 percent of taxes levied by all cities over 30,000 in population. One reason for this dependence was that alcohol revenue from sales taxes and licenses had "dried up" due to prohibition. The burden of taxes increased significantly, even if tax rates remained the same. Another source of taxpayer ire was that the real wages of public employees rose nearly 12% between 1929 and 1933.

Tax delinquency increased from its normal rate of 10% to more than 30%. Tax protest organization formed quickly and spontaneously in rural regions in response to tax authorities selling the land of farmers. Estimates placed the number of taxpayer organizations at between 3,000 and 4,000 organizations nationwide.

The tax limitation movement was effective in several states in establishing cuts and limitations on property tax rates. The second success, which was both more important and far less obvious, was the passage of the 21st Amendment that repealed alcohol [[Prohibition in the United States|prohibition]]. The legalization of alcohol sales in most states provided federal, state, and local government with increased tax revenues to offset cuts in property taxes while simultaneously providing a drastic decrease in the price of alcohol and in effect granting the American public a type of tax cut. Income tax revenue fell 60% from 1930 to 1933 placing a severe financial constraint on Congress. The search for an alternative revenue source led to the conversion of F.D.R. from a "dry" to a "wet" and resulted in the 1932 Democratic party platform to call for Repeal in order to provide "a proper and needed revenue." Revenue shortfalls made Repeal possible and the alcohol tax provided 13% of all federal revenue by 1936.<ref name="Thornton_revolt">Mark Thornton and Chetley Weise. [http://mises.org/journals/jls/15_3/15_3_4.pdf The Great Depression Tax Revolts Revisited.] (pdf), Journal of Libertarian Studies, Volume 15, no. 3 (Summer 2001), referenced 2010-06-15.</ref><ref name="Thornton_success_revolt">Mark Thornton and Chetley Weise. [http://mises.org/journals/scholar/Thornton1.PDF The Success of the Great Depression Tax Revolts] (pdf), referenced 2010-06-15.</ref>

==1933, end of Hoover's term==
Seeking reelection, Hoover boasted of his many interventions with the economy. In his acceptance speech for the Presidential renomination he said:
<blockquote>''"We might have done nothing. That would have been utter ruin. Instead, we met the situation with proposals to private business and to the Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic. We put that program in action."''<ref name="Hoover_nomination">Herbert Hoover. [http://americanhistory.about.com/library/docs/blhooverspeech1932.htm "Address Accepting the Republican Presidential Nomination"], August 11, 1932. The address was carried over the National Broadcasting Company and the Columbia Broadcasting System radio networks. This is a transcript taken from a sound recording of the address. Referenced 2010-06-20.</ref></blockquote>

After the election of [[Franklin D. Roosevelt|Roosevelt]], as the new Presidential term approached, dark rumors circulated about the radicalism of Roosevelt’s advisers, and of their willingness to go off the [[gold standard]]. Consequently, not only did gold "hoarding" by foreigners develop momentum, but even gold hoarding by domestic citizens. For the first time in the depression, American citizens were beginning to lose confidence in the dollar itself. The loss of confidence reached its apogee in February, 1933, the month before the Roosevelt inaugural. In that one month, the monetary gold stock fell by $173 million, and money in circulation increased by the phenomenal amount of $900 million, the reflection of domestic loss of confidence. Money in circulation totaled $5.4 billion at the end of January, and $6.3 billion by the end of February. $700 million of this increase was in Federal Reserve notes, and $140 million in gold coin and gold certificates.

The Federal Reserve did its best to combat this deflationary pull on bank reserves, but its inflationary measures only served to diminish confidence in the dollar still further. Total money supply fell from $64.72 to $61.61 billion over 1933, and all or more of this fall took place in the first half of the year. Bank failures skyrocketed during this period. The number of commercial bank failures increased from 1,453 in 1932 to 4,000 in 1933 (most of which took place in the first quarter).

The reaction to this growing insistence of the people on claiming their rightful, legally-owned property, was a series of attacks on property rights by state after state. One by one, states imposed "bank holidays" by fiat, permitting the banks to stay in business while refusing to pay virtually all of the just claims of their depositors. The bank holiday movement began in earnest with the proclamation of an eight-day holiday on February 14, 1933, by Governor William Comstock of Michigan. This precipitated the bank runs and deflation of the latter part of February and depositors began an intense scramble to take their money out of the banks. Many national banks, which had worked hard to keep themselves in an at least relatively sound position, did not want to use the special privilege of bank holiday, and had to be coerced into doing so.

By March 4, every state in the Union had declared a bank holiday, and the stage was set for President Roosevelt’s dramatic and illegal closing of all the banks. President Roosevelt closed down all the banks throughout the nation for an entire week, from March 6 to 13, with many banks remaining closed even longer. Restrictions against so-called "hoarding" were continued afterward, and much hoarded gold returned to the banks following a Federal Reserve threat to publish a list, for full public scorn, of the leading "gold hoarders."

Mr. Hoover left office in March, 1933, at the very depth of the greatest depression in American history. Production had fallen by more than one-half: industrial production had been at an index of 114 in August, 1929, and then fell to 54 by March, 1933. Unemployment was persisting at nearly 25 percent of the labor force, and gross national product had also fallen almost in half. Hardest hit was investment, especially business construction, the latter falling from about $8.7 billion in 1929 to $1.4 billion in 1933. The index of non-durable manufacturing production fell from 94 to 66 from August, 1929, to March, 1933—a decline of 30 percent; the index of durable manufactures fell from 140 to 32, in the same period, a decline of 77 percent. In durable goods industries (e.g., building, roads, metals, iron and steel, lumber, railroad, etc.) it was estimated that their total employment fell from 10 million in 1929 to 4 million in 1932–1933, while employment in consumer goods industries (e.g., food, farming, textiles, electricity, fuel, etc.) only fell from 15 million to 13 million in the same period. Stock prices (industrials) fell by 76 percent during the depression, wholesale prices fell by 30 percent, and the total money supply declined by one-sixth.

Wage rates were kept very high during the first two years of the depression. By 1932, however, with profits wiped out, the pressure became too great, and wage rates fell considerably. Total fall over the 1929–1933 period, however, was only 23 percent - less than the decline in wholesale prices. Therefore, real wage rates, for the workers still remaining employed, actually increased. While real average hourly earnings rose, actual hours worked in industry fell drastically during the depression. Weekly hours averaged over 48 in 1929, and fell to less than 32 by mid-1932. In no previous depression had hours worked fallen by more than 10 percent. This was a form of reduced employment caused by the high-wage policy. As a result, average weekly earnings fell by over 40 percent during the depression, and real weekly earnings fell by over 30 percent. But hardest hit were the unemployed, the percentage of whom rose to 25 percent by 1932–1933, and reached 47 percent in selected manufacturing industries. The fall in man-hours combined with the fall in average hourly earnings caused a truly precipitate drop in total factory payrolls - the base of the very "purchasing power" that the policy was supposed to sustain.<ref name="Rothbard_Hoover_End">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 12. The Close of the Hoover Term, p. 321-337, referenced 2010-06-20.</ref>

==The New Deal==
===Roosevelt's Campaign===
Under the Democratic platform of 1932, which Franklin D. Roosevelt endorsed, contained several subsidies and regulations, but it hardly embraced the enormous expansion in federal power that FDR would achieve. The very first plank called for "an immediate and drastic reduction of governmental expenditures by abolishing useless commissions and offices, consolidating departments and bureaus, and eliminating extravagance to accomplish a saving of not less than twenty-five per cent in the cost of the Federal Government."<ref name="Woolley_Dem_1932">John T. Woolley and Gerhard Peters. [http://www.presidency.ucsb.edu/ws/index.php?pid=29595 "Democratic Party Platform of 1932"], June 27, 1932, from The American Presidency Project [online]. Referenced 2010-06-20.</ref> Subsequent planks demanded a balanced budget, a low tariff, the repeal of Prohibition, "a sound currency to be preserved at all hazards," "no interference in the internal affairs of other nations," and "the removal of government from all fields of private enterprise except where necessary to develop public works and natural resources in the common interest." The document concluded with a quote from Andrew Jackson: "equal rights to all; special privilege to none."

FDR's campaign reflected that platform. He accused Herbert Hoover of "reckless and extravagant spending," and he further denounced the Republican incumbent for believing "we ought to center control of everything in Washington as rapidly as possible." Even when he called for interventions in the economy, he generally couched his words in the old liberals' language of equal treatment rather than the new liberals' vision of enlightened central planning. In his famous Forgotten Man speech of April 1932 (see [http://newdeal.feri.org/speeches/1932c.htm transcript]), the Democratic candidate pointed to the wave of foreclosures sweeping the nation. Noting that Hoover had created a "two billion dollar fund...put at the disposal of the big banks, the railroads and the corporations of the Nation," FDR averred that the government should "provide at least as much assistance to the little fellow as it is now giving to the large banks and corporations." Once in office, the new administration did indeed repeal Prohibition, and it eventually lowered some trade barriers as well. By the time of FDR's death, the federal bureaucracy's power had grown so enormously that Hoover was widely remembered as the last apostle of laissez faire.<ref name="Walker_FDR">Jesse Walker. [http://reason.com/archives/2008/04/10/the-new-franklin-roosevelts "The New Franklin Roosevelts"], April 10, 2008. Referenced 2010-06-20.</ref>

===Policy===
A principal feature of '''[[New Deal]]''' economic policy was government-sponsored industrial [[cartel]]s (the [[National Recovery Act]]); agricultural cartels (the [[Agricultural Adjustment Act]]); and labor cartels (the [[Norris – La Guardia Act|Norris-LaGuardia]] and [[National Labor Relations Act|Wagner Acts]]). The purpose of any cartel is to restrict output and raise prices. Lower levels of production leads to higher unemployment, which is exactly what the NRA and AAA did.

The NRA was almost identical to the Italian corporatist system that existed at the time. In Italy each trade or industrial group was organized into a government-controlled "corporative" association that had the power to plan production and pricing. In the U.S. the NRA organized each industry into federally-supervised trade associations called "Code Authorities" which could also limit output and set prices. The antitrust laws were explicitly set aside.

Over 700 industrial codes were created and were rigorously enforced by thousands of government code enforcers who, "could enter a man's factory, send him out, line up his employees, subject them to minute interrogation, take over his books on the instant." A hapless New Jersey tailor named Jack Magid became nationally famous after he was arrested, convicted, and imprisoned by the code police for the "crime" of pressing a suit of clothes for 35 cents when the Tailors' Code fixed the price at 40 cents. The NRA was ruled unconstitutional by the U.S. Supreme Court on May 27, 1935.<ref name="DiLorenzo_New_Deal">Thomas J. DiLorenzo. [http://mises.org/daily/55 "A New, New Deal"], Mises Daily, October 1998, referenced 2010-06-20.</ref> A study of the Act noted that "the licensing provision, giving the president the power of life or death over business enterprises, is the ultimate weapon of enforcement and the capstone of the powers granted to the president ... the most extraordinary extension of presidential power in American history." The Supreme Court's decision has noted, that 'fair competition' is not defined in the law and could be a convenient designation for whatever set of laws that is proposed and the president may approve. It ruled that NIRA was "an unconstitutional delegation of legislative power."

But after [[Judiciary Reorganization Bill of 1937|Roosevelt's court-packing threat]] of 1937, the justices succumbed to whatever creative definition of fairness that Congress or federal agencies chose to proclaim. For instance, in 1942, Congress passed the Emergency Price Control Act, which created an Office of Price Administration. The OPA had sweeping power to set or strike down prices in any industry or activity that it considered to be "defense-related" — a vague term that could have encompassed practically the entire national economy. The act contained no substantive guidelines for the administrator's decisions but merely required prices that "in his judgment will be generally fair and equitable."<ref name="Bovard_Cuttthroat">James Bovard. [http://www.fff.org/freedom/0499d.asp "Cutthroat Competition and Dead Chickens"], The Future of Freedom Foundation, April 1999. Referenced 2010-06-20.</ref>

===Effects===
The Roosevelt administration also orchestrated various price-fixing schemes in labor markets, principally for the benefit of unions. Payroll taxes to finance Social Security and Unemployment Insurance programs increased employers' wage bills even further, which also reduced the level of employment. According to an econometric estimate, government-mandated payroll cost increases added nearly 1.2 million people to the unemployment rolls by 1938.

The unemployment rate during the 1933-1940 period averaged about 18% and was as high as 28.3% in March of 1933. By the end of 1938, on the eve of World War II, the U.S. unemployment rate still hovered at just over 18 percent and was higher than it was in 1933, President Franklin D. Roosevelt's first year in office. This occurred despite (or rather, because of) six years of unprecedented levels of government intervention into the U.S. economy. The American recovery was slower than in most European nations; by 1937 Great Britain's unemployment rate had declined to 10.3 percent.

Herbert Hoover's [[Reconstruction Finance Corporation]] was greatly expanded by Roosevelt, but its effect was to make capital markets less efficient, thereby prolonging the Depression even further. As explained by RFC director Jesse Jones in his autobiography, ''Fifty Billion Dollars'', "The law specified that we should lend only where the borrower could not get the money from others on reasonable terms." That is, only to uncreditworthy borrowers. Guided by this directive, Jones and the RFC redirected billions of dollars in valuable capital to politically-connected but economically-questionable businesses. "We even loaned money to [the owners of] a drove of reindeer in Alaska," Jones boasted. The RFC was abolished in the 1955 under a cloud of corruption and scandal.

Roosevelt's public works programs may have been an economic failure, but they were a resounding political success as they provided virtually unlimited opportunities for political patronage. In 1939 a special U.S. Senate Committee on Campaign Expenditures investigated the programs and found that in many states workers were required to sign a pledge to vote Democratic and, in some cases, to make campaign contributions, as a condition of employment. Businesses that sold supplies to the government were in some places required to make campaign contributions to the Democratic party in return for the contracts. The New Deal was largely a legalized [[Extortion|shake-down]] operation.<ref name="DiLorenzo_New_Deal" /><ref name="Anderson_WPA">William L. Anderson. [http://mises.org/daily/3921 "The Curse of Good Government"], Mises Daily, December 2009, refers to the spending of New Deal money. Referenced 2010-06-20.</ref>

Roosevelt's billions, adroitly used, had broken down every political machine in America. The patronage they once lived on and the local money they once had to disburse to help the poor was trivial compared to the vast floods of money Roosevelt controlled. And no political boss could compete with him in any county in America in the distribution of money and jobs.<ref name="Flynn_Roosevelt">John T. Flynn. [http://mises.org/books/rooseveltmyth.pdf "The Roosevelt Myth"] (pdf), p. 65; 1948. Referenced 2010-06-21.</ref>

As Henry Morgenthau, the secretary of the treasury and one of the most powerful men in America, said before the Democrats on the House Ways and Means Committee in 1939<ref name="Folsom_spending">Burton Folsom Jr. [http://search.barnesandnoble.com/New-Deal-or-Raw-Deal/Burton-Folsom-Jr/e/9781416592228#EXC "New Deal or Raw Deal?: How FDR's Economic Legacy Has Damaged America"], an excerpt from the book. Referenced 2010-06-21.</ref>:

<blockquote>''"We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong...somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises....I say after eight years of this Administration we have just as much unemployment as when we started....And an enormous debt to boot!"''</blockquote>

==During World War II==
The recovery from the Great Depression in the United States is usually associated with the advent of World War II, a period when real GDP appeared to increase phenomenally and the rate of unemployment fell almost to zero. A more detailed view produces a different picture, with large government "make-work" programs at first and military employment during the war - but a very slow actual recovery. When using hours worked as measure of employment, only in 1941 total work hours exceed the 1929 value (by 3 percent), with the population vigorously engaged in mobilization for war.<ref name="Higgs_hours">Robert Higgs. [http://www.independent.org/pdf/tir/tir_14_01_8_higgs.pdf "A Revealing Window on the U.S. Economy in Depression and War - Hours Worked, 1929–1950"] (pdf), The Independent Review, v. 14, n.1, Summer 2009. Referenced 2010-06-21.</ref>

Private [[investment]] has fallen significantly. Gross private investment plunged from almost 16 percent of GDP in 1929 to less than 2 percent in 1932; recovered to 13 percent in 1937 before falling again in the recession of 1938; and as late as 1941 stood at only 14 percent. During the war years, private investment ratios ranged from 3 to 6 percent. From 1946 through 1950 they ranged from 14 to 19 percent and averaged 16 percent — the same as in 1929. In 1929, when gross private investment was $16.2 billion, net investment was $8.3 billion. Net investment fell precipitously to $2.3 billion in 1930 and then became negative during each of the following five years. For the eleven-year period of 1930 to 1940, net private investment totaled minus $3.1 billion. Only in 1941 did net private investment ($9.7 billion) exceed the 1929 amount. During the 1930s, private investment remained at depths never plumbed in any other decade for which data exist.

One hypothesis is, that the New Deal prolonged the Great Depression by creating an extraordinarily high degree of '''[[regime uncertainty]]''' for the investors. Given the unparalleled outpouring of business-threatening laws, regulations, and court decisions, the oft-stated hostility of President Roosevelt and his lieutenants toward investors as a class, the political climate could hardly have failed to discourage some investors from making long-term commitments. There also exists a great deal of direct evidence that investors felt extraordinarily uncertain about the future of the property-rights regime between 1935 and 1941. Historians have recorded countless statements by contemporaries to that effect; in the years just before the war most business executives expected substantial weakening of private property rights ranging up to "complete economic dictatorship". The possibility that the United States might undergo an extreme regime shift seemed to many investors in the late 1930s and early 1940s not only possible but likely.<ref name="Higgs_investment">Robert Higgs. [http://www.independent.org/pdf/tir/tir_01_4_higgs.pdf "Regime Uncertainty - Why the Great Depression Lasted So Long and Why Prosperity Resumed after the War"] (pdf), The Independent Review, Vol, I, No. 4, Spring 1997. Referenced 2010-06-21.</ref><ref name="Higgs_China">Robert Higgs. [http://www.independent.org/blog/index.php?p=2620 "Regime Uncertainty in the 1930s: A New Deal Insider’s Account"], ''The Beacon'', blog of the The Independent Institute, Jun 29, 2009. Referenced 2010-08-15.</ref>

==See also==

* [[Austrian Business Cycle Theory]]

==References==
{{Reflist|2}}

==External links==
* [http://www.lewrockwell.com/gordon/gordon-gd-biblio.html Bibliography on the Great Depression] by David Gordon, 2009
* [http://mises.org/daily/3941 The Myth that Is FDR] by Garet Garrett, January 2010
* [http://mises.org/daily/4350 Did Hoover Really Slash Spending?] by Robert P. Murphy, May 2010
* [http://www.ameshistoricalsociety.org/exhibits/events/rationing.htm World War II Rationing], collected by the Ames Historical Society and the [[Wikipedia:Rationing|Wikipedia]] article on the same
* [http://www.mackinac.org/article.aspx?ID=4028 Free Markets or Free Lunches?] by Lawrence W. Reed, January 1998
* [http://www.mackinac.org/article.aspx?ID=4013 Great Myths of the Great Depression] by Lawrence W. Reed, January 1998
* [http://mises.org/daily/3778 The Gold Standard and the Great Depression] by Robert P. Murphy, October 2009
* [http://mises.org/daily/1623 The New Deal Debunked (again)] by Thomas J. DiLorenzo, September 2004
* [http://www.independent.org/newsroom/article.asp?id=138 Wartime Prosperity? A Reassessment of the U.S. Economy in the 1940s] by Robert Higgs, March 1992
* [http://mises.org/daily/3661 My Summer Reading: Hyper-Inflation in Weimar Germany] by Ralph Fucetola, September 2009 (notes that the crisis was seen as insignificant at the beginning)
* [http://mises.org/journals/qjae/pdf/qjae11_3_5.pdf The Great Depression: Mises vs. Fisher] (pdf) by Mark Thornton, November 2008
* [http://www.thefreemanonline.org/featured/the-depression-youve-never-heard-of-1920-1921/ The Depression You’ve Never Heard Of: 1920-1921] by Robert P. Murphy, December 2009
* [http://mises.org/daily/3866 Reliving the Crash of '29] by Murray N. Rothbard, first published in November 1979
* [http://mises.org/daily/4039 Dangerous Lessons of 1937] by Jonathan M. Finegold Catalan, February 2010
* [http://mises.org/daily/4797 The Real Reason for FDR's Popularity] by Mark Thornton, October 2010
* [[Wikipedia:Great Depression|Great Depression]] on Wikipedia

[[Category:History of the United States]]
[[Category:Financial crises]]

User talk:Daniel Hewitt

2011-04-01T14:27:28Z

Daniel Hewitt: /* Great Depression */

Great Depression

2011-04-01T01:51:52Z

Daniel Hewitt: /* 1932, The Hoover New Deal */

{{RightTOC}}
The '''Great Depression''' was the longest and most severe economic depression ever experienced by the Western world.<ref name="Britannica_debt">Encyclopædia Britannica. [http://www.britannica.com/EBchecked/topic/243118/Great-Depression "Great Depression"], Encyclopædia Britannica Online, referenced 2010-06-12.</ref>

==Prelude==
In the forty years 1890 to 1930, the population of the United States doubled, the value of farm property increased three and a half times, pig iron production four and a half times, exports five times, coal production five times, and freight traffic five and a half times, but commercial bank deposits increased over seventeen and a half times. Thus, while the gold stock had increased proportionally with the increase of industrial production, the expansion in bank credit had far outstripped both and had thus been at the expense of a thinning gold reserve. The monetary gold stock available to support and redeem this tremendous amount of bank liabilities that was being created, which had been 25.3 per cent of total note and deposit liabilities of banks in 1865, and 23.9 per cent in 1880, steadily dropped under the pressure of the public upon the banking interest for more and more credit, standing in 1900 at 20.4 per cent, in 1910 at 14.2 per cent and in 1930 at 10.4 per cent. Such had been the diminution of reserves that by the decade 1920-1930, banking was being conducted "on a shoestring." In 1900 the ratio of vault cash to deposit liabilities of commercial banks had dropped to 14.8 per cent, and in 1910 to 12.7 per cent—vault cash in those years being respectively $706,302,000 and $1,366,164,000.<ref name="Groseclose_Money">Elgin Groseclose. [http://mises.org/resources/3138/Money-and-Man Money and Man], 1934, p.209-210. Referenced 2011-03-24.</ref>

From June 1914 to January 1920, when [[Demand deposits|demand deposits]] grew by 96.9 percent, [[Time deposits|time deposits]] rose by 126.1 percent. In the great boom of the 1920s, that started after the [[Depression of 1920–21|recession of 1920–21]] (a short recession, thanks to the budget cutting and lowering of taxes by [[Warren Harding]]<ref name="Woods_Harding">Thomas E. Woods, Jr. [http://www.firstprinciplesjournal.com/articles.aspx?article=1322&theme=home&loc=b "Warren Harding and the Forgotten Depression of 1920"], First Principles, Fall 2009 issue of The Intercollegiate Review. See also the [http://www.youtube.com/watch?v=czcUmnsprQI video]. Referenced 2009-10-11.</ref>), total demand deposits rose from 1921 to 1929 by 36.5 percent. Time deposits in banks expanded in the same period by 75.9 percent. The great boom of the 1920s (also called "[[Roaring Twenties]]") was largely fueled by credit expansion going into time deposits. The greatest expansion of time deposits came in Central Reserve Cities (New York and Chicago), where the [[Federal Reserve System|Fed]]’s open market operations were all conducted, as opposed to Reserve Cities and Country Banks. As acknowledged by Federal Reserve officials, time or savings deposits were then, for all practical purposes, equivalent to demand deposits and should be paid on demand in case of a run on a bank.

With the passage of the [[Federal Reserve Act]], [[Woodrow Wilson|President Wilson]] appointed [[Benjamin Strong, Jr.|Benjamin Strong]] to the most powerful post in the Federal Reserve System, Governor of the [[Reserve Bank of New York|Federal Reserve Bank of New York]]. He made quickly this position dominant in the System and decided on Fed policy without consulting or even against the wishes of the Federal Reserve Board in Washington. Strong was the dominant leader of the Fed from 1914 until his death in 1928. He pursued an inflationary policy, to finance the war effort for [[World War I|WWI]], connected to the interests of the [[J.P. Morgan & Co.|House of Morgan]]. Another motivation was the attempt to prop up the [[Bank of England]] in the 1920s, when it returned to the [[gold standard]] with an overvalued pound. To prevent the loss of gold to the States, its governor [[Montagu Norman, 1st Baron Norman|Montagu Norman]] secretly convinced Strong to inflate in order to help England. The expansion ended only after Strong's death and the '''Great Depression''' followed soon after. In 1928 Strong admitted that "very few people indeed realized that we were now paying the penalty for the decision which was reached early in 1924 to help the rest of the world back to a sound financial and monetary basis" - that is, to help Britain maintain a phony and inflationary form of gold standard.<ref name="Rothbard_Federal_Reserve">[[Murray N. Rothbard]]. [http://mises.org/books/mysteryofbanking.pdf "The Mystery of Banking"] (pdf), Chapter XVI: Central banking in the United States IV: The Federal Reserve System, p.235-246, referenced 2009-10-03.</ref>

The inflation was also motivated by a desire to help American exporters (particularly farmers), by stimulation of foreign lending. At the same time the U.S. turned to a sharp protectionist policy with the [[Fordney–McCumber Tariff]] of 1922. In the foreign lending boom, other countries were hampered in trying to sell their goods to the United States, but were encouraged to borrow dollars. The government did not have any peacetime authority to interfere with loans, but did so illegally. In 1921, President [[Warren G. Harding|Harding]] and his cabinet conferred with several American investment bankers, at the instigation of Secretary of Commerce [[Herbert Hoover|Hoover]], to be informed in advance of foreign loans, so that the government "might express itself regarding them". The bankers agreed. Hoover commented that even bad loans helped American exports and provided a cheap form of relief and employment. Later Hoover demanded from bankers, that foreign loans would be inspected by agents of the [[Department of Commerce]]. Both requests were mostly ignored. While admitted to be legally unenforceable, it was all in the name of "national interests".<ref name="Rothbard_pre_Depression">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 5. The Development of the Inflation, p. 137-167, referenced 2009-11-17.</ref>

{{See also|Federal Reserve System}}

===Housing bubble===
An outlet for the excessive credit created by the banking system was in financing an urban real estate boom in the U.S. During the decade 1920-1930, people were moving in a constant stream into the cities; the population of the sixty-three metropolitan zones (cities of 100,000 or more plus adjacent counties) rose from 46,491,000 to 59,118,000, or from 44 per cent of total population to 48 per cent. Seventy-four per cent of the increase in total population during the decade occurred in the metropolitan areas.

A huge building boom followed, the Federal Reserve Board index of building contracts awarded, 1923-1925 taken as 100, rising from 63 in 1920 to 122 in 1925, and 135 in 1928. This boom occurred chiefly in skyscraper offices and expensive apartment house developments, whose notes were more readily marketable, rather than in the modest single family accommodations. The result was that when the era had passed the slums still existed. In New York City, for instance, where at least four skyscrapers were built in these years with the only object, apparently, of surpassing the record for the world's tallest building, from a quarter to a third of the population, say 1,800,000 persons, still occupied houses that had been outlawed thirty-three years earlier by the Tenement House Act of 1901.<ref name="Groseclose_Money">Elgin Groseclose. [http://mises.org/resources/3138/Money-and-Man Money and Man], 1934, p.225, 244. Referenced 2011-03-24.</ref>

==The Crash==
{{Main|Wall Street Crash of 1929}}
The great boom of the 1920s began around July, 1921, after a year or more of sharp recession, and ended about July, 1929, when the production and business activity began to decline, although the [[Wall Street Crash of 1929|famous stock market crash]] came in October of that year. [[Herbert Hoover]], an avid proponent of interventionism became President. Characteristic for him were "voluntary" measures that the government desired, with the implicit threat that if business did not "volunteer" properly, compulsory controls would soon follow.<ref name="Rothbard_1920s_boom">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 5. The Development of Hoover's Interventionism: Unemployment, p. 188-189, referenced 2009-11-20.</ref>

After the stock-market crash, Hoover began a series of conferences with big business and labor leaders, telling them that cutting wage rates (the standard response in previous depressions) would be disastrous, because then the workers wouldn't make enough to buy the products.<ref name="Hoover 11-15-29 NC">John T. Woolley and Gerhard Peters, ''The American Presidency Project'' [online]. Santa Barbara, CA. Available from World Wide Web: http://www.presidency.ucsb.edu/ws/?pid=22005.</ref> This "liquidation" of labor would only deepen the depression by reducing their "purchasing power". Leading industrialists pledged to maintain wage rates, expand construction, and share any reduced work,<ref name="Hoover CC remarks">John T. Woolley and Gerhard Peters, ''The American Presidency Project'' [online]. Santa Barbara, CA. Available from World Wide Web: http://www.presidency.ucsb.edu/ws/?pid=22023.</ref><ref name="Telegraph-Herald 11-21-29">[http://news.google.com/newspapers?id=T51FAAAAIBAJ&sjid=C70MAAAAIBAJ&dq=hoover%20wage&pg=6813%2C5825398 "Credit President With Pledge to Keep Wages Up"], ''The Telegraph-Herald and Times-Journal,'' November 21, 1929.</ref><ref name="Sarasota Herald-Tribune 11-22-29">[http://news.google.com/newspapers?id=LYQcAAAAIBAJ&sjid=MmQEAAAAIBAJ&dq=hoover%20wages%20business&pg=6694%2C4315629 "Agree To Keep Wage Level Up"], ''Sarasota Herald-Tribune,'' November 22, 1929.</ref><ref name="Gettysburg Times 11-22-29">[http://news.google.com/newspapers?id=DdElAAAAIBAJ&sjid=1PkFAAAAIBAJ&dq=hoover%20wage&pg=2000%2C1635972 "Conferences Please Hoover"], ''The Gettysburg Times,'' November 22, 1929.</ref><ref name="Lewiston Evening Journal 11-23-29">[http://news.google.com/newspapers?id=Iq01AAAAIBAJ&sjid=uWcFAAAAIBAJ&dq=hoover%20wage&pg=1270%2C4673686 "No Hard Times, Hoover Assures Wage Earners"], ''Lewiston Evening Journal,'' November 23, 1929.</ref><ref name="Tuscaloosa News 11-25-29">[http://news.google.com/newspapers?id=xYA-AAAAIBAJ&sjid=BkwMAAAAIBAJ&dq=hoover%20wage&pg=6182%2C3112525 "All Citizenry Asked To Help Progress Plan"], ''The Tuscaloosa News,'' November 25, 1929.</ref><ref name="Miami News 11-26-29">[http://news.google.com/newspapers?id=o7cuAAAAIBAJ&sjid=6tcFAAAAIBAJ&dq=hoover%20wage&pg=6639%2C4846533 "Hoover's Plan To Help Trade Gets Approval"], ''The Miami News,'' November 26, 1929.</ref> to fulfill Hoover's request that "the first shock must fall on profits and not on wages".<ref name="hoover44">Herbert Hoover, ''The Memoirs of Herbert Hoover: The great depression, 1929-41'', (New York: Macmillan, 1952) 44-45.</ref>

At the same time, the Federal Reserve expanded rapidly and lowered its interest rates. Its member banks expanded their deposits in the last week of October 1929 alone by 10%, mostly in New York. Hoover praised the Fed for the saving of shaky banks and restoring confidence.<ref name ="Hoover CC remarks" /> The depression should be over in a few months. A large public works program was also initiated.<ref name="Rothbard_public_works">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 8. The Depression Begins: President Hoover Takes Command, p. 209-217, referenced 2009-11-21.</ref><ref name="Hoover 1-3-20">John T. Woolley and Gerhard Peters, ''The American Presidency Project'' [online]. Santa Barbara, CA. Available from World Wide Web: http://www.presidency.ucsb.edu/ws/?pid=22468.</ref>

Hoover promised the farm bloc to support farm cooperatives and prices and established the [[Federal Farm Board]] (FFB). It would make all-purpose loans to farm cooperatives at low interest rates and establish "stabilization corporations" to control farm surpluses and bolster farm prices. Its board was dominated by representatives of these farm cooperatives. To combat falling prices, it made loans to farmers to keep wheat and cotton off the market and later started to buy the surpluses. For a while, prices were held up and farmers increased production, only to find that prices would fall even more. As America held wheat off the market, it lost its former share of the world’s wheat trade. The farmers were urged to decrease their acreage, while the government still promoted reclamation projects to increase farm production. The surpluses of wheat accumulated and prices fell to such a degree, that the FFB decided to dump wheat stocks abroad, resulting in a drastic fall in market prices. The attempts to keep up the price of cotton, wool, livestock, etc. failed as well. A "[[Farmers' Holiday Association|Farm Holiday]]" was declared to stop production, The movement soon turned to violence and failed to stop the falling farm prices. but succeeded to avoid some foreclosures of its members.<ref name="Rothbard_Agriculture">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), The New Deal Farm Program, p. 217-237, referenced 2009-11-21.</ref>

In 1930, the [[Smoot–Hawley Tariff Act|Smoot–Hawley Tariff]] was passed, despite objections of many economists and industrial leaders. Hoover originated a higher tariff on agricultural products to help farmers, but it was raised on many other products. Many other countries have retaliated with their own tariffs and foreign trade declined significantly. (From 1929 to 1932, U.S. imports from Europe decreased from $1,334 million to just $390 million, while U.S. exports to Europe decreased from $2,341 million to $784 million. Overall, world trade decreased by some 66% between 1929 and 1934.<ref>U.S. Department of State. [http://future.state.gov/when/timeline/1921_timeline/smoot_tariff.html Smoot-Hawley Tariff], referenced 2009-11-22.</ref>) Also, to relieve the unemployment problem, and to help keep wage rates up, the President effectively banned further immigration into the United States.<ref name="Rothbard_Depression_1930">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 9. 1930, p. 239-256, referenced 2009-11-22.</ref>

===In Europe===
In Europe, the crisis began in earnest with the ''Boden–Kredit Anstalt'', the most important bank in Austria and Eastern Europe. It had to merge with the [[Creditanstalt|Oesterreichische–Kredit–Anstalt]] after rescue attempts by its government and other banks. When Austria declared a customs union with Germany in March 1931, the French government feared this development and several French banks suddenly insisted on redemption of their debts from both countries. The bank collapsed. After more rescue attempts has the Austrian Government voted a $150 million guarantee to the bank, but the its credit was by the time worthless, and Austria soon declared national bankruptcy by going off the gold standard. Later, Germany, England, and most other European countries renounced their obligations and went off the gold standard as well. While the impact on United States was not very large due to the lowered international trade, it certainly did not help, neither did the many loans granted to prop up foreign banks.<ref name="Rothbard_Depression_1931_Europe">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 10. 1931—"The Tragic Year", p. 257-284, referenced 2009-11-27.</ref>

==1931, "The Tragic Year"==
The crisis worsened in the US in 1931. Production continued to fall drastically, as did prices and foreign trade, and unemployment ran up to almost 16 percent of the labor force. The Federal Reserve Board (FRB) index of manufacturing production, which had been 110 in 1929 and 90 in 1930, fell to 75 in 1931. Hardest hit, in accordance with Austrian [[ABCT|cycle theory]], were producers’ goods and higher order [[capital]] goods industries, rather than the consumer goods’ industries. Despite attempts to inflate, bank deposits and the aggregate [[money supply]] fell sharply, particularly at the end of the year. The British abandoning of the gold standard, bank failures abroad and the growing number of failures at home, caused a growing loss of confidence by Americans in their banking system. The wages were also beginning to fall, first secretly, then openly by the end of 1931.<ref name="Time 4-13-31p">"[http://www.time.com/time/magazine/article/0,9171,752764,00.html "THE PRESIDENCY: The Pledge"], ''TIME,'' April 13, 1931.</ref><ref name="Time 4-13-31i">[http://www.time.com/time/magazine/article/0,9171,752766,00.html "INDUSTRY: Next: Wages?"], ''TIME,'' April 13, 1931.</ref><ref name="Time 8-10-31">[http://www.time.com/time/magazine/article/0,9171,882003,00.html "LABOR: When Winter Comes"], ''TIME,'' August 10, 1931.</ref><ref name="Time 11-09-31">[http://www.time.com/time/magazine/article/0,9171,742546,00.html "LABOR: Rail Dickers"], ''TIME,'' November 9, 1931.</ref>

The gross national product fell from $91.1 billion in 1930, to $76.3 billion in 1931. Total government receipts fell from $13.5 billion to $12.4 billion, but total government expenditures rose from $13.9 billion to $15.2 billion, in federal, rather than state and local, spending (federal expenditures rose from $4.2 billion in 1930 to $5.5 billion in 1931). In the middle of a great depression when people needed to be relieved of governmental burdens, the dead weight of government rose from 16.4 percent to 21.5 percent of the gross private product. From a modest surplus in 1930, the Federal government so ran up a huge $2.2 billion deficit in 1931.<ref name="Rothbard_Depression_1931_Europe" />

Direct relief was just about the one sphere where President Hoover seemed to prefer voluntary to governmental action. The [[Red Cross]] opposed a bill, in early 1931, that would grant it $25 million for relief, declaring that it would "to a large extent destroy voluntary giving". Many private charity organizations, philanthropists, and social workers had the same views. Governmental unemployment relief was seen to have a role in creating and perpetuating unemployment in Britain (the "dole"). It was attacked by many business leaders, including [[Henry Ford]], the leaders of the [[National Association of Manufacturers]] and the [[United States Chamber of Commerce|Chamber of Commerce]], and former President [[Calvin Coolidge|Coolidge]].<ref name="Rothbard_Depression_1931_Europe" />

The [[Davis-Bacon Act]] was signed by President Hoover in 1931. It mandated that prevailing (union) wages be paid by the Federal Government for public works projects. It has been argued that the Davis-Bacon Act was a [[Jim Crow law]], since its intent <ref name=”williams”>Walter Williams, [http://www.jewishworldreview.com/cols/williams031203.asp "Congress' insidious discrimination"], ''Jewish World Review'' (March 12, 2003), accessed 2011-02-01.</ref> and its effect <ref name=”cato”> David Bernstein, [http://www.cato.org/pubs/briefs/bp-017.html "The Davis-Bacon Act: Let's Bring Jim Crow to an End"], ''Cato Institute Briefing Papers'' (January 18, 1993), accessed 2011-02-01.</ref> was to prevent lower-paid, non-unionized black laborers from competing against higher-paid, unionized white laborers. Hoover promoted and supported the legislation, as he believed that "[t]he very essence of great production is high wages...because it depends upon a widening range of consumption only to be obtained from the purchasing power of high real wages...." <ref name="hoover108">Herbert Hoover, ''The Memoirs of Herbert Hoover: Volume 2, The Cabinet and the Presidency, 1920-33'', (New York: Macmillan, 1952) 108.</ref>

==1932, The Hoover New Deal==
In an atmosphere of crisis, President Hoover called for more drastic measures, including more government aid and loans. With a $2 billion deficit during annual year 1931, Hoover felt that he had to do something to combat it and chose to increase the taxes. The [[Revenue Act of 1932]] was one of the greatest increases in taxation ever enacted in the United States in peacetime. Many wartime
excise taxes were revived, sales taxes were imposed on gasoline, tires, autos, electric energy, malt, toiletries, furs, jewelry, and other articles; admission and stock transfer taxes were increased; new taxes were levied on bank checks, bond transfers, telephone, telegraph, and radio messages; and the personal income tax was raised drastically as follows: the normal rate was increased from a range of 1½ percent–5 percent, to 4 percent–8 percent; personal exemptions were sharply reduced, and an earned credit of 25 percent eliminated; and surtaxes were raised enormously, from a maximum of 25 percent to 63 percent on the highest incomes. Furthermore, the corporate income tax was increased from 12 percent to 13: percent, and an exemption for small corporations eliminated; the estate tax was doubled, and the exemption floor halved; and the gift tax, which had been eliminated, was restored, and graduated up to 33⅓ percent. The postal rates were raised as well.

Despite the drastic increase in tax rates, total Federal revenue for 1932 declined because of the deepened depression—itself partly caused by the increase in tax rates. Total Federal receipts, excluding government enterprises, declined from $2.2 billion in 1931 to $1.9 billion in 1932; including government enterprises, Federal receipts fell from $3.4 billion to $3 billion.

Total government receipts fell from $12.4 billion to $11.5 billion. As a result, the huge Federal deficit continued despite a drop in government expenditures in 1932: Federal expenditures falling from $5.5 billion to $4.4 billion, and aggregate government expenditures falling from $15.2 billion to $13.2 billion (all numbers including government enterprises). Of the $1.7 billion in total government deficit, the bulk of it — $1.4 billion — was in the Federal government account. The state and local governments were forced to cut back their expenditures to near the level of their dwindling receipts. One of the most ominous projects for Federal spending during 1932 was a Congressional move for a huge $2 billion veterans bonus, to be financed by an issue of new currency. It was its final defeat in the Senate in June that did most to defeat a general clamor for much larger government spending.

Meanwhile, however, President Hoover himself was beginning to have doubts about one of his favorite policies: public works. In a conference at the end of February, Hoover admitted that his public works program, which had nearly doubled Federal construction since the start of the depression, had failed. It was very expensive, costing over $1200 per family aided, it was unavailable to the needy in remote regions and to those who were unable to perform such labor, which was, after all, unskilled make-work. By May, Hoover had openly reversed his earlier position. As a result, Federal public works only increased by $60 million in 1932, to reach the $333 million mark. Public works was not to come really to the fore again until the Roosevelt administration.

Holding firm to his interventionist belief that the downward pressure on wages must be resisted <ref name ="hoover108" />, Hoover signed the [[Norris-Laguardia Act]] into law on March 23, 1932. It banned "yellow-dog" contracts, removed federal courts’ authority to issue injunctions against labor disputes, and provided greater ease for workers to organize<ref name="enotes">[http://www.enotes.com/major-acts-congress/norris-laguardia-act "Norris-Laguardia Act (1932): Major Acts of Congress"], accessed 2011-02-01.</ref><ref name="Time 3-21-32">[http://www.time.com/time/magazine/article/0,9171,743381,00.html "LABOR: Yellow Dog's End"], ''TIME,'' March 21, 1932.</ref>; a landmark victory for organized labor.

If Hoover eagerly embraced other forms of [[intervention]], he gave ground but grudgingly on one issue where he had championed the voluntary approach: direct relief. Governor [[Franklin D. Roosevelt]] of New York led the way for state relief programs in the winter of 1931–1932, and he induced New York to establish the first state relief authority: the Temporary Emergency Relief Administration, equipped with $25 million. Other states followed this lead, and a bill was introduced for a $500 million federal relief program. The bill was defeated, but, with depression deepening and a Presidential election approaching, the administration all but surrendered, passing the [[Emergency Relief and Construction Act]] of July, 1932 — the nation’s first Federal relief legislation. All in all, total public relief in 120 of the nation’s leading urban areas amounted to $33 million in 1929, $173 million in 1931, and $308 million in 1932.

One thing Hoover was not reticent about: inflation. The administration first cleared the path for the program by passing the [[Glass–Steagall Act]] in February, which (a) greatly broadened the assets eligible for rediscounts with the Fed, and (b) permitted the Federal Reserve to use government bonds as collateral for its notes, in addition to commercial paper. At the end of February, 1932, total bank reserves had fallen to $1.85 billion. At that point, the [[Federal Reserve System|FRS]] launched a gigantic program of purchasing U.S. government securities. By the end of 1932, total reserves had been raised to $2.51 billion. This enormous increase of $660 million in reserves in less than a year is unprecedented in the previous history of the System. If the banks had kept loaned-up, the money supply of the nation would have increased by approximately $8 billion. Instead, the money supply fell by $3.5 billion during 1932, from $68.25 to $64.72 billion at the end of the year, and with the bank deposit component falling by $3.2 billion. Until the second quarter of 1932, the nation’s banks had always remained loaned up, with only negligible excess reserves. After, the banks accumulated excess reserves, and it is estimated that the proportion of excess to total bank reserves rose from 2.4 percent in the first quarter of 1932, to 10.7 percent in the second quarter. By the fourth quarter of 1932, excess reserves were estimated to a double of 20.3 percent of total bank reserves.

During the 1920s, a typical year might find 700 banks failing, with deposits totaling $170 million. In 1930, 1350 banks failed, with deposits of $837 million; in 1931, 2,293 banks collapsed, with deposits of $1,690 million; and in 1932, 1,453 banks failed, having $706 million in deposits. This enormous increase in bank failures was enough to give any bank pause—particularly when the bankers knew in their hearts that no bank (outside of the nonexisting ideal 100 percent bank) can ever withstand a determined run. Consequently, the banks permitted their commercial loans to run down without increasing their investments. Inflation by the government was turned into deflation by the policies of the public and the banks. The American economy reached the depths of depression during 1932 and 1933, and yet it had begun to turn upward by mid-1932. It is not far-fetched to believe that the considerable deflation of July 1931–July 1932, totaling $7.5 billion of currency and deposits, or 14 percent, was partly responsible for the mid-summer upturn.<ref name="Rothbard_Depression_1932">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 11. The Hoover New Deal of 1932, p. 285-320, referenced 2009-11-27.</ref>

As the Depression got worse and people lost their confidence in the banks, they decided to take custody of their cash. Seeing people in large numbers pulling their money out of banks — money the banks had promised to provide on demand — President Hoover blasted them for their "traitorous hoarding." He organized an antihoarding drive and delivered a radio address ([http://www.bobsuniverse.com/BWAH/31-Hoover/19320306a.pdf transcript], pdf) in which he pleaded with the public to stop hoarding (i.e., to stop converting their bank deposits into cash).<ref name="Smith_hoarding">George F. Smith. [http://mises.org/story/3707 "The Virtue of Hoarding"], Mises Daily, posted on October 09, 2009, referenced 2009-11-18.</ref>

Nominal paychecks fell much more slowly during the early years of the Great Depression than the general [[price]] level (wholesale prices fell by 10 percent in 1930, by 15 percent in 1931)<ref name="Rothbard_Depression_1931_Europe" /> - and those who kept their job experienced a higher increase in real (inflation-adjusted) wages, than during the Roaring 1920s!<ref name="ohanian"> Lee E. Ohanian, "What - or Who - Started the Great Depression?", ''NBER Working Paper No. 15258'' (August 2009). Free copy online [http://www.econ.ucla.edu/people/papers/Ohanian/Ohanian499.pdf here]</ref> And so has unemployment reached record highs during Hoover's first and only term. When FDR went back on the US government's promise to redeem dollars for gold, the Federal Reserve could flood the economy with new dollars, the prices began to rise again. Because wage rates were not allowed to fall to their new, market-clearing level, [[Inflation|inflating]] the currency has paradoxically reduced unemployment.<ref name="Murphy_Depression">Robert P. Murphy. [http://mises.org/story/3778 "The Gold Standard and the Great Depression"], Mises Daily, posted on October 30, 2009, referenced 2009-11-18.</ref>

The Fed has expanded bank reserves in the 1930s. Panicking at the inflationary potential, it doubled the minimum reserve requirements to 20 percent in 1938, sending the economy into a tailspin of credit liquidation. The Fed, ever since that period, has been very cautious about the degree of its changes and changed bank reserve requirements fairly often, but in very small steps, by fractions of one percent.<ref name="Rothbard_Fed_requirements">[[Murray N. Rothbard]]. [http://mises.org/books/fed.pdf "The Case Against the Fed"] (pdf), How the Fed Rules and Inflates, p. 144, referenced 2010-03-23.</ref>

After 1933, Federal Reserve Notes and deposits were no longer redeemable in gold coins to Americans, their gold was confiscated and exchanged for Federal Reserve Notes, which became legal tender; and Americans were stuck in a regime of fiat paper issued by the government and the Federal Reserve.<ref name="Rothbard_Fed_gold">[[Murray N. Rothbard]]. [http://mises.org/books/fed.pdf "The Case Against the Fed"] (pdf), The New Deal and the Displacement of the Morgans, p. 131-132, referenced 2010-05-10.</ref>

===Tax revolt in the USA===
There has been a widespread opposition to real estate taxes in cities across America and some Americans were in fact not paying their taxes. The movement declined quickly, some scholars acknowledge certain influence, but ultimately declare it a failure.<ref name="Beito_revolt">David T. Beito. [http://mises.org/books/taxpayersinrevolt.pdf Taxpayers in Revolt - Tax Resistance during the Great Depression] (pdf), referenced 2010-06-15.</ref> Others consider it a resounding success, however.

President Hoover's massive tax increase bill that passed into law as the [[Revenue Act of 1932]], with many new taxes. The most burdensome taxes for many Americans, however, was the property tax. Property taxes required taxpayers to make an explicit tax payment of significant size from which they could not evade without losing what was often their most significant piece of property and wealth. The property taxes have risen in the decade before the Depression; throughout the 1920s, the general property tax accounted for over 90 percent of taxes levied by all cities over 30,000 in population. One reason for this dependence was that alcohol revenue from sales taxes and licenses had "dried up" due to prohibition. The burden of taxes increased significantly, even if tax rates remained the same. Another source of taxpayer ire was that the real wages of public employees rose nearly 12% between 1929 and 1933.

Tax delinquency increased from its normal rate of 10% to more than 30%. Tax protest organization formed quickly and spontaneously in rural regions in response to tax authorities selling the land of farmers. Estimates placed the number of taxpayer organizations at between 3,000 and 4,000 organizations nationwide.

The tax limitation movement was effective in several states in establishing cuts and limitations on property tax rates. The second success, which was both more important and far less obvious, was the passage of the 21st Amendment that repealed alcohol [[Prohibition in the United States|prohibition]]. The legalization of alcohol sales in most states provided federal, state, and local government with increased tax revenues to offset cuts in property taxes while simultaneously providing a drastic decrease in the price of alcohol and in effect granting the American public a type of tax cut. Income tax revenue fell 60% from 1930 to 1933 placing a severe financial constraint on Congress. The search for an alternative revenue source led to the conversion of F.D.R. from a "dry" to a "wet" and resulted in the 1932 Democratic party platform to call for Repeal in order to provide "a proper and needed revenue." Revenue shortfalls made Repeal possible and the alcohol tax provided 13% of all federal revenue by 1936.<ref name="Thornton_revolt">Mark Thornton and Chetley Weise. [http://mises.org/journals/jls/15_3/15_3_4.pdf The Great Depression Tax Revolts Revisited.] (pdf), Journal of Libertarian Studies, Volume 15, no. 3 (Summer 2001), referenced 2010-06-15.</ref><ref name="Thornton_success_revolt">Mark Thornton and Chetley Weise. [http://mises.org/journals/scholar/Thornton1.PDF The Success of the Great Depression Tax Revolts] (pdf), referenced 2010-06-15.</ref>

==1933, end of Hoover's term==
Seeking reelection, Hoover boasted of his many interventions with the economy. In his acceptance speech for the Presidential renomination he said:
<blockquote>''"We might have done nothing. That would have been utter ruin. Instead, we met the situation with proposals to private business and to the Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic. We put that program in action."''<ref name="Hoover_nomination">Herbert Hoover. [http://americanhistory.about.com/library/docs/blhooverspeech1932.htm "Address Accepting the Republican Presidential Nomination"], August 11, 1932. The address was carried over the National Broadcasting Company and the Columbia Broadcasting System radio networks. This is a transcript taken from a sound recording of the address. Referenced 2010-06-20.</ref></blockquote>

After the election of [[Franklin D. Roosevelt|Roosevelt]], as the new Presidential term approached, dark rumors circulated about the radicalism of Roosevelt’s advisers, and of their willingness to go off the [[gold standard]]. Consequently, not only did gold "hoarding" by foreigners develop momentum, but even gold hoarding by domestic citizens. For the first time in the depression, American citizens were beginning to lose confidence in the dollar itself. The loss of confidence reached its apogee in February, 1933, the month before the Roosevelt inaugural. In that one month, the monetary gold stock fell by $173 million, and money in circulation increased by the phenomenal amount of $900 million, the reflection of domestic loss of confidence. Money in circulation totaled $5.4 billion at the end of January, and $6.3 billion by the end of February. $700 million of this increase was in Federal Reserve notes, and $140 million in gold coin and gold certificates.

The Federal Reserve did its best to combat this deflationary pull on bank reserves, but its inflationary measures only served to diminish confidence in the dollar still further. Total money supply fell from $64.72 to $61.61 billion over 1933, and all or more of this fall took place in the first half of the year. Bank failures skyrocketed during this period. The number of commercial bank failures increased from 1,453 in 1932 to 4,000 in 1933 (most of which took place in the first quarter).

The reaction to this growing insistence of the people on claiming their rightful, legally-owned property, was a series of attacks on property rights by state after state. One by one, states imposed "bank holidays" by fiat, permitting the banks to stay in business while refusing to pay virtually all of the just claims of their depositors. The bank holiday movement began in earnest with the proclamation of an eight-day holiday on February 14, 1933, by Governor William Comstock of Michigan. This precipitated the bank runs and deflation of the latter part of February and depositors began an intense scramble to take their money out of the banks. Many national banks, which had worked hard to keep themselves in an at least relatively sound position, did not want to use the special privilege of bank holiday, and had to be coerced into doing so.

By March 4, every state in the Union had declared a bank holiday, and the stage was set for President Roosevelt’s dramatic and illegal closing of all the banks. President Roosevelt closed down all the banks throughout the nation for an entire week, from March 6 to 13, with many banks remaining closed even longer. Restrictions against so-called "hoarding" were continued afterward, and much hoarded gold returned to the banks following a Federal Reserve threat to publish a list, for full public scorn, of the leading "gold hoarders."

Mr. Hoover left office in March, 1933, at the very depth of the greatest depression in American history. Production had fallen by more than one-half: industrial production had been at an index of 114 in August, 1929, and then fell to 54 by March, 1933. Unemployment was persisting at nearly 25 percent of the labor force, and gross national product had also fallen almost in half. Hardest hit was investment, especially business construction, the latter falling from about $8.7 billion in 1929 to $1.4 billion in 1933. The index of non-durable manufacturing production fell from 94 to 66 from August, 1929, to March, 1933—a decline of 30 percent; the index of durable manufactures fell from 140 to 32, in the same period, a decline of 77 percent. In durable goods industries (e.g., building, roads, metals, iron and steel, lumber, railroad, etc.) it was estimated that their total employment fell from 10 million in 1929 to 4 million in 1932–1933, while employment in consumer goods industries (e.g., food, farming, textiles, electricity, fuel, etc.) only fell from 15 million to 13 million in the same period. Stock prices (industrials) fell by 76 percent during the depression, wholesale prices fell by 30 percent, and the total money supply declined by one-sixth.

Wage rates were kept very high during the first two years of the depression. By 1932, however, with profits wiped out, the pressure became too great, and wage rates fell considerably. Total fall over the 1929–1933 period, however, was only 23 percent - less than the decline in wholesale prices. Therefore, real wage rates, for the workers still remaining employed, actually increased. While real average hourly earnings rose, actual hours worked in industry fell drastically during the depression. Weekly hours averaged over 48 in 1929, and fell to less than 32 by mid-1932. In no previous depression had hours worked fallen by more than 10 percent. This was a form of reduced employment caused by the high-wage policy. As a result, average weekly earnings fell by over 40 percent during the depression, and real weekly earnings fell by over 30 percent. But hardest hit were the unemployed, the percentage of whom rose to 25 percent by 1932–1933, and reached 47 percent in selected manufacturing industries. The fall in man-hours combined with the fall in average hourly earnings caused a truly precipitate drop in total factory payrolls - the base of the very "purchasing power" that the policy was supposed to sustain.<ref name="Rothbard_Hoover_End">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 12. The Close of the Hoover Term, p. 321-337, referenced 2010-06-20.</ref>

==The New Deal==
===Roosevelt's Campaign===
Under the Democratic platform of 1932, which Franklin D. Roosevelt endorsed, contained several subsidies and regulations, but it hardly embraced the enormous expansion in federal power that FDR would achieve. The very first plank called for "an immediate and drastic reduction of governmental expenditures by abolishing useless commissions and offices, consolidating departments and bureaus, and eliminating extravagance to accomplish a saving of not less than twenty-five per cent in the cost of the Federal Government."<ref name="Woolley_Dem_1932">John T. Woolley and Gerhard Peters. [http://www.presidency.ucsb.edu/ws/index.php?pid=29595 "Democratic Party Platform of 1932"], June 27, 1932, from The American Presidency Project [online]. Referenced 2010-06-20.</ref> Subsequent planks demanded a balanced budget, a low tariff, the repeal of Prohibition, "a sound currency to be preserved at all hazards," "no interference in the internal affairs of other nations," and "the removal of government from all fields of private enterprise except where necessary to develop public works and natural resources in the common interest." The document concluded with a quote from Andrew Jackson: "equal rights to all; special privilege to none."

FDR's campaign reflected that platform. He accused Herbert Hoover of "reckless and extravagant spending," and he further denounced the Republican incumbent for believing "we ought to center control of everything in Washington as rapidly as possible." Even when he called for interventions in the economy, he generally couched his words in the old liberals' language of equal treatment rather than the new liberals' vision of enlightened central planning. In his famous Forgotten Man speech of April 1932 (see [http://newdeal.feri.org/speeches/1932c.htm transcript]), the Democratic candidate pointed to the wave of foreclosures sweeping the nation. Noting that Hoover had created a "two billion dollar fund...put at the disposal of the big banks, the railroads and the corporations of the Nation," FDR averred that the government should "provide at least as much assistance to the little fellow as it is now giving to the large banks and corporations." Once in office, the new administration did indeed repeal Prohibition, and it eventually lowered some trade barriers as well. By the time of FDR's death, the federal bureaucracy's power had grown so enormously that Hoover was widely remembered as the last apostle of laissez faire.<ref name="Walker_FDR">Jesse Walker. [http://reason.com/archives/2008/04/10/the-new-franklin-roosevelts "The New Franklin Roosevelts"], April 10, 2008. Referenced 2010-06-20.</ref>

===Policy===
A principal feature of '''[[New Deal]]''' economic policy was government-sponsored industrial [[cartel]]s (the [[National Recovery Act]]); agricultural cartels (the [[Agricultural Adjustment Act]]); and labor cartels (the [[Norris – La Guardia Act|Norris-LaGuardia]] and [[National Labor Relations Act|Wagner Acts]]). The purpose of any cartel is to restrict output and raise prices. Lower levels of production leads to higher unemployment, which is exactly what the NRA and AAA did.

The NRA was almost identical to the Italian corporatist system that existed at the time. In Italy each trade or industrial group was organized into a government-controlled "corporative" association that had the power to plan production and pricing. In the U.S. the NRA organized each industry into federally-supervised trade associations called "Code Authorities" which could also limit output and set prices. The antitrust laws were explicitly set aside.

Over 700 industrial codes were created and were rigorously enforced by thousands of government code enforcers who, "could enter a man's factory, send him out, line up his employees, subject them to minute interrogation, take over his books on the instant." A hapless New Jersey tailor named Jack Magid became nationally famous after he was arrested, convicted, and imprisoned by the code police for the "crime" of pressing a suit of clothes for 35 cents when the Tailors' Code fixed the price at 40 cents. The NRA was ruled unconstitutional by the U.S. Supreme Court on May 27, 1935.<ref name="DiLorenzo_New_Deal">Thomas J. DiLorenzo. [http://mises.org/daily/55 "A New, New Deal"], Mises Daily, October 1998, referenced 2010-06-20.</ref> A study of the Act noted that "the licensing provision, giving the president the power of life or death over business enterprises, is the ultimate weapon of enforcement and the capstone of the powers granted to the president ... the most extraordinary extension of presidential power in American history." The Supreme Court's decision has noted, that 'fair competition' is not defined in the law and could be a convenient designation for whatever set of laws that is proposed and the president may approve. It ruled that NIRA was "an unconstitutional delegation of legislative power."

But after [[Judiciary Reorganization Bill of 1937|Roosevelt's court-packing threat]] of 1937, the justices succumbed to whatever creative definition of fairness that Congress or federal agencies chose to proclaim. For instance, in 1942, Congress passed the Emergency Price Control Act, which created an Office of Price Administration. The OPA had sweeping power to set or strike down prices in any industry or activity that it considered to be "defense-related" — a vague term that could have encompassed practically the entire national economy. The act contained no substantive guidelines for the administrator's decisions but merely required prices that "in his judgment will be generally fair and equitable."<ref name="Bovard_Cuttthroat">James Bovard. [http://www.fff.org/freedom/0499d.asp "Cutthroat Competition and Dead Chickens"], The Future of Freedom Foundation, April 1999. Referenced 2010-06-20.</ref>

===Effects===
The Roosevelt administration also orchestrated various price-fixing schemes in labor markets, principally for the benefit of unions. Payroll taxes to finance Social Security and Unemployment Insurance programs increased employers' wage bills even further, which also reduced the level of employment. According to an econometric estimate, government-mandated payroll cost increases added nearly 1.2 million people to the unemployment rolls by 1938.

The unemployment rate during the 1933-1940 period averaged about 18% and was as high as 28.3% in March of 1933. By the end of 1938, on the eve of World War II, the U.S. unemployment rate still hovered at just over 18 percent and was higher than it was in 1933, President Franklin D. Roosevelt's first year in office. This occurred despite (or rather, because of) six years of unprecedented levels of government intervention into the U.S. economy. The American recovery was slower than in most European nations; by 1937 Great Britain's unemployment rate had declined to 10.3 percent.

Herbert Hoover's [[Reconstruction Finance Corporation]] was greatly expanded by Roosevelt, but its effect was to make capital markets less efficient, thereby prolonging the Depression even further. As explained by RFC director Jesse Jones in his autobiography, ''Fifty Billion Dollars'', "The law specified that we should lend only where the borrower could not get the money from others on reasonable terms." That is, only to uncreditworthy borrowers. Guided by this directive, Jones and the RFC redirected billions of dollars in valuable capital to politically-connected but economically-questionable businesses. "We even loaned money to [the owners of] a drove of reindeer in Alaska," Jones boasted. The RFC was abolished in the 1955 under a cloud of corruption and scandal.

Roosevelt's public works programs may have been an economic failure, but they were a resounding political success as they provided virtually unlimited opportunities for political patronage. In 1939 a special U.S. Senate Committee on Campaign Expenditures investigated the programs and found that in many states workers were required to sign a pledge to vote Democratic and, in some cases, to make campaign contributions, as a condition of employment. Businesses that sold supplies to the government were in some places required to make campaign contributions to the Democratic party in return for the contracts. The New Deal was largely a legalized [[Extortion|shake-down]] operation.<ref name="DiLorenzo_New_Deal" /><ref name="Anderson_WPA">William L. Anderson. [http://mises.org/daily/3921 "The Curse of Good Government"], Mises Daily, December 2009, refers to the spending of New Deal money. Referenced 2010-06-20.</ref>

Roosevelt's billions, adroitly used, had broken down every political machine in America. The patronage they once lived on and the local money they once had to disburse to help the poor was trivial compared to the vast floods of money Roosevelt controlled. And no political boss could compete with him in any county in America in the distribution of money and jobs.<ref name="Flynn_Roosevelt">John T. Flynn. [http://mises.org/books/rooseveltmyth.pdf "The Roosevelt Myth"] (pdf), p. 65; 1948. Referenced 2010-06-21.</ref>

As Henry Morgenthau, the secretary of the treasury and one of the most powerful men in America, said before the Democrats on the House Ways and Means Committee in 1939<ref name="Folsom_spending">Burton Folsom Jr. [http://search.barnesandnoble.com/New-Deal-or-Raw-Deal/Burton-Folsom-Jr/e/9781416592228#EXC "New Deal or Raw Deal?: How FDR's Economic Legacy Has Damaged America"], an excerpt from the book. Referenced 2010-06-21.</ref>:

<blockquote>''"We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong...somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises....I say after eight years of this Administration we have just as much unemployment as when we started....And an enormous debt to boot!"''</blockquote>

==During World War II==
The recovery from the Great Depression in the United States is usually associated with the advent of World War II, a period when real GDP appeared to increase phenomenally and the rate of unemployment fell almost to zero. A more detailed view produces a different picture, with large government "make-work" programs at first and military employment during the war - but a very slow actual recovery. When using hours worked as measure of employment, only in 1941 total work hours exceed the 1929 value (by 3 percent), with the population vigorously engaged in mobilization for war.<ref name="Higgs_hours">Robert Higgs. [http://www.independent.org/pdf/tir/tir_14_01_8_higgs.pdf "A Revealing Window on the U.S. Economy in Depression and War - Hours Worked, 1929–1950"] (pdf), The Independent Review, v. 14, n.1, Summer 2009. Referenced 2010-06-21.</ref>

Private [[investment]] has fallen significantly. Gross private investment plunged from almost 16 percent of GDP in 1929 to less than 2 percent in 1932; recovered to 13 percent in 1937 before falling again in the recession of 1938; and as late as 1941 stood at only 14 percent. During the war years, private investment ratios ranged from 3 to 6 percent. From 1946 through 1950 they ranged from 14 to 19 percent and averaged 16 percent — the same as in 1929. In 1929, when gross private investment was $16.2 billion, net investment was $8.3 billion. Net investment fell precipitously to $2.3 billion in 1930 and then became negative during each of the following five years. For the eleven-year period of 1930 to 1940, net private investment totaled minus $3.1 billion. Only in 1941 did net private investment ($9.7 billion) exceed the 1929 amount. During the 1930s, private investment remained at depths never plumbed in any other decade for which data exist.

One hypothesis is, that the New Deal prolonged the Great Depression by creating an extraordinarily high degree of '''[[regime uncertainty]]''' for the investors. Given the unparalleled outpouring of business-threatening laws, regulations, and court decisions, the oft-stated hostility of President Roosevelt and his lieutenants toward investors as a class, the political climate could hardly have failed to discourage some investors from making long-term commitments. There also exists a great deal of direct evidence that investors felt extraordinarily uncertain about the future of the property-rights regime between 1935 and 1941. Historians have recorded countless statements by contemporaries to that effect; in the years just before the war most business executives expected substantial weakening of private property rights ranging up to "complete economic dictatorship". The possibility that the United States might undergo an extreme regime shift seemed to many investors in the late 1930s and early 1940s not only possible but likely.<ref name="Higgs_investment">Robert Higgs. [http://www.independent.org/pdf/tir/tir_01_4_higgs.pdf "Regime Uncertainty - Why the Great Depression Lasted So Long and Why Prosperity Resumed after the War"] (pdf), The Independent Review, Vol, I, No. 4, Spring 1997. Referenced 2010-06-21.</ref><ref name="Higgs_China">Robert Higgs. [http://www.independent.org/blog/index.php?p=2620 "Regime Uncertainty in the 1930s: A New Deal Insider’s Account"], ''The Beacon'', blog of the The Independent Institute, Jun 29, 2009. Referenced 2010-08-15.</ref>

==See also==

* [[Austrian Business Cycle Theory]]

==References==
{{Reflist|2}}

==External links==
* [http://www.lewrockwell.com/gordon/gordon-gd-biblio.html Bibliography on the Great Depression] by David Gordon, 2009
* [http://mises.org/daily/3941 The Myth that Is FDR] by Garet Garrett, January 2010
* [http://mises.org/daily/4350 Did Hoover Really Slash Spending?] by Robert P. Murphy, May 2010
* [http://www.ameshistoricalsociety.org/exhibits/events/rationing.htm World War II Rationing], collected by the Ames Historical Society and the [[Wikipedia:Rationing|Wikipedia]] article on the same
* [http://www.mackinac.org/article.aspx?ID=4028 Free Markets or Free Lunches?] by Lawrence W. Reed, January 1998
* [http://www.mackinac.org/article.aspx?ID=4013 Great Myths of the Great Depression] by Lawrence W. Reed, January 1998
* [http://mises.org/daily/3778 The Gold Standard and the Great Depression] by Robert P. Murphy, October 2009
* [http://mises.org/daily/1623 The New Deal Debunked (again)] by Thomas J. DiLorenzo, September 2004
* [http://www.independent.org/newsroom/article.asp?id=138 Wartime Prosperity? A Reassessment of the U.S. Economy in the 1940s] by Robert Higgs, March 1992
* [http://mises.org/daily/3661 My Summer Reading: Hyper-Inflation in Weimar Germany] by Ralph Fucetola, September 2009 (notes that the crisis was seen as insignificant at the beginning)
* [http://mises.org/journals/qjae/pdf/qjae11_3_5.pdf The Great Depression: Mises vs. Fisher] (pdf) by Mark Thornton, November 2008
* [http://www.thefreemanonline.org/featured/the-depression-youve-never-heard-of-1920-1921/ The Depression You’ve Never Heard Of: 1920-1921] by Robert P. Murphy, December 2009
* [http://mises.org/daily/3866 Reliving the Crash of '29] by Murray N. Rothbard, first published in November 1979
* [http://mises.org/daily/4039 Dangerous Lessons of 1937] by Jonathan M. Finegold Catalan, February 2010
* [http://mises.org/daily/4797 The Real Reason for FDR's Popularity] by Mark Thornton, October 2010
* [[Wikipedia:Great Depression|Great Depression]] on Wikipedia

[[Category:History of the United States]]
[[Category:Financial crises]]

Great Depression

2011-04-01T00:48:39Z

Daniel Hewitt: /* 1931, "The Tragic Year" */

{{RightTOC}}
The '''Great Depression''' was the longest and most severe economic depression ever experienced by the Western world.<ref name="Britannica_debt">Encyclopædia Britannica. [http://www.britannica.com/EBchecked/topic/243118/Great-Depression "Great Depression"], Encyclopædia Britannica Online, referenced 2010-06-12.</ref>

==Prelude==
In the forty years 1890 to 1930, the population of the United States doubled, the value of farm property increased three and a half times, pig iron production four and a half times, exports five times, coal production five times, and freight traffic five and a half times, but commercial bank deposits increased over seventeen and a half times. Thus, while the gold stock had increased proportionally with the increase of industrial production, the expansion in bank credit had far outstripped both and had thus been at the expense of a thinning gold reserve. The monetary gold stock available to support and redeem this tremendous amount of bank liabilities that was being created, which had been 25.3 per cent of total note and deposit liabilities of banks in 1865, and 23.9 per cent in 1880, steadily dropped under the pressure of the public upon the banking interest for more and more credit, standing in 1900 at 20.4 per cent, in 1910 at 14.2 per cent and in 1930 at 10.4 per cent. Such had been the diminution of reserves that by the decade 1920-1930, banking was being conducted "on a shoestring." In 1900 the ratio of vault cash to deposit liabilities of commercial banks had dropped to 14.8 per cent, and in 1910 to 12.7 per cent—vault cash in those years being respectively $706,302,000 and $1,366,164,000.<ref name="Groseclose_Money">Elgin Groseclose. [http://mises.org/resources/3138/Money-and-Man Money and Man], 1934, p.209-210. Referenced 2011-03-24.</ref>

From June 1914 to January 1920, when [[Demand deposits|demand deposits]] grew by 96.9 percent, [[Time deposits|time deposits]] rose by 126.1 percent. In the great boom of the 1920s, that started after the [[Depression of 1920–21|recession of 1920–21]] (a short recession, thanks to the budget cutting and lowering of taxes by [[Warren Harding]]<ref name="Woods_Harding">Thomas E. Woods, Jr. [http://www.firstprinciplesjournal.com/articles.aspx?article=1322&theme=home&loc=b "Warren Harding and the Forgotten Depression of 1920"], First Principles, Fall 2009 issue of The Intercollegiate Review. See also the [http://www.youtube.com/watch?v=czcUmnsprQI video]. Referenced 2009-10-11.</ref>), total demand deposits rose from 1921 to 1929 by 36.5 percent. Time deposits in banks expanded in the same period by 75.9 percent. The great boom of the 1920s (also called "[[Roaring Twenties]]") was largely fueled by credit expansion going into time deposits. The greatest expansion of time deposits came in Central Reserve Cities (New York and Chicago), where the [[Federal Reserve System|Fed]]’s open market operations were all conducted, as opposed to Reserve Cities and Country Banks. As acknowledged by Federal Reserve officials, time or savings deposits were then, for all practical purposes, equivalent to demand deposits and should be paid on demand in case of a run on a bank.

With the passage of the [[Federal Reserve Act]], [[Woodrow Wilson|President Wilson]] appointed [[Benjamin Strong, Jr.|Benjamin Strong]] to the most powerful post in the Federal Reserve System, Governor of the [[Reserve Bank of New York|Federal Reserve Bank of New York]]. He made quickly this position dominant in the System and decided on Fed policy without consulting or even against the wishes of the Federal Reserve Board in Washington. Strong was the dominant leader of the Fed from 1914 until his death in 1928. He pursued an inflationary policy, to finance the war effort for [[World War I|WWI]], connected to the interests of the [[J.P. Morgan & Co.|House of Morgan]]. Another motivation was the attempt to prop up the [[Bank of England]] in the 1920s, when it returned to the [[gold standard]] with an overvalued pound. To prevent the loss of gold to the States, its governor [[Montagu Norman, 1st Baron Norman|Montagu Norman]] secretly convinced Strong to inflate in order to help England. The expansion ended only after Strong's death and the '''Great Depression''' followed soon after. In 1928 Strong admitted that "very few people indeed realized that we were now paying the penalty for the decision which was reached early in 1924 to help the rest of the world back to a sound financial and monetary basis" - that is, to help Britain maintain a phony and inflationary form of gold standard.<ref name="Rothbard_Federal_Reserve">[[Murray N. Rothbard]]. [http://mises.org/books/mysteryofbanking.pdf "The Mystery of Banking"] (pdf), Chapter XVI: Central banking in the United States IV: The Federal Reserve System, p.235-246, referenced 2009-10-03.</ref>

The inflation was also motivated by a desire to help American exporters (particularly farmers), by stimulation of foreign lending. At the same time the U.S. turned to a sharp protectionist policy with the [[Fordney–McCumber Tariff]] of 1922. In the foreign lending boom, other countries were hampered in trying to sell their goods to the United States, but were encouraged to borrow dollars. The government did not have any peacetime authority to interfere with loans, but did so illegally. In 1921, President [[Warren G. Harding|Harding]] and his cabinet conferred with several American investment bankers, at the instigation of Secretary of Commerce [[Herbert Hoover|Hoover]], to be informed in advance of foreign loans, so that the government "might express itself regarding them". The bankers agreed. Hoover commented that even bad loans helped American exports and provided a cheap form of relief and employment. Later Hoover demanded from bankers, that foreign loans would be inspected by agents of the [[Department of Commerce]]. Both requests were mostly ignored. While admitted to be legally unenforceable, it was all in the name of "national interests".<ref name="Rothbard_pre_Depression">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 5. The Development of the Inflation, p. 137-167, referenced 2009-11-17.</ref>

{{See also|Federal Reserve System}}

===Housing bubble===
An outlet for the excessive credit created by the banking system was in financing an urban real estate boom in the U.S. During the decade 1920-1930, people were moving in a constant stream into the cities; the population of the sixty-three metropolitan zones (cities of 100,000 or more plus adjacent counties) rose from 46,491,000 to 59,118,000, or from 44 per cent of total population to 48 per cent. Seventy-four per cent of the increase in total population during the decade occurred in the metropolitan areas.

A huge building boom followed, the Federal Reserve Board index of building contracts awarded, 1923-1925 taken as 100, rising from 63 in 1920 to 122 in 1925, and 135 in 1928. This boom occurred chiefly in skyscraper offices and expensive apartment house developments, whose notes were more readily marketable, rather than in the modest single family accommodations. The result was that when the era had passed the slums still existed. In New York City, for instance, where at least four skyscrapers were built in these years with the only object, apparently, of surpassing the record for the world's tallest building, from a quarter to a third of the population, say 1,800,000 persons, still occupied houses that had been outlawed thirty-three years earlier by the Tenement House Act of 1901.<ref name="Groseclose_Money">Elgin Groseclose. [http://mises.org/resources/3138/Money-and-Man Money and Man], 1934, p.225, 244. Referenced 2011-03-24.</ref>

==The Crash==
{{Main|Wall Street Crash of 1929}}
The great boom of the 1920s began around July, 1921, after a year or more of sharp recession, and ended about July, 1929, when the production and business activity began to decline, although the [[Wall Street Crash of 1929|famous stock market crash]] came in October of that year. [[Herbert Hoover]], an avid proponent of interventionism became President. Characteristic for him were "voluntary" measures that the government desired, with the implicit threat that if business did not "volunteer" properly, compulsory controls would soon follow.<ref name="Rothbard_1920s_boom">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 5. The Development of Hoover's Interventionism: Unemployment, p. 188-189, referenced 2009-11-20.</ref>

After the stock-market crash, Hoover began a series of conferences with big business and labor leaders, telling them that cutting wage rates (the standard response in previous depressions) would be disastrous, because then the workers wouldn't make enough to buy the products.<ref name="Hoover 11-15-29 NC">John T. Woolley and Gerhard Peters, ''The American Presidency Project'' [online]. Santa Barbara, CA. Available from World Wide Web: http://www.presidency.ucsb.edu/ws/?pid=22005.</ref> This "liquidation" of labor would only deepen the depression by reducing their "purchasing power". Leading industrialists pledged to maintain wage rates, expand construction, and share any reduced work,<ref name="Hoover CC remarks">John T. Woolley and Gerhard Peters, ''The American Presidency Project'' [online]. Santa Barbara, CA. Available from World Wide Web: http://www.presidency.ucsb.edu/ws/?pid=22023.</ref><ref name="Telegraph-Herald 11-21-29">[http://news.google.com/newspapers?id=T51FAAAAIBAJ&sjid=C70MAAAAIBAJ&dq=hoover%20wage&pg=6813%2C5825398 "Credit President With Pledge to Keep Wages Up"], ''The Telegraph-Herald and Times-Journal,'' November 21, 1929.</ref><ref name="Sarasota Herald-Tribune 11-22-29">[http://news.google.com/newspapers?id=LYQcAAAAIBAJ&sjid=MmQEAAAAIBAJ&dq=hoover%20wages%20business&pg=6694%2C4315629 "Agree To Keep Wage Level Up"], ''Sarasota Herald-Tribune,'' November 22, 1929.</ref><ref name="Gettysburg Times 11-22-29">[http://news.google.com/newspapers?id=DdElAAAAIBAJ&sjid=1PkFAAAAIBAJ&dq=hoover%20wage&pg=2000%2C1635972 "Conferences Please Hoover"], ''The Gettysburg Times,'' November 22, 1929.</ref><ref name="Lewiston Evening Journal 11-23-29">[http://news.google.com/newspapers?id=Iq01AAAAIBAJ&sjid=uWcFAAAAIBAJ&dq=hoover%20wage&pg=1270%2C4673686 "No Hard Times, Hoover Assures Wage Earners"], ''Lewiston Evening Journal,'' November 23, 1929.</ref><ref name="Tuscaloosa News 11-25-29">[http://news.google.com/newspapers?id=xYA-AAAAIBAJ&sjid=BkwMAAAAIBAJ&dq=hoover%20wage&pg=6182%2C3112525 "All Citizenry Asked To Help Progress Plan"], ''The Tuscaloosa News,'' November 25, 1929.</ref><ref name="Miami News 11-26-29">[http://news.google.com/newspapers?id=o7cuAAAAIBAJ&sjid=6tcFAAAAIBAJ&dq=hoover%20wage&pg=6639%2C4846533 "Hoover's Plan To Help Trade Gets Approval"], ''The Miami News,'' November 26, 1929.</ref> to fulfill Hoover's request that "the first shock must fall on profits and not on wages".<ref name="hoover44">Herbert Hoover, ''The Memoirs of Herbert Hoover: The great depression, 1929-41'', (New York: Macmillan, 1952) 44-45.</ref>

At the same time, the Federal Reserve expanded rapidly and lowered its interest rates. Its member banks expanded their deposits in the last week of October 1929 alone by 10%, mostly in New York. Hoover praised the Fed for the saving of shaky banks and restoring confidence.<ref name ="Hoover CC remarks" /> The depression should be over in a few months. A large public works program was also initiated.<ref name="Rothbard_public_works">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 8. The Depression Begins: President Hoover Takes Command, p. 209-217, referenced 2009-11-21.</ref><ref name="Hoover 1-3-20">John T. Woolley and Gerhard Peters, ''The American Presidency Project'' [online]. Santa Barbara, CA. Available from World Wide Web: http://www.presidency.ucsb.edu/ws/?pid=22468.</ref>

Hoover promised the farm bloc to support farm cooperatives and prices and established the [[Federal Farm Board]] (FFB). It would make all-purpose loans to farm cooperatives at low interest rates and establish "stabilization corporations" to control farm surpluses and bolster farm prices. Its board was dominated by representatives of these farm cooperatives. To combat falling prices, it made loans to farmers to keep wheat and cotton off the market and later started to buy the surpluses. For a while, prices were held up and farmers increased production, only to find that prices would fall even more. As America held wheat off the market, it lost its former share of the world’s wheat trade. The farmers were urged to decrease their acreage, while the government still promoted reclamation projects to increase farm production. The surpluses of wheat accumulated and prices fell to such a degree, that the FFB decided to dump wheat stocks abroad, resulting in a drastic fall in market prices. The attempts to keep up the price of cotton, wool, livestock, etc. failed as well. A "[[Farmers' Holiday Association|Farm Holiday]]" was declared to stop production, The movement soon turned to violence and failed to stop the falling farm prices. but succeeded to avoid some foreclosures of its members.<ref name="Rothbard_Agriculture">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), The New Deal Farm Program, p. 217-237, referenced 2009-11-21.</ref>

In 1930, the [[Smoot–Hawley Tariff Act|Smoot–Hawley Tariff]] was passed, despite objections of many economists and industrial leaders. Hoover originated a higher tariff on agricultural products to help farmers, but it was raised on many other products. Many other countries have retaliated with their own tariffs and foreign trade declined significantly. (From 1929 to 1932, U.S. imports from Europe decreased from $1,334 million to just $390 million, while U.S. exports to Europe decreased from $2,341 million to $784 million. Overall, world trade decreased by some 66% between 1929 and 1934.<ref>U.S. Department of State. [http://future.state.gov/when/timeline/1921_timeline/smoot_tariff.html Smoot-Hawley Tariff], referenced 2009-11-22.</ref>) Also, to relieve the unemployment problem, and to help keep wage rates up, the President effectively banned further immigration into the United States.<ref name="Rothbard_Depression_1930">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 9. 1930, p. 239-256, referenced 2009-11-22.</ref>

===In Europe===
In Europe, the crisis began in earnest with the ''Boden–Kredit Anstalt'', the most important bank in Austria and Eastern Europe. It had to merge with the [[Creditanstalt|Oesterreichische–Kredit–Anstalt]] after rescue attempts by its government and other banks. When Austria declared a customs union with Germany in March 1931, the French government feared this development and several French banks suddenly insisted on redemption of their debts from both countries. The bank collapsed. After more rescue attempts has the Austrian Government voted a $150 million guarantee to the bank, but the its credit was by the time worthless, and Austria soon declared national bankruptcy by going off the gold standard. Later, Germany, England, and most other European countries renounced their obligations and went off the gold standard as well. While the impact on United States was not very large due to the lowered international trade, it certainly did not help, neither did the many loans granted to prop up foreign banks.<ref name="Rothbard_Depression_1931_Europe">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 10. 1931—"The Tragic Year", p. 257-284, referenced 2009-11-27.</ref>

==1931, "The Tragic Year"==
The crisis worsened in the US in 1931. Production continued to fall drastically, as did prices and foreign trade, and unemployment ran up to almost 16 percent of the labor force. The Federal Reserve Board (FRB) index of manufacturing production, which had been 110 in 1929 and 90 in 1930, fell to 75 in 1931. Hardest hit, in accordance with Austrian [[ABCT|cycle theory]], were producers’ goods and higher order [[capital]] goods industries, rather than the consumer goods’ industries. Despite attempts to inflate, bank deposits and the aggregate [[money supply]] fell sharply, particularly at the end of the year. The British abandoning of the gold standard, bank failures abroad and the growing number of failures at home, caused a growing loss of confidence by Americans in their banking system. The wages were also beginning to fall, first secretly, then openly by the end of 1931.<ref name="Time 4-13-31p">"[http://www.time.com/time/magazine/article/0,9171,752764,00.html "THE PRESIDENCY: The Pledge"], ''TIME,'' April 13, 1931.</ref><ref name="Time 4-13-31i">[http://www.time.com/time/magazine/article/0,9171,752766,00.html "INDUSTRY: Next: Wages?"], ''TIME,'' April 13, 1931.</ref><ref name="Time 8-10-31">[http://www.time.com/time/magazine/article/0,9171,882003,00.html "LABOR: When Winter Comes"], ''TIME,'' August 10, 1931.</ref><ref name="Time 11-09-31">[http://www.time.com/time/magazine/article/0,9171,742546,00.html "LABOR: Rail Dickers"], ''TIME,'' November 9, 1931.</ref>

The gross national product fell from $91.1 billion in 1930, to $76.3 billion in 1931. Total government receipts fell from $13.5 billion to $12.4 billion, but total government expenditures rose from $13.9 billion to $15.2 billion, in federal, rather than state and local, spending (federal expenditures rose from $4.2 billion in 1930 to $5.5 billion in 1931). In the middle of a great depression when people needed to be relieved of governmental burdens, the dead weight of government rose from 16.4 percent to 21.5 percent of the gross private product. From a modest surplus in 1930, the Federal government so ran up a huge $2.2 billion deficit in 1931.<ref name="Rothbard_Depression_1931_Europe" />

Direct relief was just about the one sphere where President Hoover seemed to prefer voluntary to governmental action. The [[Red Cross]] opposed a bill, in early 1931, that would grant it $25 million for relief, declaring that it would "to a large extent destroy voluntary giving". Many private charity organizations, philanthropists, and social workers had the same views. Governmental unemployment relief was seen to have a role in creating and perpetuating unemployment in Britain (the "dole"). It was attacked by many business leaders, including [[Henry Ford]], the leaders of the [[National Association of Manufacturers]] and the [[United States Chamber of Commerce|Chamber of Commerce]], and former President [[Calvin Coolidge|Coolidge]].<ref name="Rothbard_Depression_1931_Europe" />

The [[Davis-Bacon Act]] was signed by President Hoover in 1931. It mandated that prevailing (union) wages be paid by the Federal Government for public works projects. It has been argued that the Davis-Bacon Act was a [[Jim Crow law]], since its intent <ref name=”williams”>Walter Williams, [http://www.jewishworldreview.com/cols/williams031203.asp "Congress' insidious discrimination"], ''Jewish World Review'' (March 12, 2003), accessed 2011-02-01.</ref> and its effect <ref name=”cato”> David Bernstein, [http://www.cato.org/pubs/briefs/bp-017.html "The Davis-Bacon Act: Let's Bring Jim Crow to an End"], ''Cato Institute Briefing Papers'' (January 18, 1993), accessed 2011-02-01.</ref> was to prevent lower-paid, non-unionized black laborers from competing against higher-paid, unionized white laborers. Hoover promoted and supported the legislation, as he believed that "[t]he very essence of great production is high wages...because it depends upon a widening range of consumption only to be obtained from the purchasing power of high real wages...." <ref name="hoover108">Herbert Hoover, ''The Memoirs of Herbert Hoover: Volume 2, The Cabinet and the Presidency, 1920-33'', (New York: Macmillan, 1952) 108.</ref>

==1932, The Hoover New Deal==
In an atmosphere of crisis, President Hoover called for more drastic measures, including more government aid and loans. With a $2 billion deficit during annual year 1931, Hoover felt that he had to do something to combat it and chose to increase the taxes. The [[Revenue Act of 1932]] was one of the greatest increases in taxation ever enacted in the United States in peacetime. Many wartime
excise taxes were revived, sales taxes were imposed on gasoline, tires, autos, electric energy, malt, toiletries, furs, jewelry, and other articles; admission and stock transfer taxes were increased; new taxes were levied on bank checks, bond transfers, telephone, telegraph, and radio messages; and the personal income tax was raised drastically as follows: the normal rate was increased from a range of 1½ percent–5 percent, to 4 percent–8 percent; personal exemptions were sharply reduced, and an earned credit of 25 percent eliminated; and surtaxes were raised enormously, from a maximum of 25 percent to 63 percent on the highest incomes. Furthermore, the corporate income tax was increased from 12 percent to 13: percent, and an exemption for small corporations eliminated; the estate tax was doubled, and the exemption floor halved; and the gift tax, which had been eliminated, was restored, and graduated up to 33⅓ percent. The postal rates were raised as well.

Despite the drastic increase in tax rates, total Federal revenue for 1932 declined because of the deepened depression—itself partly caused by the increase in tax rates. Total Federal receipts, excluding government enterprises, declined from $2.2 billion in 1931 to $1.9 billion in 1932; including government enterprises, Federal receipts fell from $3.4 billion to $3 billion.

Total government receipts fell from $12.4 billion to $11.5 billion. As a result, the huge Federal deficit continued despite a drop in government expenditures in 1932: Federal expenditures falling from $5.5 billion to $4.4 billion, and aggregate government expenditures falling from $15.2 billion to $13.2 billion (all numbers including government enterprises). Of the $1.7 billion in total government deficit, the bulk of it — $1.4 billion — was in the Federal government account. The state and local governments were forced to cut back their expenditures to near the level of their dwindling receipts. One of the most ominous projects for Federal spending during 1932 was a Congressional move for a huge $2 billion veterans bonus, to be financed by an issue of new currency. It was its final defeat in the Senate in June that did most to defeat a general clamor for much larger government spending.

Meanwhile, however, President Hoover himself was beginning to have doubts about one of his favorite policies: public works. In a conference at the end of February, Hoover admitted that his public works program, which had nearly doubled Federal construction since the start of the depression, had failed. It was very expensive, costing over $1200 per family aided, it was unavailable to the needy in remote regions and to those who were unable to perform such labor, which was, after all, unskilled make-work. By May, Hoover had openly reversed his earlier position. As a result, Federal public works only increased by $60 million in 1932, to reach the $333 million mark. Public works was not to come really to the fore again until the Roosevelt administration.

Holding firm to his interventionist belief that the downward pressure on wages must be resisted <ref name ="hoover108" />, Hoover signed the [[Norris-Laguardia Act]] into law on March 23, 1932. It banned "yellow-dog" contracts, removed federal courts’ authority to issue injunctions against labor disputes, and provided greater ease for workers to organize<ref name="enotes">[http://www.enotes.com/major-acts-congress/norris-laguardia-act "Norris-Laguardia Act (1932): Major Acts of Congress"], accessed 2011-02-01.</ref>; a landmark victory for organized labor.

If Hoover eagerly embraced other forms of [[intervention]], he gave ground but grudgingly on one issue where he had championed the voluntary approach: direct relief. Governor [[Franklin D. Roosevelt]] of New York led the way for state relief programs in the winter of 1931–1932, and he induced New York to establish the first state relief authority: the Temporary Emergency Relief Administration, equipped with $25 million. Other states followed this lead, and a bill was introduced for a $500 million federal relief program. The bill was defeated, but, with depression deepening and a Presidential election approaching, the administration all but surrendered, passing the [[Emergency Relief and Construction Act]] of July, 1932 — the nation’s first Federal relief legislation. All in all, total public relief in 120 of the nation’s leading urban areas amounted to $33 million in 1929, $173 million in 1931, and $308 million in 1932.

One thing Hoover was not reticent about: inflation. The administration first cleared the path for the program by passing the [[Glass–Steagall Act]] in February, which (a) greatly broadened the assets eligible for rediscounts with the Fed, and (b) permitted the Federal Reserve to use government bonds as collateral for its notes, in addition to commercial paper. At the end of February, 1932, total bank reserves had fallen to $1.85 billion. At that point, the [[Federal Reserve System|FRS]] launched a gigantic program of purchasing U.S. government securities. By the end of 1932, total reserves had been raised to $2.51 billion. This enormous increase of $660 million in reserves in less than a year is unprecedented in the previous history of the System. If the banks had kept loaned-up, the money supply of the nation would have increased by approximately $8 billion. Instead, the money supply fell by $3.5 billion during 1932, from $68.25 to $64.72 billion at the end of the year, and with the bank deposit component falling by $3.2 billion. Until the second quarter of 1932, the nation’s banks had always remained loaned up, with only negligible excess reserves. After, the banks accumulated excess reserves, and it is estimated that the proportion of excess to total bank reserves rose from 2.4 percent in the first quarter of 1932, to 10.7 percent in the second quarter. By the fourth quarter of 1932, excess reserves were estimated to a double of 20.3 percent of total bank reserves.

During the 1920s, a typical year might find 700 banks failing, with deposits totaling $170 million. In 1930, 1350 banks failed, with deposits of $837 million; in 1931, 2,293 banks collapsed, with deposits of $1,690 million; and in 1932, 1,453 banks failed, having $706 million in deposits. This enormous increase in bank failures was enough to give any bank pause—particularly when the bankers knew in their hearts that no bank (outside of the nonexisting ideal 100 percent bank) can ever withstand a determined run. Consequently, the banks permitted their commercial loans to run down without increasing their investments. Inflation by the government was turned into deflation by the policies of the public and the banks. The American economy reached the depths of depression during 1932 and 1933, and yet it had begun to turn upward by mid-1932. It is not far-fetched to believe that the considerable deflation of July 1931–July 1932, totaling $7.5 billion of currency and deposits, or 14 percent, was partly responsible for the mid-summer upturn.<ref name="Rothbard_Depression_1932">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 11. The Hoover New Deal of 1932, p. 285-320, referenced 2009-11-27.</ref>

As the Depression got worse and people lost their confidence in the banks, they decided to take custody of their cash. Seeing people in large numbers pulling their money out of banks — money the banks had promised to provide on demand — President Hoover blasted them for their "traitorous hoarding." He organized an antihoarding drive and delivered a radio address ([http://www.bobsuniverse.com/BWAH/31-Hoover/19320306a.pdf transcript], pdf) in which he pleaded with the public to stop hoarding (i.e., to stop converting their bank deposits into cash).<ref name="Smith_hoarding">George F. Smith. [http://mises.org/story/3707 "The Virtue of Hoarding"], Mises Daily, posted on October 09, 2009, referenced 2009-11-18.</ref>

Nominal paychecks fell much more slowly during the early years of the Great Depression than the general [[price]] level (wholesale prices fell by 10 percent in 1930, by 15 percent in 1931)<ref name="Rothbard_Depression_1931_Europe" /> - and those who kept their job experienced a higher increase in real (inflation-adjusted) wages, than during the Roaring 1920s!<ref name="ohanian"> Lee E. Ohanian, "What - or Who - Started the Great Depression?", ''NBER Working Paper No. 15258'' (August 2009). Free copy online [http://www.econ.ucla.edu/people/papers/Ohanian/Ohanian499.pdf "here"]</ref> And so has unemployment reached record highs during Hoover's first and only term. When FDR went back on the US government's promise to redeem dollars for gold, the Federal Reserve could flood the economy with new dollars, the prices began to rise again. Because wage rates were not allowed to fall to their new, market-clearing level, [[Inflation|inflating]] the currency has paradoxically reduced unemployment.<ref name="Murphy_Depression">Robert P. Murphy. [http://mises.org/story/3778 "The Gold Standard and the Great Depression"], Mises Daily, posted on October 30, 2009, referenced 2009-11-18.</ref>

The Fed has expanded bank reserves in the 1930s. Panicking at the inflationary potential, it doubled the minimum reserve requirements to 20 percent in 1938, sending the economy into a tailspin of credit liquidation. The Fed, ever since that period, has been very cautious about the degree of its changes and changed bank reserve requirements fairly often, but in very small steps, by fractions of one percent.<ref name="Rothbard_Fed_requirements">[[Murray N. Rothbard]]. [http://mises.org/books/fed.pdf "The Case Against the Fed"] (pdf), How the Fed Rules and Inflates, p. 144, referenced 2010-03-23.</ref>

After 1933, Federal Reserve Notes and deposits were no longer redeemable in gold coins to Americans, their gold was confiscated and exchanged for Federal Reserve Notes, which became legal tender; and Americans were stuck in a regime of fiat paper issued by the government and the Federal Reserve.<ref name="Rothbard_Fed_gold">[[Murray N. Rothbard]]. [http://mises.org/books/fed.pdf "The Case Against the Fed"] (pdf), The New Deal and the Displacement of the Morgans, p. 131-132, referenced 2010-05-10.</ref>

===Tax revolt in the USA===
There has been a widespread opposition to real estate taxes in cities across America and some Americans were in fact not paying their taxes. The movement declined quickly, some scholars acknowledge certain influence, but ultimately declare it a failure.<ref name="Beito_revolt">David T. Beito. [http://mises.org/books/taxpayersinrevolt.pdf Taxpayers in Revolt - Tax Resistance during the Great Depression] (pdf), referenced 2010-06-15.</ref> Others consider it a resounding success, however.

President Hoover's massive tax increase bill that passed into law as the [[Revenue Act of 1932]], with many new taxes. The most burdensome taxes for many Americans, however, was the property tax. Property taxes required taxpayers to make an explicit tax payment of significant size from which they could not evade without losing what was often their most significant piece of property and wealth. The property taxes have risen in the decade before the Depression; throughout the 1920s, the general property tax accounted for over 90 percent of taxes levied by all cities over 30,000 in population. One reason for this dependence was that alcohol revenue from sales taxes and licenses had "dried up" due to prohibition. The burden of taxes increased significantly, even if tax rates remained the same. Another source of taxpayer ire was that the real wages of public employees rose nearly 12% between 1929 and 1933.

Tax delinquency increased from its normal rate of 10% to more than 30%. Tax protest organization formed quickly and spontaneously in rural regions in response to tax authorities selling the land of farmers. Estimates placed the number of taxpayer organizations at between 3,000 and 4,000 organizations nationwide.

The tax limitation movement was effective in several states in establishing cuts and limitations on property tax rates. The second success, which was both more important and far less obvious, was the passage of the 21st Amendment that repealed alcohol [[Prohibition in the United States|prohibition]]. The legalization of alcohol sales in most states provided federal, state, and local government with increased tax revenues to offset cuts in property taxes while simultaneously providing a drastic decrease in the price of alcohol and in effect granting the American public a type of tax cut. Income tax revenue fell 60% from 1930 to 1933 placing a severe financial constraint on Congress. The search for an alternative revenue source led to the conversion of F.D.R. from a "dry" to a "wet" and resulted in the 1932 Democratic party platform to call for Repeal in order to provide "a proper and needed revenue." Revenue shortfalls made Repeal possible and the alcohol tax provided 13% of all federal revenue by 1936.<ref name="Thornton_revolt">Mark Thornton and Chetley Weise. [http://mises.org/journals/jls/15_3/15_3_4.pdf The Great Depression Tax Revolts Revisited.] (pdf), Journal of Libertarian Studies, Volume 15, no. 3 (Summer 2001), referenced 2010-06-15.</ref><ref name="Thornton_success_revolt">Mark Thornton and Chetley Weise. [http://mises.org/journals/scholar/Thornton1.PDF The Success of the Great Depression Tax Revolts] (pdf), referenced 2010-06-15.</ref>

==1933, end of Hoover's term==
Seeking reelection, Hoover boasted of his many interventions with the economy. In his acceptance speech for the Presidential renomination he said:
<blockquote>''"We might have done nothing. That would have been utter ruin. Instead, we met the situation with proposals to private business and to the Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic. We put that program in action."''<ref name="Hoover_nomination">Herbert Hoover. [http://americanhistory.about.com/library/docs/blhooverspeech1932.htm "Address Accepting the Republican Presidential Nomination"], August 11, 1932. The address was carried over the National Broadcasting Company and the Columbia Broadcasting System radio networks. This is a transcript taken from a sound recording of the address. Referenced 2010-06-20.</ref></blockquote>

After the election of [[Franklin D. Roosevelt|Roosevelt]], as the new Presidential term approached, dark rumors circulated about the radicalism of Roosevelt’s advisers, and of their willingness to go off the [[gold standard]]. Consequently, not only did gold "hoarding" by foreigners develop momentum, but even gold hoarding by domestic citizens. For the first time in the depression, American citizens were beginning to lose confidence in the dollar itself. The loss of confidence reached its apogee in February, 1933, the month before the Roosevelt inaugural. In that one month, the monetary gold stock fell by $173 million, and money in circulation increased by the phenomenal amount of $900 million, the reflection of domestic loss of confidence. Money in circulation totaled $5.4 billion at the end of January, and $6.3 billion by the end of February. $700 million of this increase was in Federal Reserve notes, and $140 million in gold coin and gold certificates.

The Federal Reserve did its best to combat this deflationary pull on bank reserves, but its inflationary measures only served to diminish confidence in the dollar still further. Total money supply fell from $64.72 to $61.61 billion over 1933, and all or more of this fall took place in the first half of the year. Bank failures skyrocketed during this period. The number of commercial bank failures increased from 1,453 in 1932 to 4,000 in 1933 (most of which took place in the first quarter).

The reaction to this growing insistence of the people on claiming their rightful, legally-owned property, was a series of attacks on property rights by state after state. One by one, states imposed "bank holidays" by fiat, permitting the banks to stay in business while refusing to pay virtually all of the just claims of their depositors. The bank holiday movement began in earnest with the proclamation of an eight-day holiday on February 14, 1933, by Governor William Comstock of Michigan. This precipitated the bank runs and deflation of the latter part of February and depositors began an intense scramble to take their money out of the banks. Many national banks, which had worked hard to keep themselves in an at least relatively sound position, did not want to use the special privilege of bank holiday, and had to be coerced into doing so.

By March 4, every state in the Union had declared a bank holiday, and the stage was set for President Roosevelt’s dramatic and illegal closing of all the banks. President Roosevelt closed down all the banks throughout the nation for an entire week, from March 6 to 13, with many banks remaining closed even longer. Restrictions against so-called "hoarding" were continued afterward, and much hoarded gold returned to the banks following a Federal Reserve threat to publish a list, for full public scorn, of the leading "gold hoarders."

Mr. Hoover left office in March, 1933, at the very depth of the greatest depression in American history. Production had fallen by more than one-half: industrial production had been at an index of 114 in August, 1929, and then fell to 54 by March, 1933. Unemployment was persisting at nearly 25 percent of the labor force, and gross national product had also fallen almost in half. Hardest hit was investment, especially business construction, the latter falling from about $8.7 billion in 1929 to $1.4 billion in 1933. The index of non-durable manufacturing production fell from 94 to 66 from August, 1929, to March, 1933—a decline of 30 percent; the index of durable manufactures fell from 140 to 32, in the same period, a decline of 77 percent. In durable goods industries (e.g., building, roads, metals, iron and steel, lumber, railroad, etc.) it was estimated that their total employment fell from 10 million in 1929 to 4 million in 1932–1933, while employment in consumer goods industries (e.g., food, farming, textiles, electricity, fuel, etc.) only fell from 15 million to 13 million in the same period. Stock prices (industrials) fell by 76 percent during the depression, wholesale prices fell by 30 percent, and the total money supply declined by one-sixth.

Wage rates were kept very high during the first two years of the depression. By 1932, however, with profits wiped out, the pressure became too great, and wage rates fell considerably. Total fall over the 1929–1933 period, however, was only 23 percent - less than the decline in wholesale prices. Therefore, real wage rates, for the workers still remaining employed, actually increased. While real average hourly earnings rose, actual hours worked in industry fell drastically during the depression. Weekly hours averaged over 48 in 1929, and fell to less than 32 by mid-1932. In no previous depression had hours worked fallen by more than 10 percent. This was a form of reduced employment caused by the high-wage policy. As a result, average weekly earnings fell by over 40 percent during the depression, and real weekly earnings fell by over 30 percent. But hardest hit were the unemployed, the percentage of whom rose to 25 percent by 1932–1933, and reached 47 percent in selected manufacturing industries. The fall in man-hours combined with the fall in average hourly earnings caused a truly precipitate drop in total factory payrolls - the base of the very "purchasing power" that the policy was supposed to sustain.<ref name="Rothbard_Hoover_End">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 12. The Close of the Hoover Term, p. 321-337, referenced 2010-06-20.</ref>

==The New Deal==
===Roosevelt's Campaign===
Under the Democratic platform of 1932, which Franklin D. Roosevelt endorsed, contained several subsidies and regulations, but it hardly embraced the enormous expansion in federal power that FDR would achieve. The very first plank called for "an immediate and drastic reduction of governmental expenditures by abolishing useless commissions and offices, consolidating departments and bureaus, and eliminating extravagance to accomplish a saving of not less than twenty-five per cent in the cost of the Federal Government."<ref name="Woolley_Dem_1932">John T. Woolley and Gerhard Peters. [http://www.presidency.ucsb.edu/ws/index.php?pid=29595 "Democratic Party Platform of 1932"], June 27, 1932, from The American Presidency Project [online]. Referenced 2010-06-20.</ref> Subsequent planks demanded a balanced budget, a low tariff, the repeal of Prohibition, "a sound currency to be preserved at all hazards," "no interference in the internal affairs of other nations," and "the removal of government from all fields of private enterprise except where necessary to develop public works and natural resources in the common interest." The document concluded with a quote from Andrew Jackson: "equal rights to all; special privilege to none."

FDR's campaign reflected that platform. He accused Herbert Hoover of "reckless and extravagant spending," and he further denounced the Republican incumbent for believing "we ought to center control of everything in Washington as rapidly as possible." Even when he called for interventions in the economy, he generally couched his words in the old liberals' language of equal treatment rather than the new liberals' vision of enlightened central planning. In his famous Forgotten Man speech of April 1932 (see [http://newdeal.feri.org/speeches/1932c.htm transcript]), the Democratic candidate pointed to the wave of foreclosures sweeping the nation. Noting that Hoover had created a "two billion dollar fund...put at the disposal of the big banks, the railroads and the corporations of the Nation," FDR averred that the government should "provide at least as much assistance to the little fellow as it is now giving to the large banks and corporations." Once in office, the new administration did indeed repeal Prohibition, and it eventually lowered some trade barriers as well. By the time of FDR's death, the federal bureaucracy's power had grown so enormously that Hoover was widely remembered as the last apostle of laissez faire.<ref name="Walker_FDR">Jesse Walker. [http://reason.com/archives/2008/04/10/the-new-franklin-roosevelts "The New Franklin Roosevelts"], April 10, 2008. Referenced 2010-06-20.</ref>

===Policy===
A principal feature of '''[[New Deal]]''' economic policy was government-sponsored industrial [[cartel]]s (the [[National Recovery Act]]); agricultural cartels (the [[Agricultural Adjustment Act]]); and labor cartels (the [[Norris – La Guardia Act|Norris-LaGuardia]] and [[National Labor Relations Act|Wagner Acts]]). The purpose of any cartel is to restrict output and raise prices. Lower levels of production leads to higher unemployment, which is exactly what the NRA and AAA did.

The NRA was almost identical to the Italian corporatist system that existed at the time. In Italy each trade or industrial group was organized into a government-controlled "corporative" association that had the power to plan production and pricing. In the U.S. the NRA organized each industry into federally-supervised trade associations called "Code Authorities" which could also limit output and set prices. The antitrust laws were explicitly set aside.

Over 700 industrial codes were created and were rigorously enforced by thousands of government code enforcers who, "could enter a man's factory, send him out, line up his employees, subject them to minute interrogation, take over his books on the instant." A hapless New Jersey tailor named Jack Magid became nationally famous after he was arrested, convicted, and imprisoned by the code police for the "crime" of pressing a suit of clothes for 35 cents when the Tailors' Code fixed the price at 40 cents. The NRA was ruled unconstitutional by the U.S. Supreme Court on May 27, 1935.<ref name="DiLorenzo_New_Deal">Thomas J. DiLorenzo. [http://mises.org/daily/55 "A New, New Deal"], Mises Daily, October 1998, referenced 2010-06-20.</ref> A study of the Act noted that "the licensing provision, giving the president the power of life or death over business enterprises, is the ultimate weapon of enforcement and the capstone of the powers granted to the president ... the most extraordinary extension of presidential power in American history." The Supreme Court's decision has noted, that 'fair competition' is not defined in the law and could be a convenient designation for whatever set of laws that is proposed and the president may approve. It ruled that NIRA was "an unconstitutional delegation of legislative power."

But after [[Judiciary Reorganization Bill of 1937|Roosevelt's court-packing threat]] of 1937, the justices succumbed to whatever creative definition of fairness that Congress or federal agencies chose to proclaim. For instance, in 1942, Congress passed the Emergency Price Control Act, which created an Office of Price Administration. The OPA had sweeping power to set or strike down prices in any industry or activity that it considered to be "defense-related" — a vague term that could have encompassed practically the entire national economy. The act contained no substantive guidelines for the administrator's decisions but merely required prices that "in his judgment will be generally fair and equitable."<ref name="Bovard_Cuttthroat">James Bovard. [http://www.fff.org/freedom/0499d.asp "Cutthroat Competition and Dead Chickens"], The Future of Freedom Foundation, April 1999. Referenced 2010-06-20.</ref>

===Effects===
The Roosevelt administration also orchestrated various price-fixing schemes in labor markets, principally for the benefit of unions. Payroll taxes to finance Social Security and Unemployment Insurance programs increased employers' wage bills even further, which also reduced the level of employment. According to an econometric estimate, government-mandated payroll cost increases added nearly 1.2 million people to the unemployment rolls by 1938.

The unemployment rate during the 1933-1940 period averaged about 18% and was as high as 28.3% in March of 1933. By the end of 1938, on the eve of World War II, the U.S. unemployment rate still hovered at just over 18 percent and was higher than it was in 1933, President Franklin D. Roosevelt's first year in office. This occurred despite (or rather, because of) six years of unprecedented levels of government intervention into the U.S. economy. The American recovery was slower than in most European nations; by 1937 Great Britain's unemployment rate had declined to 10.3 percent.

Herbert Hoover's [[Reconstruction Finance Corporation]] was greatly expanded by Roosevelt, but its effect was to make capital markets less efficient, thereby prolonging the Depression even further. As explained by RFC director Jesse Jones in his autobiography, ''Fifty Billion Dollars'', "The law specified that we should lend only where the borrower could not get the money from others on reasonable terms." That is, only to uncreditworthy borrowers. Guided by this directive, Jones and the RFC redirected billions of dollars in valuable capital to politically-connected but economically-questionable businesses. "We even loaned money to [the owners of] a drove of reindeer in Alaska," Jones boasted. The RFC was abolished in the 1955 under a cloud of corruption and scandal.

Roosevelt's public works programs may have been an economic failure, but they were a resounding political success as they provided virtually unlimited opportunities for political patronage. In 1939 a special U.S. Senate Committee on Campaign Expenditures investigated the programs and found that in many states workers were required to sign a pledge to vote Democratic and, in some cases, to make campaign contributions, as a condition of employment. Businesses that sold supplies to the government were in some places required to make campaign contributions to the Democratic party in return for the contracts. The New Deal was largely a legalized [[Extortion|shake-down]] operation.<ref name="DiLorenzo_New_Deal" /><ref name="Anderson_WPA">William L. Anderson. [http://mises.org/daily/3921 "The Curse of Good Government"], Mises Daily, December 2009, refers to the spending of New Deal money. Referenced 2010-06-20.</ref>

Roosevelt's billions, adroitly used, had broken down every political machine in America. The patronage they once lived on and the local money they once had to disburse to help the poor was trivial compared to the vast floods of money Roosevelt controlled. And no political boss could compete with him in any county in America in the distribution of money and jobs.<ref name="Flynn_Roosevelt">John T. Flynn. [http://mises.org/books/rooseveltmyth.pdf "The Roosevelt Myth"] (pdf), p. 65; 1948. Referenced 2010-06-21.</ref>

As Henry Morgenthau, the secretary of the treasury and one of the most powerful men in America, said before the Democrats on the House Ways and Means Committee in 1939<ref name="Folsom_spending">Burton Folsom Jr. [http://search.barnesandnoble.com/New-Deal-or-Raw-Deal/Burton-Folsom-Jr/e/9781416592228#EXC "New Deal or Raw Deal?: How FDR's Economic Legacy Has Damaged America"], an excerpt from the book. Referenced 2010-06-21.</ref>:

<blockquote>''"We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong...somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises....I say after eight years of this Administration we have just as much unemployment as when we started....And an enormous debt to boot!"''</blockquote>

==During World War II==
The recovery from the Great Depression in the United States is usually associated with the advent of World War II, a period when real GDP appeared to increase phenomenally and the rate of unemployment fell almost to zero. A more detailed view produces a different picture, with large government "make-work" programs at first and military employment during the war - but a very slow actual recovery. When using hours worked as measure of employment, only in 1941 total work hours exceed the 1929 value (by 3 percent), with the population vigorously engaged in mobilization for war.<ref name="Higgs_hours">Robert Higgs. [http://www.independent.org/pdf/tir/tir_14_01_8_higgs.pdf "A Revealing Window on the U.S. Economy in Depression and War - Hours Worked, 1929–1950"] (pdf), The Independent Review, v. 14, n.1, Summer 2009. Referenced 2010-06-21.</ref>

Private [[investment]] has fallen significantly. Gross private investment plunged from almost 16 percent of GDP in 1929 to less than 2 percent in 1932; recovered to 13 percent in 1937 before falling again in the recession of 1938; and as late as 1941 stood at only 14 percent. During the war years, private investment ratios ranged from 3 to 6 percent. From 1946 through 1950 they ranged from 14 to 19 percent and averaged 16 percent — the same as in 1929. In 1929, when gross private investment was $16.2 billion, net investment was $8.3 billion. Net investment fell precipitously to $2.3 billion in 1930 and then became negative during each of the following five years. For the eleven-year period of 1930 to 1940, net private investment totaled minus $3.1 billion. Only in 1941 did net private investment ($9.7 billion) exceed the 1929 amount. During the 1930s, private investment remained at depths never plumbed in any other decade for which data exist.

One hypothesis is, that the New Deal prolonged the Great Depression by creating an extraordinarily high degree of '''[[regime uncertainty]]''' for the investors. Given the unparalleled outpouring of business-threatening laws, regulations, and court decisions, the oft-stated hostility of President Roosevelt and his lieutenants toward investors as a class, the political climate could hardly have failed to discourage some investors from making long-term commitments. There also exists a great deal of direct evidence that investors felt extraordinarily uncertain about the future of the property-rights regime between 1935 and 1941. Historians have recorded countless statements by contemporaries to that effect; in the years just before the war most business executives expected substantial weakening of private property rights ranging up to "complete economic dictatorship". The possibility that the United States might undergo an extreme regime shift seemed to many investors in the late 1930s and early 1940s not only possible but likely.<ref name="Higgs_investment">Robert Higgs. [http://www.independent.org/pdf/tir/tir_01_4_higgs.pdf "Regime Uncertainty - Why the Great Depression Lasted So Long and Why Prosperity Resumed after the War"] (pdf), The Independent Review, Vol, I, No. 4, Spring 1997. Referenced 2010-06-21.</ref><ref name="Higgs_China">Robert Higgs. [http://www.independent.org/blog/index.php?p=2620 "Regime Uncertainty in the 1930s: A New Deal Insider’s Account"], ''The Beacon'', blog of the The Independent Institute, Jun 29, 2009. Referenced 2010-08-15.</ref>

==See also==

* [[Austrian Business Cycle Theory]]

==References==
{{Reflist|2}}

==External links==
* [http://www.lewrockwell.com/gordon/gordon-gd-biblio.html Bibliography on the Great Depression] by David Gordon, 2009
* [http://mises.org/daily/3941 The Myth that Is FDR] by Garet Garrett, January 2010
* [http://mises.org/daily/4350 Did Hoover Really Slash Spending?] by Robert P. Murphy, May 2010
* [http://www.ameshistoricalsociety.org/exhibits/events/rationing.htm World War II Rationing], collected by the Ames Historical Society and the [[Wikipedia:Rationing|Wikipedia]] article on the same
* [http://www.mackinac.org/article.aspx?ID=4028 Free Markets or Free Lunches?] by Lawrence W. Reed, January 1998
* [http://www.mackinac.org/article.aspx?ID=4013 Great Myths of the Great Depression] by Lawrence W. Reed, January 1998
* [http://mises.org/daily/3778 The Gold Standard and the Great Depression] by Robert P. Murphy, October 2009
* [http://mises.org/daily/1623 The New Deal Debunked (again)] by Thomas J. DiLorenzo, September 2004
* [http://www.independent.org/newsroom/article.asp?id=138 Wartime Prosperity? A Reassessment of the U.S. Economy in the 1940s] by Robert Higgs, March 1992
* [http://mises.org/daily/3661 My Summer Reading: Hyper-Inflation in Weimar Germany] by Ralph Fucetola, September 2009 (notes that the crisis was seen as insignificant at the beginning)
* [http://mises.org/journals/qjae/pdf/qjae11_3_5.pdf The Great Depression: Mises vs. Fisher] (pdf) by Mark Thornton, November 2008
* [http://www.thefreemanonline.org/featured/the-depression-youve-never-heard-of-1920-1921/ The Depression You’ve Never Heard Of: 1920-1921] by Robert P. Murphy, December 2009
* [http://mises.org/daily/3866 Reliving the Crash of '29] by Murray N. Rothbard, first published in November 1979
* [http://mises.org/daily/4039 Dangerous Lessons of 1937] by Jonathan M. Finegold Catalan, February 2010
* [http://mises.org/daily/4797 The Real Reason for FDR's Popularity] by Mark Thornton, October 2010
* [[Wikipedia:Great Depression|Great Depression]] on Wikipedia

[[Category:History of the United States]]
[[Category:Financial crises]]

Great Depression

2011-04-01T00:26:48Z

Daniel Hewitt: /* 1931, "The Tragic Year" */ add ref

{{RightTOC}}
The '''Great Depression''' was the longest and most severe economic depression ever experienced by the Western world.<ref name="Britannica_debt">Encyclopædia Britannica. [http://www.britannica.com/EBchecked/topic/243118/Great-Depression "Great Depression"], Encyclopædia Britannica Online, referenced 2010-06-12.</ref>

==Prelude==
In the forty years 1890 to 1930, the population of the United States doubled, the value of farm property increased three and a half times, pig iron production four and a half times, exports five times, coal production five times, and freight traffic five and a half times, but commercial bank deposits increased over seventeen and a half times. Thus, while the gold stock had increased proportionally with the increase of industrial production, the expansion in bank credit had far outstripped both and had thus been at the expense of a thinning gold reserve. The monetary gold stock available to support and redeem this tremendous amount of bank liabilities that was being created, which had been 25.3 per cent of total note and deposit liabilities of banks in 1865, and 23.9 per cent in 1880, steadily dropped under the pressure of the public upon the banking interest for more and more credit, standing in 1900 at 20.4 per cent, in 1910 at 14.2 per cent and in 1930 at 10.4 per cent. Such had been the diminution of reserves that by the decade 1920-1930, banking was being conducted "on a shoestring." In 1900 the ratio of vault cash to deposit liabilities of commercial banks had dropped to 14.8 per cent, and in 1910 to 12.7 per cent—vault cash in those years being respectively $706,302,000 and $1,366,164,000.<ref name="Groseclose_Money">Elgin Groseclose. [http://mises.org/resources/3138/Money-and-Man Money and Man], 1934, p.209-210. Referenced 2011-03-24.</ref>

From June 1914 to January 1920, when [[Demand deposits|demand deposits]] grew by 96.9 percent, [[Time deposits|time deposits]] rose by 126.1 percent. In the great boom of the 1920s, that started after the [[Depression of 1920–21|recession of 1920–21]] (a short recession, thanks to the budget cutting and lowering of taxes by [[Warren Harding]]<ref name="Woods_Harding">Thomas E. Woods, Jr. [http://www.firstprinciplesjournal.com/articles.aspx?article=1322&theme=home&loc=b "Warren Harding and the Forgotten Depression of 1920"], First Principles, Fall 2009 issue of The Intercollegiate Review. See also the [http://www.youtube.com/watch?v=czcUmnsprQI video]. Referenced 2009-10-11.</ref>), total demand deposits rose from 1921 to 1929 by 36.5 percent. Time deposits in banks expanded in the same period by 75.9 percent. The great boom of the 1920s (also called "[[Roaring Twenties]]") was largely fueled by credit expansion going into time deposits. The greatest expansion of time deposits came in Central Reserve Cities (New York and Chicago), where the [[Federal Reserve System|Fed]]’s open market operations were all conducted, as opposed to Reserve Cities and Country Banks. As acknowledged by Federal Reserve officials, time or savings deposits were then, for all practical purposes, equivalent to demand deposits and should be paid on demand in case of a run on a bank.

With the passage of the [[Federal Reserve Act]], [[Woodrow Wilson|President Wilson]] appointed [[Benjamin Strong, Jr.|Benjamin Strong]] to the most powerful post in the Federal Reserve System, Governor of the [[Reserve Bank of New York|Federal Reserve Bank of New York]]. He made quickly this position dominant in the System and decided on Fed policy without consulting or even against the wishes of the Federal Reserve Board in Washington. Strong was the dominant leader of the Fed from 1914 until his death in 1928. He pursued an inflationary policy, to finance the war effort for [[World War I|WWI]], connected to the interests of the [[J.P. Morgan & Co.|House of Morgan]]. Another motivation was the attempt to prop up the [[Bank of England]] in the 1920s, when it returned to the [[gold standard]] with an overvalued pound. To prevent the loss of gold to the States, its governor [[Montagu Norman, 1st Baron Norman|Montagu Norman]] secretly convinced Strong to inflate in order to help England. The expansion ended only after Strong's death and the '''Great Depression''' followed soon after. In 1928 Strong admitted that "very few people indeed realized that we were now paying the penalty for the decision which was reached early in 1924 to help the rest of the world back to a sound financial and monetary basis" - that is, to help Britain maintain a phony and inflationary form of gold standard.<ref name="Rothbard_Federal_Reserve">[[Murray N. Rothbard]]. [http://mises.org/books/mysteryofbanking.pdf "The Mystery of Banking"] (pdf), Chapter XVI: Central banking in the United States IV: The Federal Reserve System, p.235-246, referenced 2009-10-03.</ref>

The inflation was also motivated by a desire to help American exporters (particularly farmers), by stimulation of foreign lending. At the same time the U.S. turned to a sharp protectionist policy with the [[Fordney–McCumber Tariff]] of 1922. In the foreign lending boom, other countries were hampered in trying to sell their goods to the United States, but were encouraged to borrow dollars. The government did not have any peacetime authority to interfere with loans, but did so illegally. In 1921, President [[Warren G. Harding|Harding]] and his cabinet conferred with several American investment bankers, at the instigation of Secretary of Commerce [[Herbert Hoover|Hoover]], to be informed in advance of foreign loans, so that the government "might express itself regarding them". The bankers agreed. Hoover commented that even bad loans helped American exports and provided a cheap form of relief and employment. Later Hoover demanded from bankers, that foreign loans would be inspected by agents of the [[Department of Commerce]]. Both requests were mostly ignored. While admitted to be legally unenforceable, it was all in the name of "national interests".<ref name="Rothbard_pre_Depression">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 5. The Development of the Inflation, p. 137-167, referenced 2009-11-17.</ref>

{{See also|Federal Reserve System}}

===Housing bubble===
An outlet for the excessive credit created by the banking system was in financing an urban real estate boom in the U.S. During the decade 1920-1930, people were moving in a constant stream into the cities; the population of the sixty-three metropolitan zones (cities of 100,000 or more plus adjacent counties) rose from 46,491,000 to 59,118,000, or from 44 per cent of total population to 48 per cent. Seventy-four per cent of the increase in total population during the decade occurred in the metropolitan areas.

A huge building boom followed, the Federal Reserve Board index of building contracts awarded, 1923-1925 taken as 100, rising from 63 in 1920 to 122 in 1925, and 135 in 1928. This boom occurred chiefly in skyscraper offices and expensive apartment house developments, whose notes were more readily marketable, rather than in the modest single family accommodations. The result was that when the era had passed the slums still existed. In New York City, for instance, where at least four skyscrapers were built in these years with the only object, apparently, of surpassing the record for the world's tallest building, from a quarter to a third of the population, say 1,800,000 persons, still occupied houses that had been outlawed thirty-three years earlier by the Tenement House Act of 1901.<ref name="Groseclose_Money">Elgin Groseclose. [http://mises.org/resources/3138/Money-and-Man Money and Man], 1934, p.225, 244. Referenced 2011-03-24.</ref>

==The Crash==
{{Main|Wall Street Crash of 1929}}
The great boom of the 1920s began around July, 1921, after a year or more of sharp recession, and ended about July, 1929, when the production and business activity began to decline, although the [[Wall Street Crash of 1929|famous stock market crash]] came in October of that year. [[Herbert Hoover]], an avid proponent of interventionism became President. Characteristic for him were "voluntary" measures that the government desired, with the implicit threat that if business did not "volunteer" properly, compulsory controls would soon follow.<ref name="Rothbard_1920s_boom">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 5. The Development of Hoover's Interventionism: Unemployment, p. 188-189, referenced 2009-11-20.</ref>

After the stock-market crash, Hoover began a series of conferences with big business and labor leaders, telling them that cutting wage rates (the standard response in previous depressions) would be disastrous, because then the workers wouldn't make enough to buy the products.<ref name="Hoover 11-15-29 NC">John T. Woolley and Gerhard Peters, ''The American Presidency Project'' [online]. Santa Barbara, CA. Available from World Wide Web: http://www.presidency.ucsb.edu/ws/?pid=22005.</ref> This "liquidation" of labor would only deepen the depression by reducing their "purchasing power". Leading industrialists pledged to maintain wage rates, expand construction, and share any reduced work,<ref name="Hoover CC remarks">John T. Woolley and Gerhard Peters, ''The American Presidency Project'' [online]. Santa Barbara, CA. Available from World Wide Web: http://www.presidency.ucsb.edu/ws/?pid=22023.</ref><ref name="Telegraph-Herald 11-21-29">[http://news.google.com/newspapers?id=T51FAAAAIBAJ&sjid=C70MAAAAIBAJ&dq=hoover%20wage&pg=6813%2C5825398 "Credit President With Pledge to Keep Wages Up"], ''The Telegraph-Herald and Times-Journal,'' November 21, 1929.</ref><ref name="Sarasota Herald-Tribune 11-22-29">[http://news.google.com/newspapers?id=LYQcAAAAIBAJ&sjid=MmQEAAAAIBAJ&dq=hoover%20wages%20business&pg=6694%2C4315629 "Agree To Keep Wage Level Up"], ''Sarasota Herald-Tribune,'' November 22, 1929.</ref><ref name="Gettysburg Times 11-22-29">[http://news.google.com/newspapers?id=DdElAAAAIBAJ&sjid=1PkFAAAAIBAJ&dq=hoover%20wage&pg=2000%2C1635972 "Conferences Please Hoover"], ''The Gettysburg Times,'' November 22, 1929.</ref><ref name="Lewiston Evening Journal 11-23-29">[http://news.google.com/newspapers?id=Iq01AAAAIBAJ&sjid=uWcFAAAAIBAJ&dq=hoover%20wage&pg=1270%2C4673686 "No Hard Times, Hoover Assures Wage Earners"], ''Lewiston Evening Journal,'' November 23, 1929.</ref><ref name="Tuscaloosa News 11-25-29">[http://news.google.com/newspapers?id=xYA-AAAAIBAJ&sjid=BkwMAAAAIBAJ&dq=hoover%20wage&pg=6182%2C3112525 "All Citizenry Asked To Help Progress Plan"], ''The Tuscaloosa News,'' November 25, 1929.</ref><ref name="Miami News 11-26-29">[http://news.google.com/newspapers?id=o7cuAAAAIBAJ&sjid=6tcFAAAAIBAJ&dq=hoover%20wage&pg=6639%2C4846533 "Hoover's Plan To Help Trade Gets Approval"], ''The Miami News,'' November 26, 1929.</ref> to fulfill Hoover's request that "the first shock must fall on profits and not on wages".<ref name="hoover44">Herbert Hoover, ''The Memoirs of Herbert Hoover: The great depression, 1929-41'', (New York: Macmillan, 1952) 44-45.</ref>

At the same time, the Federal Reserve expanded rapidly and lowered its interest rates. Its member banks expanded their deposits in the last week of October 1929 alone by 10%, mostly in New York. Hoover praised the Fed for the saving of shaky banks and restoring confidence.<ref name ="Hoover CC remarks" /> The depression should be over in a few months. A large public works program was also initiated.<ref name="Rothbard_public_works">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 8. The Depression Begins: President Hoover Takes Command, p. 209-217, referenced 2009-11-21.</ref><ref name="Hoover 1-3-20">John T. Woolley and Gerhard Peters, ''The American Presidency Project'' [online]. Santa Barbara, CA. Available from World Wide Web: http://www.presidency.ucsb.edu/ws/?pid=22468.</ref>

Hoover promised the farm bloc to support farm cooperatives and prices and established the [[Federal Farm Board]] (FFB). It would make all-purpose loans to farm cooperatives at low interest rates and establish "stabilization corporations" to control farm surpluses and bolster farm prices. Its board was dominated by representatives of these farm cooperatives. To combat falling prices, it made loans to farmers to keep wheat and cotton off the market and later started to buy the surpluses. For a while, prices were held up and farmers increased production, only to find that prices would fall even more. As America held wheat off the market, it lost its former share of the world’s wheat trade. The farmers were urged to decrease their acreage, while the government still promoted reclamation projects to increase farm production. The surpluses of wheat accumulated and prices fell to such a degree, that the FFB decided to dump wheat stocks abroad, resulting in a drastic fall in market prices. The attempts to keep up the price of cotton, wool, livestock, etc. failed as well. A "[[Farmers' Holiday Association|Farm Holiday]]" was declared to stop production, The movement soon turned to violence and failed to stop the falling farm prices. but succeeded to avoid some foreclosures of its members.<ref name="Rothbard_Agriculture">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), The New Deal Farm Program, p. 217-237, referenced 2009-11-21.</ref>

In 1930, the [[Smoot–Hawley Tariff Act|Smoot–Hawley Tariff]] was passed, despite objections of many economists and industrial leaders. Hoover originated a higher tariff on agricultural products to help farmers, but it was raised on many other products. Many other countries have retaliated with their own tariffs and foreign trade declined significantly. (From 1929 to 1932, U.S. imports from Europe decreased from $1,334 million to just $390 million, while U.S. exports to Europe decreased from $2,341 million to $784 million. Overall, world trade decreased by some 66% between 1929 and 1934.<ref>U.S. Department of State. [http://future.state.gov/when/timeline/1921_timeline/smoot_tariff.html Smoot-Hawley Tariff], referenced 2009-11-22.</ref>) Also, to relieve the unemployment problem, and to help keep wage rates up, the President effectively banned further immigration into the United States.<ref name="Rothbard_Depression_1930">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 9. 1930, p. 239-256, referenced 2009-11-22.</ref>

===In Europe===
In Europe, the crisis began in earnest with the ''Boden–Kredit Anstalt'', the most important bank in Austria and Eastern Europe. It had to merge with the [[Creditanstalt|Oesterreichische–Kredit–Anstalt]] after rescue attempts by its government and other banks. When Austria declared a customs union with Germany in March 1931, the French government feared this development and several French banks suddenly insisted on redemption of their debts from both countries. The bank collapsed. After more rescue attempts has the Austrian Government voted a $150 million guarantee to the bank, but the its credit was by the time worthless, and Austria soon declared national bankruptcy by going off the gold standard. Later, Germany, England, and most other European countries renounced their obligations and went off the gold standard as well. While the impact on United States was not very large due to the lowered international trade, it certainly did not help, neither did the many loans granted to prop up foreign banks.<ref name="Rothbard_Depression_1931_Europe">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 10. 1931—"The Tragic Year", p. 257-284, referenced 2009-11-27.</ref>

==1931, "The Tragic Year"==
The crisis worsened in the US in 1931. Production continued to fall drastically, as did prices and foreign trade, and unemployment ran up to almost 16 percent of the labor force. The Federal Reserve Board (FRB) index of manufacturing production, which had been 110 in 1929 and 90 in 1930, fell to 75 in 1931. Hardest hit, in accordance with Austrian [[ABCT|cycle theory]], were producers’ goods and higher order [[capital]] goods industries, rather than the consumer goods’ industries. Despite attempts to inflate, bank deposits and the aggregate [[money supply]] fell sharply, particularly at the end of the year. The British abandoning of the gold standard, bank failures abroad and the growing number of failures at home, caused a growing loss of confidence by Americans in their banking system. The wages were also beginning to fall, first secretly, then openly by the end of 1931.<ref name="Time 4-13-31p">"[http://www.time.com/time/magazine/article/0,9171,752764,00.html "THE PRESIDENCY: The Pledge"], ''TIME,'' April 13, 1931.</ref><ref name="Time 4-13-31i">[http://www.time.com/time/magazine/article/0,9171,752766,00.html "INDUSTRY: Next: Wages?"], ''TIME,'' April 13, 1931.</ref><ref name="Time 11-09-31">[http://www.time.com/time/magazine/article/0,9171,742546,00.html "LABOR: Rail Dickers"], ''TIME,'' November 9, 1931.</ref>

The gross national product fell from $91.1 billion in 1930, to $76.3 billion in 1931. Total government receipts fell from $13.5 billion to $12.4 billion, but total government expenditures rose from $13.9 billion to $15.2 billion, in federal, rather than state and local, spending (federal expenditures rose from $4.2 billion in 1930 to $5.5 billion in 1931). In the middle of a great depression when people needed to be relieved of governmental burdens, the dead weight of government rose from 16.4 percent to 21.5 percent of the gross private product. From a modest surplus in 1930, the Federal government so ran up a huge $2.2 billion deficit in 1931.<ref name="Rothbard_Depression_1931_Europe" />

Direct relief was just about the one sphere where President Hoover seemed to prefer voluntary to governmental action. The [[Red Cross]] opposed a bill, in early 1931, that would grant it $25 million for relief, declaring that it would "to a large extent destroy voluntary giving". Many private charity organizations, philanthropists, and social workers had the same views. Governmental unemployment relief was seen to have a role in creating and perpetuating unemployment in Britain (the "dole"). It was attacked by many business leaders, including [[Henry Ford]], the leaders of the [[National Association of Manufacturers]] and the [[United States Chamber of Commerce|Chamber of Commerce]], and former President [[Calvin Coolidge|Coolidge]].<ref name="Rothbard_Depression_1931_Europe" />

The [[Davis-Bacon Act]] was signed by President Hoover in 1931. It mandated that prevailing (union) wages be paid by the Federal Government for public works projects. It has been argued that the Davis-Bacon Act was a [[Jim Crow law]], since its intent <ref name=”williams”>Walter Williams, [http://www.jewishworldreview.com/cols/williams031203.asp "Congress' insidious discrimination"], ''Jewish World Review'' (March 12, 2003), accessed 2011-02-01.</ref> and its effect <ref name=”cato”> David Bernstein, [http://www.cato.org/pubs/briefs/bp-017.html "The Davis-Bacon Act: Let's Bring Jim Crow to an End"], ''Cato Institute Briefing Papers'' (January 18, 1993), accessed 2011-02-01.</ref> was to prevent lower-paid, non-unionized black laborers from competing against higher-paid, unionized white laborers. Hoover promoted and supported the legislation, as he believed that "[t]he very essence of great production is high wages...because it depends upon a widening range of consumption only to be obtained from the purchasing power of high real wages...." <ref name="hoover108">Herbert Hoover, ''The Memoirs of Herbert Hoover: Volume 2, The Cabinet and the Presidency, 1920-33'', (New York: Macmillan, 1952) 108.</ref>

==1932, The Hoover New Deal==
In an atmosphere of crisis, President Hoover called for more drastic measures, including more government aid and loans. With a $2 billion deficit during annual year 1931, Hoover felt that he had to do something to combat it and chose to increase the taxes. The [[Revenue Act of 1932]] was one of the greatest increases in taxation ever enacted in the United States in peacetime. Many wartime
excise taxes were revived, sales taxes were imposed on gasoline, tires, autos, electric energy, malt, toiletries, furs, jewelry, and other articles; admission and stock transfer taxes were increased; new taxes were levied on bank checks, bond transfers, telephone, telegraph, and radio messages; and the personal income tax was raised drastically as follows: the normal rate was increased from a range of 1½ percent–5 percent, to 4 percent–8 percent; personal exemptions were sharply reduced, and an earned credit of 25 percent eliminated; and surtaxes were raised enormously, from a maximum of 25 percent to 63 percent on the highest incomes. Furthermore, the corporate income tax was increased from 12 percent to 13: percent, and an exemption for small corporations eliminated; the estate tax was doubled, and the exemption floor halved; and the gift tax, which had been eliminated, was restored, and graduated up to 33⅓ percent. The postal rates were raised as well.

Despite the drastic increase in tax rates, total Federal revenue for 1932 declined because of the deepened depression—itself partly caused by the increase in tax rates. Total Federal receipts, excluding government enterprises, declined from $2.2 billion in 1931 to $1.9 billion in 1932; including government enterprises, Federal receipts fell from $3.4 billion to $3 billion.

Total government receipts fell from $12.4 billion to $11.5 billion. As a result, the huge Federal deficit continued despite a drop in government expenditures in 1932: Federal expenditures falling from $5.5 billion to $4.4 billion, and aggregate government expenditures falling from $15.2 billion to $13.2 billion (all numbers including government enterprises). Of the $1.7 billion in total government deficit, the bulk of it — $1.4 billion — was in the Federal government account. The state and local governments were forced to cut back their expenditures to near the level of their dwindling receipts. One of the most ominous projects for Federal spending during 1932 was a Congressional move for a huge $2 billion veterans bonus, to be financed by an issue of new currency. It was its final defeat in the Senate in June that did most to defeat a general clamor for much larger government spending.

Meanwhile, however, President Hoover himself was beginning to have doubts about one of his favorite policies: public works. In a conference at the end of February, Hoover admitted that his public works program, which had nearly doubled Federal construction since the start of the depression, had failed. It was very expensive, costing over $1200 per family aided, it was unavailable to the needy in remote regions and to those who were unable to perform such labor, which was, after all, unskilled make-work. By May, Hoover had openly reversed his earlier position. As a result, Federal public works only increased by $60 million in 1932, to reach the $333 million mark. Public works was not to come really to the fore again until the Roosevelt administration.

Holding firm to his interventionist belief that the downward pressure on wages must be resisted <ref name ="hoover108" />, Hoover signed the [[Norris-Laguardia Act]] into law on March 23, 1932. It banned "yellow-dog" contracts, removed federal courts’ authority to issue injunctions against labor disputes, and provided greater ease for workers to organize<ref name="enotes">[http://www.enotes.com/major-acts-congress/norris-laguardia-act "Norris-Laguardia Act (1932): Major Acts of Congress"], accessed 2011-02-01.</ref>; a landmark victory for organized labor.

If Hoover eagerly embraced other forms of [[intervention]], he gave ground but grudgingly on one issue where he had championed the voluntary approach: direct relief. Governor [[Franklin D. Roosevelt]] of New York led the way for state relief programs in the winter of 1931–1932, and he induced New York to establish the first state relief authority: the Temporary Emergency Relief Administration, equipped with $25 million. Other states followed this lead, and a bill was introduced for a $500 million federal relief program. The bill was defeated, but, with depression deepening and a Presidential election approaching, the administration all but surrendered, passing the [[Emergency Relief and Construction Act]] of July, 1932 — the nation’s first Federal relief legislation. All in all, total public relief in 120 of the nation’s leading urban areas amounted to $33 million in 1929, $173 million in 1931, and $308 million in 1932.

One thing Hoover was not reticent about: inflation. The administration first cleared the path for the program by passing the [[Glass–Steagall Act]] in February, which (a) greatly broadened the assets eligible for rediscounts with the Fed, and (b) permitted the Federal Reserve to use government bonds as collateral for its notes, in addition to commercial paper. At the end of February, 1932, total bank reserves had fallen to $1.85 billion. At that point, the [[Federal Reserve System|FRS]] launched a gigantic program of purchasing U.S. government securities. By the end of 1932, total reserves had been raised to $2.51 billion. This enormous increase of $660 million in reserves in less than a year is unprecedented in the previous history of the System. If the banks had kept loaned-up, the money supply of the nation would have increased by approximately $8 billion. Instead, the money supply fell by $3.5 billion during 1932, from $68.25 to $64.72 billion at the end of the year, and with the bank deposit component falling by $3.2 billion. Until the second quarter of 1932, the nation’s banks had always remained loaned up, with only negligible excess reserves. After, the banks accumulated excess reserves, and it is estimated that the proportion of excess to total bank reserves rose from 2.4 percent in the first quarter of 1932, to 10.7 percent in the second quarter. By the fourth quarter of 1932, excess reserves were estimated to a double of 20.3 percent of total bank reserves.

During the 1920s, a typical year might find 700 banks failing, with deposits totaling $170 million. In 1930, 1350 banks failed, with deposits of $837 million; in 1931, 2,293 banks collapsed, with deposits of $1,690 million; and in 1932, 1,453 banks failed, having $706 million in deposits. This enormous increase in bank failures was enough to give any bank pause—particularly when the bankers knew in their hearts that no bank (outside of the nonexisting ideal 100 percent bank) can ever withstand a determined run. Consequently, the banks permitted their commercial loans to run down without increasing their investments. Inflation by the government was turned into deflation by the policies of the public and the banks. The American economy reached the depths of depression during 1932 and 1933, and yet it had begun to turn upward by mid-1932. It is not far-fetched to believe that the considerable deflation of July 1931–July 1932, totaling $7.5 billion of currency and deposits, or 14 percent, was partly responsible for the mid-summer upturn.<ref name="Rothbard_Depression_1932">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 11. The Hoover New Deal of 1932, p. 285-320, referenced 2009-11-27.</ref>

As the Depression got worse and people lost their confidence in the banks, they decided to take custody of their cash. Seeing people in large numbers pulling their money out of banks — money the banks had promised to provide on demand — President Hoover blasted them for their "traitorous hoarding." He organized an antihoarding drive and delivered a radio address ([http://www.bobsuniverse.com/BWAH/31-Hoover/19320306a.pdf transcript], pdf) in which he pleaded with the public to stop hoarding (i.e., to stop converting their bank deposits into cash).<ref name="Smith_hoarding">George F. Smith. [http://mises.org/story/3707 "The Virtue of Hoarding"], Mises Daily, posted on October 09, 2009, referenced 2009-11-18.</ref>

Nominal paychecks fell much more slowly during the early years of the Great Depression than the general [[price]] level (wholesale prices fell by 10 percent in 1930, by 15 percent in 1931)<ref name="Rothbard_Depression_1931_Europe" /> - and those who kept their job experienced a higher increase in real (inflation-adjusted) wages, than during the Roaring 1920s!<ref name="ohanian"> Lee E. Ohanian, "What - or Who - Started the Great Depression?", ''NBER Working Paper No. 15258'' (August 2009). Free copy online [http://www.econ.ucla.edu/people/papers/Ohanian/Ohanian499.pdf "here"]</ref> And so has unemployment reached record highs during Hoover's first and only term. When FDR went back on the US government's promise to redeem dollars for gold, the Federal Reserve could flood the economy with new dollars, the prices began to rise again. Because wage rates were not allowed to fall to their new, market-clearing level, [[Inflation|inflating]] the currency has paradoxically reduced unemployment.<ref name="Murphy_Depression">Robert P. Murphy. [http://mises.org/story/3778 "The Gold Standard and the Great Depression"], Mises Daily, posted on October 30, 2009, referenced 2009-11-18.</ref>

The Fed has expanded bank reserves in the 1930s. Panicking at the inflationary potential, it doubled the minimum reserve requirements to 20 percent in 1938, sending the economy into a tailspin of credit liquidation. The Fed, ever since that period, has been very cautious about the degree of its changes and changed bank reserve requirements fairly often, but in very small steps, by fractions of one percent.<ref name="Rothbard_Fed_requirements">[[Murray N. Rothbard]]. [http://mises.org/books/fed.pdf "The Case Against the Fed"] (pdf), How the Fed Rules and Inflates, p. 144, referenced 2010-03-23.</ref>

After 1933, Federal Reserve Notes and deposits were no longer redeemable in gold coins to Americans, their gold was confiscated and exchanged for Federal Reserve Notes, which became legal tender; and Americans were stuck in a regime of fiat paper issued by the government and the Federal Reserve.<ref name="Rothbard_Fed_gold">[[Murray N. Rothbard]]. [http://mises.org/books/fed.pdf "The Case Against the Fed"] (pdf), The New Deal and the Displacement of the Morgans, p. 131-132, referenced 2010-05-10.</ref>

===Tax revolt in the USA===
There has been a widespread opposition to real estate taxes in cities across America and some Americans were in fact not paying their taxes. The movement declined quickly, some scholars acknowledge certain influence, but ultimately declare it a failure.<ref name="Beito_revolt">David T. Beito. [http://mises.org/books/taxpayersinrevolt.pdf Taxpayers in Revolt - Tax Resistance during the Great Depression] (pdf), referenced 2010-06-15.</ref> Others consider it a resounding success, however.

President Hoover's massive tax increase bill that passed into law as the [[Revenue Act of 1932]], with many new taxes. The most burdensome taxes for many Americans, however, was the property tax. Property taxes required taxpayers to make an explicit tax payment of significant size from which they could not evade without losing what was often their most significant piece of property and wealth. The property taxes have risen in the decade before the Depression; throughout the 1920s, the general property tax accounted for over 90 percent of taxes levied by all cities over 30,000 in population. One reason for this dependence was that alcohol revenue from sales taxes and licenses had "dried up" due to prohibition. The burden of taxes increased significantly, even if tax rates remained the same. Another source of taxpayer ire was that the real wages of public employees rose nearly 12% between 1929 and 1933.

Tax delinquency increased from its normal rate of 10% to more than 30%. Tax protest organization formed quickly and spontaneously in rural regions in response to tax authorities selling the land of farmers. Estimates placed the number of taxpayer organizations at between 3,000 and 4,000 organizations nationwide.

The tax limitation movement was effective in several states in establishing cuts and limitations on property tax rates. The second success, which was both more important and far less obvious, was the passage of the 21st Amendment that repealed alcohol [[Prohibition in the United States|prohibition]]. The legalization of alcohol sales in most states provided federal, state, and local government with increased tax revenues to offset cuts in property taxes while simultaneously providing a drastic decrease in the price of alcohol and in effect granting the American public a type of tax cut. Income tax revenue fell 60% from 1930 to 1933 placing a severe financial constraint on Congress. The search for an alternative revenue source led to the conversion of F.D.R. from a "dry" to a "wet" and resulted in the 1932 Democratic party platform to call for Repeal in order to provide "a proper and needed revenue." Revenue shortfalls made Repeal possible and the alcohol tax provided 13% of all federal revenue by 1936.<ref name="Thornton_revolt">Mark Thornton and Chetley Weise. [http://mises.org/journals/jls/15_3/15_3_4.pdf The Great Depression Tax Revolts Revisited.] (pdf), Journal of Libertarian Studies, Volume 15, no. 3 (Summer 2001), referenced 2010-06-15.</ref><ref name="Thornton_success_revolt">Mark Thornton and Chetley Weise. [http://mises.org/journals/scholar/Thornton1.PDF The Success of the Great Depression Tax Revolts] (pdf), referenced 2010-06-15.</ref>

==1933, end of Hoover's term==
Seeking reelection, Hoover boasted of his many interventions with the economy. In his acceptance speech for the Presidential renomination he said:
<blockquote>''"We might have done nothing. That would have been utter ruin. Instead, we met the situation with proposals to private business and to the Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic. We put that program in action."''<ref name="Hoover_nomination">Herbert Hoover. [http://americanhistory.about.com/library/docs/blhooverspeech1932.htm "Address Accepting the Republican Presidential Nomination"], August 11, 1932. The address was carried over the National Broadcasting Company and the Columbia Broadcasting System radio networks. This is a transcript taken from a sound recording of the address. Referenced 2010-06-20.</ref></blockquote>

After the election of [[Franklin D. Roosevelt|Roosevelt]], as the new Presidential term approached, dark rumors circulated about the radicalism of Roosevelt’s advisers, and of their willingness to go off the [[gold standard]]. Consequently, not only did gold "hoarding" by foreigners develop momentum, but even gold hoarding by domestic citizens. For the first time in the depression, American citizens were beginning to lose confidence in the dollar itself. The loss of confidence reached its apogee in February, 1933, the month before the Roosevelt inaugural. In that one month, the monetary gold stock fell by $173 million, and money in circulation increased by the phenomenal amount of $900 million, the reflection of domestic loss of confidence. Money in circulation totaled $5.4 billion at the end of January, and $6.3 billion by the end of February. $700 million of this increase was in Federal Reserve notes, and $140 million in gold coin and gold certificates.

The Federal Reserve did its best to combat this deflationary pull on bank reserves, but its inflationary measures only served to diminish confidence in the dollar still further. Total money supply fell from $64.72 to $61.61 billion over 1933, and all or more of this fall took place in the first half of the year. Bank failures skyrocketed during this period. The number of commercial bank failures increased from 1,453 in 1932 to 4,000 in 1933 (most of which took place in the first quarter).

The reaction to this growing insistence of the people on claiming their rightful, legally-owned property, was a series of attacks on property rights by state after state. One by one, states imposed "bank holidays" by fiat, permitting the banks to stay in business while refusing to pay virtually all of the just claims of their depositors. The bank holiday movement began in earnest with the proclamation of an eight-day holiday on February 14, 1933, by Governor William Comstock of Michigan. This precipitated the bank runs and deflation of the latter part of February and depositors began an intense scramble to take their money out of the banks. Many national banks, which had worked hard to keep themselves in an at least relatively sound position, did not want to use the special privilege of bank holiday, and had to be coerced into doing so.

By March 4, every state in the Union had declared a bank holiday, and the stage was set for President Roosevelt’s dramatic and illegal closing of all the banks. President Roosevelt closed down all the banks throughout the nation for an entire week, from March 6 to 13, with many banks remaining closed even longer. Restrictions against so-called "hoarding" were continued afterward, and much hoarded gold returned to the banks following a Federal Reserve threat to publish a list, for full public scorn, of the leading "gold hoarders."

Mr. Hoover left office in March, 1933, at the very depth of the greatest depression in American history. Production had fallen by more than one-half: industrial production had been at an index of 114 in August, 1929, and then fell to 54 by March, 1933. Unemployment was persisting at nearly 25 percent of the labor force, and gross national product had also fallen almost in half. Hardest hit was investment, especially business construction, the latter falling from about $8.7 billion in 1929 to $1.4 billion in 1933. The index of non-durable manufacturing production fell from 94 to 66 from August, 1929, to March, 1933—a decline of 30 percent; the index of durable manufactures fell from 140 to 32, in the same period, a decline of 77 percent. In durable goods industries (e.g., building, roads, metals, iron and steel, lumber, railroad, etc.) it was estimated that their total employment fell from 10 million in 1929 to 4 million in 1932–1933, while employment in consumer goods industries (e.g., food, farming, textiles, electricity, fuel, etc.) only fell from 15 million to 13 million in the same period. Stock prices (industrials) fell by 76 percent during the depression, wholesale prices fell by 30 percent, and the total money supply declined by one-sixth.

Wage rates were kept very high during the first two years of the depression. By 1932, however, with profits wiped out, the pressure became too great, and wage rates fell considerably. Total fall over the 1929–1933 period, however, was only 23 percent - less than the decline in wholesale prices. Therefore, real wage rates, for the workers still remaining employed, actually increased. While real average hourly earnings rose, actual hours worked in industry fell drastically during the depression. Weekly hours averaged over 48 in 1929, and fell to less than 32 by mid-1932. In no previous depression had hours worked fallen by more than 10 percent. This was a form of reduced employment caused by the high-wage policy. As a result, average weekly earnings fell by over 40 percent during the depression, and real weekly earnings fell by over 30 percent. But hardest hit were the unemployed, the percentage of whom rose to 25 percent by 1932–1933, and reached 47 percent in selected manufacturing industries. The fall in man-hours combined with the fall in average hourly earnings caused a truly precipitate drop in total factory payrolls - the base of the very "purchasing power" that the policy was supposed to sustain.<ref name="Rothbard_Hoover_End">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 12. The Close of the Hoover Term, p. 321-337, referenced 2010-06-20.</ref>

==The New Deal==
===Roosevelt's Campaign===
Under the Democratic platform of 1932, which Franklin D. Roosevelt endorsed, contained several subsidies and regulations, but it hardly embraced the enormous expansion in federal power that FDR would achieve. The very first plank called for "an immediate and drastic reduction of governmental expenditures by abolishing useless commissions and offices, consolidating departments and bureaus, and eliminating extravagance to accomplish a saving of not less than twenty-five per cent in the cost of the Federal Government."<ref name="Woolley_Dem_1932">John T. Woolley and Gerhard Peters. [http://www.presidency.ucsb.edu/ws/index.php?pid=29595 "Democratic Party Platform of 1932"], June 27, 1932, from The American Presidency Project [online]. Referenced 2010-06-20.</ref> Subsequent planks demanded a balanced budget, a low tariff, the repeal of Prohibition, "a sound currency to be preserved at all hazards," "no interference in the internal affairs of other nations," and "the removal of government from all fields of private enterprise except where necessary to develop public works and natural resources in the common interest." The document concluded with a quote from Andrew Jackson: "equal rights to all; special privilege to none."

FDR's campaign reflected that platform. He accused Herbert Hoover of "reckless and extravagant spending," and he further denounced the Republican incumbent for believing "we ought to center control of everything in Washington as rapidly as possible." Even when he called for interventions in the economy, he generally couched his words in the old liberals' language of equal treatment rather than the new liberals' vision of enlightened central planning. In his famous Forgotten Man speech of April 1932 (see [http://newdeal.feri.org/speeches/1932c.htm transcript]), the Democratic candidate pointed to the wave of foreclosures sweeping the nation. Noting that Hoover had created a "two billion dollar fund...put at the disposal of the big banks, the railroads and the corporations of the Nation," FDR averred that the government should "provide at least as much assistance to the little fellow as it is now giving to the large banks and corporations." Once in office, the new administration did indeed repeal Prohibition, and it eventually lowered some trade barriers as well. By the time of FDR's death, the federal bureaucracy's power had grown so enormously that Hoover was widely remembered as the last apostle of laissez faire.<ref name="Walker_FDR">Jesse Walker. [http://reason.com/archives/2008/04/10/the-new-franklin-roosevelts "The New Franklin Roosevelts"], April 10, 2008. Referenced 2010-06-20.</ref>

===Policy===
A principal feature of '''[[New Deal]]''' economic policy was government-sponsored industrial [[cartel]]s (the [[National Recovery Act]]); agricultural cartels (the [[Agricultural Adjustment Act]]); and labor cartels (the [[Norris – La Guardia Act|Norris-LaGuardia]] and [[National Labor Relations Act|Wagner Acts]]). The purpose of any cartel is to restrict output and raise prices. Lower levels of production leads to higher unemployment, which is exactly what the NRA and AAA did.

The NRA was almost identical to the Italian corporatist system that existed at the time. In Italy each trade or industrial group was organized into a government-controlled "corporative" association that had the power to plan production and pricing. In the U.S. the NRA organized each industry into federally-supervised trade associations called "Code Authorities" which could also limit output and set prices. The antitrust laws were explicitly set aside.

Over 700 industrial codes were created and were rigorously enforced by thousands of government code enforcers who, "could enter a man's factory, send him out, line up his employees, subject them to minute interrogation, take over his books on the instant." A hapless New Jersey tailor named Jack Magid became nationally famous after he was arrested, convicted, and imprisoned by the code police for the "crime" of pressing a suit of clothes for 35 cents when the Tailors' Code fixed the price at 40 cents. The NRA was ruled unconstitutional by the U.S. Supreme Court on May 27, 1935.<ref name="DiLorenzo_New_Deal">Thomas J. DiLorenzo. [http://mises.org/daily/55 "A New, New Deal"], Mises Daily, October 1998, referenced 2010-06-20.</ref> A study of the Act noted that "the licensing provision, giving the president the power of life or death over business enterprises, is the ultimate weapon of enforcement and the capstone of the powers granted to the president ... the most extraordinary extension of presidential power in American history." The Supreme Court's decision has noted, that 'fair competition' is not defined in the law and could be a convenient designation for whatever set of laws that is proposed and the president may approve. It ruled that NIRA was "an unconstitutional delegation of legislative power."

But after [[Judiciary Reorganization Bill of 1937|Roosevelt's court-packing threat]] of 1937, the justices succumbed to whatever creative definition of fairness that Congress or federal agencies chose to proclaim. For instance, in 1942, Congress passed the Emergency Price Control Act, which created an Office of Price Administration. The OPA had sweeping power to set or strike down prices in any industry or activity that it considered to be "defense-related" — a vague term that could have encompassed practically the entire national economy. The act contained no substantive guidelines for the administrator's decisions but merely required prices that "in his judgment will be generally fair and equitable."<ref name="Bovard_Cuttthroat">James Bovard. [http://www.fff.org/freedom/0499d.asp "Cutthroat Competition and Dead Chickens"], The Future of Freedom Foundation, April 1999. Referenced 2010-06-20.</ref>

===Effects===
The Roosevelt administration also orchestrated various price-fixing schemes in labor markets, principally for the benefit of unions. Payroll taxes to finance Social Security and Unemployment Insurance programs increased employers' wage bills even further, which also reduced the level of employment. According to an econometric estimate, government-mandated payroll cost increases added nearly 1.2 million people to the unemployment rolls by 1938.

The unemployment rate during the 1933-1940 period averaged about 18% and was as high as 28.3% in March of 1933. By the end of 1938, on the eve of World War II, the U.S. unemployment rate still hovered at just over 18 percent and was higher than it was in 1933, President Franklin D. Roosevelt's first year in office. This occurred despite (or rather, because of) six years of unprecedented levels of government intervention into the U.S. economy. The American recovery was slower than in most European nations; by 1937 Great Britain's unemployment rate had declined to 10.3 percent.

Herbert Hoover's [[Reconstruction Finance Corporation]] was greatly expanded by Roosevelt, but its effect was to make capital markets less efficient, thereby prolonging the Depression even further. As explained by RFC director Jesse Jones in his autobiography, ''Fifty Billion Dollars'', "The law specified that we should lend only where the borrower could not get the money from others on reasonable terms." That is, only to uncreditworthy borrowers. Guided by this directive, Jones and the RFC redirected billions of dollars in valuable capital to politically-connected but economically-questionable businesses. "We even loaned money to [the owners of] a drove of reindeer in Alaska," Jones boasted. The RFC was abolished in the 1955 under a cloud of corruption and scandal.

Roosevelt's public works programs may have been an economic failure, but they were a resounding political success as they provided virtually unlimited opportunities for political patronage. In 1939 a special U.S. Senate Committee on Campaign Expenditures investigated the programs and found that in many states workers were required to sign a pledge to vote Democratic and, in some cases, to make campaign contributions, as a condition of employment. Businesses that sold supplies to the government were in some places required to make campaign contributions to the Democratic party in return for the contracts. The New Deal was largely a legalized [[Extortion|shake-down]] operation.<ref name="DiLorenzo_New_Deal" /><ref name="Anderson_WPA">William L. Anderson. [http://mises.org/daily/3921 "The Curse of Good Government"], Mises Daily, December 2009, refers to the spending of New Deal money. Referenced 2010-06-20.</ref>

Roosevelt's billions, adroitly used, had broken down every political machine in America. The patronage they once lived on and the local money they once had to disburse to help the poor was trivial compared to the vast floods of money Roosevelt controlled. And no political boss could compete with him in any county in America in the distribution of money and jobs.<ref name="Flynn_Roosevelt">John T. Flynn. [http://mises.org/books/rooseveltmyth.pdf "The Roosevelt Myth"] (pdf), p. 65; 1948. Referenced 2010-06-21.</ref>

As Henry Morgenthau, the secretary of the treasury and one of the most powerful men in America, said before the Democrats on the House Ways and Means Committee in 1939<ref name="Folsom_spending">Burton Folsom Jr. [http://search.barnesandnoble.com/New-Deal-or-Raw-Deal/Burton-Folsom-Jr/e/9781416592228#EXC "New Deal or Raw Deal?: How FDR's Economic Legacy Has Damaged America"], an excerpt from the book. Referenced 2010-06-21.</ref>:

<blockquote>''"We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong...somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises....I say after eight years of this Administration we have just as much unemployment as when we started....And an enormous debt to boot!"''</blockquote>

==During World War II==
The recovery from the Great Depression in the United States is usually associated with the advent of World War II, a period when real GDP appeared to increase phenomenally and the rate of unemployment fell almost to zero. A more detailed view produces a different picture, with large government "make-work" programs at first and military employment during the war - but a very slow actual recovery. When using hours worked as measure of employment, only in 1941 total work hours exceed the 1929 value (by 3 percent), with the population vigorously engaged in mobilization for war.<ref name="Higgs_hours">Robert Higgs. [http://www.independent.org/pdf/tir/tir_14_01_8_higgs.pdf "A Revealing Window on the U.S. Economy in Depression and War - Hours Worked, 1929–1950"] (pdf), The Independent Review, v. 14, n.1, Summer 2009. Referenced 2010-06-21.</ref>

Private [[investment]] has fallen significantly. Gross private investment plunged from almost 16 percent of GDP in 1929 to less than 2 percent in 1932; recovered to 13 percent in 1937 before falling again in the recession of 1938; and as late as 1941 stood at only 14 percent. During the war years, private investment ratios ranged from 3 to 6 percent. From 1946 through 1950 they ranged from 14 to 19 percent and averaged 16 percent — the same as in 1929. In 1929, when gross private investment was $16.2 billion, net investment was $8.3 billion. Net investment fell precipitously to $2.3 billion in 1930 and then became negative during each of the following five years. For the eleven-year period of 1930 to 1940, net private investment totaled minus $3.1 billion. Only in 1941 did net private investment ($9.7 billion) exceed the 1929 amount. During the 1930s, private investment remained at depths never plumbed in any other decade for which data exist.

One hypothesis is, that the New Deal prolonged the Great Depression by creating an extraordinarily high degree of '''[[regime uncertainty]]''' for the investors. Given the unparalleled outpouring of business-threatening laws, regulations, and court decisions, the oft-stated hostility of President Roosevelt and his lieutenants toward investors as a class, the political climate could hardly have failed to discourage some investors from making long-term commitments. There also exists a great deal of direct evidence that investors felt extraordinarily uncertain about the future of the property-rights regime between 1935 and 1941. Historians have recorded countless statements by contemporaries to that effect; in the years just before the war most business executives expected substantial weakening of private property rights ranging up to "complete economic dictatorship". The possibility that the United States might undergo an extreme regime shift seemed to many investors in the late 1930s and early 1940s not only possible but likely.<ref name="Higgs_investment">Robert Higgs. [http://www.independent.org/pdf/tir/tir_01_4_higgs.pdf "Regime Uncertainty - Why the Great Depression Lasted So Long and Why Prosperity Resumed after the War"] (pdf), The Independent Review, Vol, I, No. 4, Spring 1997. Referenced 2010-06-21.</ref><ref name="Higgs_China">Robert Higgs. [http://www.independent.org/blog/index.php?p=2620 "Regime Uncertainty in the 1930s: A New Deal Insider’s Account"], ''The Beacon'', blog of the The Independent Institute, Jun 29, 2009. Referenced 2010-08-15.</ref>

==See also==

* [[Austrian Business Cycle Theory]]

==References==
{{Reflist|2}}

==External links==
* [http://www.lewrockwell.com/gordon/gordon-gd-biblio.html Bibliography on the Great Depression] by David Gordon, 2009
* [http://mises.org/daily/3941 The Myth that Is FDR] by Garet Garrett, January 2010
* [http://mises.org/daily/4350 Did Hoover Really Slash Spending?] by Robert P. Murphy, May 2010
* [http://www.ameshistoricalsociety.org/exhibits/events/rationing.htm World War II Rationing], collected by the Ames Historical Society and the [[Wikipedia:Rationing|Wikipedia]] article on the same
* [http://www.mackinac.org/article.aspx?ID=4028 Free Markets or Free Lunches?] by Lawrence W. Reed, January 1998
* [http://www.mackinac.org/article.aspx?ID=4013 Great Myths of the Great Depression] by Lawrence W. Reed, January 1998
* [http://mises.org/daily/3778 The Gold Standard and the Great Depression] by Robert P. Murphy, October 2009
* [http://mises.org/daily/1623 The New Deal Debunked (again)] by Thomas J. DiLorenzo, September 2004
* [http://www.independent.org/newsroom/article.asp?id=138 Wartime Prosperity? A Reassessment of the U.S. Economy in the 1940s] by Robert Higgs, March 1992
* [http://mises.org/daily/3661 My Summer Reading: Hyper-Inflation in Weimar Germany] by Ralph Fucetola, September 2009 (notes that the crisis was seen as insignificant at the beginning)
* [http://mises.org/journals/qjae/pdf/qjae11_3_5.pdf The Great Depression: Mises vs. Fisher] (pdf) by Mark Thornton, November 2008
* [http://www.thefreemanonline.org/featured/the-depression-youve-never-heard-of-1920-1921/ The Depression You’ve Never Heard Of: 1920-1921] by Robert P. Murphy, December 2009
* [http://mises.org/daily/3866 Reliving the Crash of '29] by Murray N. Rothbard, first published in November 1979
* [http://mises.org/daily/4039 Dangerous Lessons of 1937] by Jonathan M. Finegold Catalan, February 2010
* [http://mises.org/daily/4797 The Real Reason for FDR's Popularity] by Mark Thornton, October 2010
* [[Wikipedia:Great Depression|Great Depression]] on Wikipedia

[[Category:History of the United States]]
[[Category:Financial crises]]

Great Depression

2011-03-29T16:35:18Z

Daniel Hewitt: /* The Crash */ add refs

{{RightTOC}}
The '''Great Depression''' was the longest and most severe economic depression ever experienced by the Western world.<ref name="Britannica_debt">Encyclopædia Britannica. [http://www.britannica.com/EBchecked/topic/243118/Great-Depression "Great Depression"], Encyclopædia Britannica Online, referenced 2010-06-12.</ref>

==Prelude==
In the forty years 1890 to 1930, the population of the United States doubled, the value of farm property increased three and a half times, pig iron production four and a half times, exports five times, coal production five times, and freight traffic five and a half times, but commercial bank deposits increased over seventeen and a half times. Thus, while the gold stock had increased proportionally with the increase of industrial production, the expansion in bank credit had far outstripped both and had thus been at the expense of a thinning gold reserve. The monetary gold stock available to support and redeem this tremendous amount of bank liabilities that was being created, which had been 25.3 per cent of total note and deposit liabilities of banks in 1865, and 23.9 per cent in 1880, steadily dropped under the pressure of the public upon the banking interest for more and more credit, standing in 1900 at 20.4 per cent, in 1910 at 14.2 per cent and in 1930 at 10.4 per cent. Such had been the diminution of reserves that by the decade 1920-1930, banking was being conducted "on a shoestring." In 1900 the ratio of vault cash to deposit liabilities of commercial banks had dropped to 14.8 per cent, and in 1910 to 12.7 per cent—vault cash in those years being respectively $706,302,000 and $1,366,164,000.<ref name="Groseclose_Money">Elgin Groseclose. [http://mises.org/resources/3138/Money-and-Man Money and Man], 1934, p.209-210. Referenced 2011-03-24.</ref>

From June 1914 to January 1920, when [[Demand deposits|demand deposits]] grew by 96.9 percent, [[Time deposits|time deposits]] rose by 126.1 percent. In the great boom of the 1920s, that started after the [[Depression of 1920–21|recession of 1920–21]] (a short recession, thanks to the budget cutting and lowering of taxes by [[Warren Harding]]<ref name="Woods_Harding">Thomas E. Woods, Jr. [http://www.firstprinciplesjournal.com/articles.aspx?article=1322&theme=home&loc=b "Warren Harding and the Forgotten Depression of 1920"], First Principles, Fall 2009 issue of The Intercollegiate Review. See also the [http://www.youtube.com/watch?v=czcUmnsprQI video]. Referenced 2009-10-11.</ref>), total demand deposits rose from 1921 to 1929 by 36.5 percent. Time deposits in banks expanded in the same period by 75.9 percent. The great boom of the 1920s (also called "[[Roaring Twenties]]") was largely fueled by credit expansion going into time deposits. The greatest expansion of time deposits came in Central Reserve Cities (New York and Chicago), where the [[Federal Reserve System|Fed]]’s open market operations were all conducted, as opposed to Reserve Cities and Country Banks. As acknowledged by Federal Reserve officials, time or savings deposits were then, for all practical purposes, equivalent to demand deposits and should be paid on demand in case of a run on a bank.

With the passage of the [[Federal Reserve Act]], [[Woodrow Wilson|President Wilson]] appointed [[Benjamin Strong, Jr.|Benjamin Strong]] to the most powerful post in the Federal Reserve System, Governor of the [[Reserve Bank of New York|Federal Reserve Bank of New York]]. He made quickly this position dominant in the System and decided on Fed policy without consulting or even against the wishes of the Federal Reserve Board in Washington. Strong was the dominant leader of the Fed from 1914 until his death in 1928. He pursued an inflationary policy, to finance the war effort for [[World War I|WWI]], connected to the interests of the [[J.P. Morgan & Co.|House of Morgan]]. Another motivation was the attempt to prop up the [[Bank of England]] in the 1920s, when it returned to the [[gold standard]] with an overvalued pound. To prevent the loss of gold to the States, its governor [[Montagu Norman, 1st Baron Norman|Montagu Norman]] secretly convinced Strong to inflate in order to help England. The expansion ended only after Strong's death and the '''Great Depression''' followed soon after. In 1928 Strong admitted that "very few people indeed realized that we were now paying the penalty for the decision which was reached early in 1924 to help the rest of the world back to a sound financial and monetary basis" - that is, to help Britain maintain a phony and inflationary form of gold standard.<ref name="Rothbard_Federal_Reserve">[[Murray N. Rothbard]]. [http://mises.org/books/mysteryofbanking.pdf "The Mystery of Banking"] (pdf), Chapter XVI: Central banking in the United States IV: The Federal Reserve System, p.235-246, referenced 2009-10-03.</ref>

The inflation was also motivated by a desire to help American exporters (particularly farmers), by stimulation of foreign lending. At the same time the U.S. turned to a sharp protectionist policy with the [[Fordney–McCumber Tariff]] of 1922. In the foreign lending boom, other countries were hampered in trying to sell their goods to the United States, but were encouraged to borrow dollars. The government did not have any peacetime authority to interfere with loans, but did so illegally. In 1921, President [[Warren G. Harding|Harding]] and his cabinet conferred with several American investment bankers, at the instigation of Secretary of Commerce [[Herbert Hoover|Hoover]], to be informed in advance of foreign loans, so that the government "might express itself regarding them". The bankers agreed. Hoover commented that even bad loans helped American exports and provided a cheap form of relief and employment. Later Hoover demanded from bankers, that foreign loans would be inspected by agents of the [[Department of Commerce]]. Both requests were mostly ignored. While admitted to be legally unenforceable, it was all in the name of "national interests".<ref name="Rothbard_pre_Depression">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 5. The Development of the Inflation, p. 137-167, referenced 2009-11-17.</ref>

{{See also|Federal Reserve System}}

===Housing bubble===
An outlet for the excessive credit created by the banking system was in financing an urban real estate boom in the U.S. During the decade 1920-1930, people were moving in a constant stream into the cities; the population of the sixty-three metropolitan zones (cities of 100,000 or more plus adjacent counties) rose from 46,491,000 to 59,118,000, or from 44 per cent of total population to 48 per cent. Seventy-four per cent of the increase in total population during the decade occurred in the metropolitan areas.

A huge building boom followed, the Federal Reserve Board index of building contracts awarded, 1923-1925 taken as 100, rising from 63 in 1920 to 122 in 1925, and 135 in 1928. This boom occurred chiefly in skyscraper offices and expensive apartment house developments, whose notes were more readily marketable, rather than in the modest single family accommodations. The result was that when the era had passed the slums still existed. In New York City, for instance, where at least four skyscrapers were built in these years with the only object, apparently, of surpassing the record for the world's tallest building, from a quarter to a third of the population, say 1,800,000 persons, still occupied houses that had been outlawed thirty-three years earlier by the Tenement House Act of 1901.<ref name="Groseclose_Money">Elgin Groseclose. [http://mises.org/resources/3138/Money-and-Man Money and Man], 1934, p.225, 244. Referenced 2011-03-24.</ref>

==The Crash==
{{Main|Wall Street Crash of 1929}}
The great boom of the 1920s began around July, 1921, after a year or more of sharp recession, and ended about July, 1929, when the production and business activity began to decline, although the [[Wall Street Crash of 1929|famous stock market crash]] came in October of that year. [[Herbert Hoover]], an avid proponent of interventionism became President. Characteristic for him were "voluntary" measures that the government desired, with the implicit threat that if business did not "volunteer" properly, compulsory controls would soon follow.<ref name="Rothbard_1920s_boom">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 5. The Development of Hoover's Interventionism: Unemployment, p. 188-189, referenced 2009-11-20.</ref>

After the stock-market crash, Hoover began a series of conferences with big business and labor leaders, telling them that cutting wage rates (the standard response in previous depressions) would be disastrous, because then the workers wouldn't make enough to buy the products.<ref name="Hoover 11-15-29 NC">John T. Woolley and Gerhard Peters, ''The American Presidency Project'' [online]. Santa Barbara, CA. Available from World Wide Web: http://www.presidency.ucsb.edu/ws/?pid=22005.</ref> This "liquidation" of labor would only deepen the depression by reducing their "purchasing power". Leading industrialists pledged to maintain wage rates, expand construction, and share any reduced work,<ref name="Hoover CC remarks">John T. Woolley and Gerhard Peters, ''The American Presidency Project'' [online]. Santa Barbara, CA. Available from World Wide Web: http://www.presidency.ucsb.edu/ws/?pid=22023.</ref><ref name="Telegraph-Herald 11-21-29">[http://news.google.com/newspapers?id=T51FAAAAIBAJ&sjid=C70MAAAAIBAJ&dq=hoover%20wage&pg=6813%2C5825398 "Credit President With Pledge to Keep Wages Up"], ''The Telegraph-Herald and Times-Journal,'' November 21, 1929.</ref><ref name="Sarasota Herald-Tribune 11-22-29">[http://news.google.com/newspapers?id=LYQcAAAAIBAJ&sjid=MmQEAAAAIBAJ&dq=hoover%20wages%20business&pg=6694%2C4315629 "Agree To Keep Wage Level Up"], ''Sarasota Herald-Tribune,'' November 22, 1929.</ref><ref name="Gettysburg Times 11-22-29">[http://news.google.com/newspapers?id=DdElAAAAIBAJ&sjid=1PkFAAAAIBAJ&dq=hoover%20wage&pg=2000%2C1635972 "Conferences Please Hoover"], ''The Gettysburg Times,'' November 22, 1929.</ref><ref name="Lewiston Evening Journal 11-23-29">[http://news.google.com/newspapers?id=Iq01AAAAIBAJ&sjid=uWcFAAAAIBAJ&dq=hoover%20wage&pg=1270%2C4673686 "No Hard Times, Hoover Assures Wage Earners"], ''Lewiston Evening Journal,'' November 23, 1929.</ref><ref name="Tuscaloosa News 11-25-29">[http://news.google.com/newspapers?id=xYA-AAAAIBAJ&sjid=BkwMAAAAIBAJ&dq=hoover%20wage&pg=6182%2C3112525 "All Citizenry Asked To Help Progress Plan"], ''The Tuscaloosa News,'' November 25, 1929.</ref><ref name="Miami News 11-26-29">[http://news.google.com/newspapers?id=o7cuAAAAIBAJ&sjid=6tcFAAAAIBAJ&dq=hoover%20wage&pg=6639%2C4846533 "Hoover's Plan To Help Trade Gets Approval"], ''The Miami News,'' November 26, 1929.</ref> to fulfill Hoover's request that "the first shock must fall on profits and not on wages".<ref name="hoover44">Herbert Hoover, ''The Memoirs of Herbert Hoover: The great depression, 1929-41'', (New York: Macmillan, 1952) 44-45.</ref>

At the same time, the Federal Reserve expanded rapidly and lowered its interest rates. Its member banks expanded their deposits in the last week of October 1929 alone by 10%, mostly in New York. Hoover praised the Fed for the saving of shaky banks and restoring confidence.<ref name ="Hoover CC remarks" /> The depression should be over in a few months. A large public works program was also initiated.<ref name="Rothbard_public_works">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 8. The Depression Begins: President Hoover Takes Command, p. 209-217, referenced 2009-11-21.</ref><ref name="Hoover 1-3-20">John T. Woolley and Gerhard Peters, ''The American Presidency Project'' [online]. Santa Barbara, CA. Available from World Wide Web: http://www.presidency.ucsb.edu/ws/?pid=22468.</ref>

Hoover promised the farm bloc to support farm cooperatives and prices and established the [[Federal Farm Board]] (FFB). It would make all-purpose loans to farm cooperatives at low interest rates and establish "stabilization corporations" to control farm surpluses and bolster farm prices. Its board was dominated by representatives of these farm cooperatives. To combat falling prices, it made loans to farmers to keep wheat and cotton off the market and later started to buy the surpluses. For a while, prices were held up and farmers increased production, only to find that prices would fall even more. As America held wheat off the market, it lost its former share of the world’s wheat trade. The farmers were urged to decrease their acreage, while the government still promoted reclamation projects to increase farm production. The surpluses of wheat accumulated and prices fell to such a degree, that the FFB decided to dump wheat stocks abroad, resulting in a drastic fall in market prices. The attempts to keep up the price of cotton, wool, livestock, etc. failed as well. A "[[Farmers' Holiday Association|Farm Holiday]]" was declared to stop production, The movement soon turned to violence and failed to stop the falling farm prices. but succeeded to avoid some foreclosures of its members.<ref name="Rothbard_Agriculture">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), The New Deal Farm Program, p. 217-237, referenced 2009-11-21.</ref>

In 1930, the [[Smoot–Hawley Tariff Act|Smoot–Hawley Tariff]] was passed, despite objections of many economists and industrial leaders. Hoover originated a higher tariff on agricultural products to help farmers, but it was raised on many other products. Many other countries have retaliated with their own tariffs and foreign trade declined significantly. (From 1929 to 1932, U.S. imports from Europe decreased from $1,334 million to just $390 million, while U.S. exports to Europe decreased from $2,341 million to $784 million. Overall, world trade decreased by some 66% between 1929 and 1934.<ref>U.S. Department of State. [http://future.state.gov/when/timeline/1921_timeline/smoot_tariff.html Smoot-Hawley Tariff], referenced 2009-11-22.</ref>) Also, to relieve the unemployment problem, and to help keep wage rates up, the President effectively banned further immigration into the United States.<ref name="Rothbard_Depression_1930">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 9. 1930, p. 239-256, referenced 2009-11-22.</ref>

===In Europe===
In Europe, the crisis began in earnest with the ''Boden–Kredit Anstalt'', the most important bank in Austria and Eastern Europe. It had to merge with the [[Creditanstalt|Oesterreichische–Kredit–Anstalt]] after rescue attempts by its government and other banks. When Austria declared a customs union with Germany in March 1931, the French government feared this development and several French banks suddenly insisted on redemption of their debts from both countries. The bank collapsed. After more rescue attempts has the Austrian Government voted a $150 million guarantee to the bank, but the its credit was by the time worthless, and Austria soon declared national bankruptcy by going off the gold standard. Later, Germany, England, and most other European countries renounced their obligations and went off the gold standard as well. While the impact on United States was not very large due to the lowered international trade, it certainly did not help, neither did the many loans granted to prop up foreign banks.<ref name="Rothbard_Depression_1931_Europe">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 10. 1931—"The Tragic Year", p. 257-284, referenced 2009-11-27.</ref>

==1931, "The Tragic Year"==
The crisis worsened in the US in 1931. Production continued to fall drastically, as did prices and foreign trade, and unemployment ran up to almost 16 percent of the labor force. The Federal Reserve Board (FRB) index of manufacturing production, which had been 110 in 1929 and 90 in 1930, fell to 75 in 1931. Hardest hit, in accordance with Austrian [[ABCT|cycle theory]], were producers’ goods and higher order [[capital]] goods industries, rather than the consumer goods’ industries. Despite attempts to inflate, bank deposits and the aggregate [[money supply]] fell sharply, particularly at the end of the year. The British abandoning of the gold standard, bank failures abroad and the growing number of failures at home, caused a growing loss of confidence by Americans in their banking system. The wages were also beginning to fall, first secretly, then openly by the end of 1931.<ref name="Time 4-13-31p">"[http://www.time.com/time/magazine/article/0,9171,752764,00.html "THE PRESIDENCY: The Pledge"], ''TIME,'' April 13, 1931.</ref><ref name="Time 4-13-31i">[http://www.time.com/time/magazine/article/0,9171,752766,00.html "INDUSTRY: Next: Wages?"], ''TIME,'' April 13, 1931.</ref>

The gross national product fell from $91.1 billion in 1930, to $76.3 billion in 1931. Total government receipts fell from $13.5 billion to $12.4 billion, but total government expenditures rose from $13.9 billion to $15.2 billion, in federal, rather than state and local, spending (federal expenditures rose from $4.2 billion in 1930 to $5.5 billion in 1931). In the middle of a great depression when people needed to be relieved of governmental burdens, the dead weight of government rose from 16.4 percent to 21.5 percent of the gross private product. From a modest surplus in 1930, the Federal government so ran up a huge $2.2 billion deficit in 1931.<ref name="Rothbard_Depression_1931_Europe" />

Direct relief was just about the one sphere where President Hoover seemed to prefer voluntary to governmental action. The [[Red Cross]] opposed a bill, in early 1931, that would grant it $25 million for relief, declaring that it would "to a large extent destroy voluntary giving". Many private charity organizations, philanthropists, and social workers had the same views. Governmental unemployment relief was seen to have a role in creating and perpetuating unemployment in Britain (the "dole"). It was attacked by many business leaders, including [[Henry Ford]], the leaders of the [[National Association of Manufacturers]] and the [[United States Chamber of Commerce|Chamber of Commerce]], and former President [[Calvin Coolidge|Coolidge]].<ref name="Rothbard_Depression_1931_Europe" />

The [[Davis-Bacon Act]] was signed by President Hoover in 1931. It mandated that prevailing (union) wages be paid by the Federal Government for public works projects. It has been argued that the Davis-Bacon Act was a [[Jim Crow law]], since its intent <ref name=”williams”>Walter Williams, [http://www.jewishworldreview.com/cols/williams031203.asp "Congress' insidious discrimination"], ''Jewish World Review'' (March 12, 2003), accessed 2011-02-01.</ref> and its effect <ref name=”cato”> David Bernstein, [http://www.cato.org/pubs/briefs/bp-017.html "The Davis-Bacon Act: Let's Bring Jim Crow to an End"], ''Cato Institute Briefing Papers'' (January 18, 1993), accessed 2011-02-01.</ref> was to prevent lower-paid, non-unionized black laborers from competing against higher-paid, unionized white laborers. Hoover promoted and supported the legislation, as he believed that "[t]he very essence of great production is high wages...because it depends upon a widening range of consumption only to be obtained from the purchasing power of high real wages...." <ref name="hoover108">Herbert Hoover, ''The Memoirs of Herbert Hoover: Volume 2, The Cabinet and the Presidency, 1920-33'', (New York: Macmillan, 1952) 108.</ref>

==1932, The Hoover New Deal==
In an atmosphere of crisis, President Hoover called for more drastic measures, including more government aid and loans. With a $2 billion deficit during annual year 1931, Hoover felt that he had to do something to combat it and chose to increase the taxes. The [[Revenue Act of 1932]] was one of the greatest increases in taxation ever enacted in the United States in peacetime. Many wartime
excise taxes were revived, sales taxes were imposed on gasoline, tires, autos, electric energy, malt, toiletries, furs, jewelry, and other articles; admission and stock transfer taxes were increased; new taxes were levied on bank checks, bond transfers, telephone, telegraph, and radio messages; and the personal income tax was raised drastically as follows: the normal rate was increased from a range of 1½ percent–5 percent, to 4 percent–8 percent; personal exemptions were sharply reduced, and an earned credit of 25 percent eliminated; and surtaxes were raised enormously, from a maximum of 25 percent to 63 percent on the highest incomes. Furthermore, the corporate income tax was increased from 12 percent to 13: percent, and an exemption for small corporations eliminated; the estate tax was doubled, and the exemption floor halved; and the gift tax, which had been eliminated, was restored, and graduated up to 33⅓ percent. The postal rates were raised as well.

Despite the drastic increase in tax rates, total Federal revenue for 1932 declined because of the deepened depression—itself partly caused by the increase in tax rates. Total Federal receipts, excluding government enterprises, declined from $2.2 billion in 1931 to $1.9 billion in 1932; including government enterprises, Federal receipts fell from $3.4 billion to $3 billion.

Total government receipts fell from $12.4 billion to $11.5 billion. As a result, the huge Federal deficit continued despite a drop in government expenditures in 1932: Federal expenditures falling from $5.5 billion to $4.4 billion, and aggregate government expenditures falling from $15.2 billion to $13.2 billion (all numbers including government enterprises). Of the $1.7 billion in total government deficit, the bulk of it — $1.4 billion — was in the Federal government account. The state and local governments were forced to cut back their expenditures to near the level of their dwindling receipts. One of the most ominous projects for Federal spending during 1932 was a Congressional move for a huge $2 billion veterans bonus, to be financed by an issue of new currency. It was its final defeat in the Senate in June that did most to defeat a general clamor for much larger government spending.

Meanwhile, however, President Hoover himself was beginning to have doubts about one of his favorite policies: public works. In a conference at the end of February, Hoover admitted that his public works program, which had nearly doubled Federal construction since the start of the depression, had failed. It was very expensive, costing over $1200 per family aided, it was unavailable to the needy in remote regions and to those who were unable to perform such labor, which was, after all, unskilled make-work. By May, Hoover had openly reversed his earlier position. As a result, Federal public works only increased by $60 million in 1932, to reach the $333 million mark. Public works was not to come really to the fore again until the Roosevelt administration.

Holding firm to his interventionist belief that the downward pressure on wages must be resisted <ref name ="hoover108" />, Hoover signed the [[Norris-Laguardia Act]] into law on March 23, 1932. It banned "yellow-dog" contracts, removed federal courts’ authority to issue injunctions against labor disputes, and provided greater ease for workers to organize<ref name="enotes">[http://www.enotes.com/major-acts-congress/norris-laguardia-act "Norris-Laguardia Act (1932): Major Acts of Congress"], accessed 2011-02-01.</ref>; a landmark victory for organized labor.

If Hoover eagerly embraced other forms of [[intervention]], he gave ground but grudgingly on one issue where he had championed the voluntary approach: direct relief. Governor [[Franklin D. Roosevelt]] of New York led the way for state relief programs in the winter of 1931–1932, and he induced New York to establish the first state relief authority: the Temporary Emergency Relief Administration, equipped with $25 million. Other states followed this lead, and a bill was introduced for a $500 million federal relief program. The bill was defeated, but, with depression deepening and a Presidential election approaching, the administration all but surrendered, passing the [[Emergency Relief and Construction Act]] of July, 1932 — the nation’s first Federal relief legislation. All in all, total public relief in 120 of the nation’s leading urban areas amounted to $33 million in 1929, $173 million in 1931, and $308 million in 1932.

One thing Hoover was not reticent about: inflation. The administration first cleared the path for the program by passing the [[Glass–Steagall Act]] in February, which (a) greatly broadened the assets eligible for rediscounts with the Fed, and (b) permitted the Federal Reserve to use government bonds as collateral for its notes, in addition to commercial paper. At the end of February, 1932, total bank reserves had fallen to $1.85 billion. At that point, the [[Federal Reserve System|FRS]] launched a gigantic program of purchasing U.S. government securities. By the end of 1932, total reserves had been raised to $2.51 billion. This enormous increase of $660 million in reserves in less than a year is unprecedented in the previous history of the System. If the banks had kept loaned-up, the money supply of the nation would have increased by approximately $8 billion. Instead, the money supply fell by $3.5 billion during 1932, from $68.25 to $64.72 billion at the end of the year, and with the bank deposit component falling by $3.2 billion. Until the second quarter of 1932, the nation’s banks had always remained loaned up, with only negligible excess reserves. After, the banks accumulated excess reserves, and it is estimated that the proportion of excess to total bank reserves rose from 2.4 percent in the first quarter of 1932, to 10.7 percent in the second quarter. By the fourth quarter of 1932, excess reserves were estimated to a double of 20.3 percent of total bank reserves.

During the 1920s, a typical year might find 700 banks failing, with deposits totaling $170 million. In 1930, 1350 banks failed, with deposits of $837 million; in 1931, 2,293 banks collapsed, with deposits of $1,690 million; and in 1932, 1,453 banks failed, having $706 million in deposits. This enormous increase in bank failures was enough to give any bank pause—particularly when the bankers knew in their hearts that no bank (outside of the nonexisting ideal 100 percent bank) can ever withstand a determined run. Consequently, the banks permitted their commercial loans to run down without increasing their investments. Inflation by the government was turned into deflation by the policies of the public and the banks. The American economy reached the depths of depression during 1932 and 1933, and yet it had begun to turn upward by mid-1932. It is not far-fetched to believe that the considerable deflation of July 1931–July 1932, totaling $7.5 billion of currency and deposits, or 14 percent, was partly responsible for the mid-summer upturn.<ref name="Rothbard_Depression_1932">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 11. The Hoover New Deal of 1932, p. 285-320, referenced 2009-11-27.</ref>

As the Depression got worse and people lost their confidence in the banks, they decided to take custody of their cash. Seeing people in large numbers pulling their money out of banks — money the banks had promised to provide on demand — President Hoover blasted them for their "traitorous hoarding." He organized an antihoarding drive and delivered a radio address ([http://www.bobsuniverse.com/BWAH/31-Hoover/19320306a.pdf transcript], pdf) in which he pleaded with the public to stop hoarding (i.e., to stop converting their bank deposits into cash).<ref name="Smith_hoarding">George F. Smith. [http://mises.org/story/3707 "The Virtue of Hoarding"], Mises Daily, posted on October 09, 2009, referenced 2009-11-18.</ref>

Nominal paychecks fell much more slowly during the early years of the Great Depression than the general [[price]] level (wholesale prices fell by 10 percent in 1930, by 15 percent in 1931)<ref name="Rothbard_Depression_1931_Europe" /> - and those who kept their job experienced a higher increase in real (inflation-adjusted) wages, than during the Roaring 1920s!<ref name="ohanian"> Lee E. Ohanian, "What - or Who - Started the Great Depression?", ''NBER Working Paper No. 15258'' (August 2009). Free copy online [http://www.econ.ucla.edu/people/papers/Ohanian/Ohanian499.pdf "here"]</ref> And so has unemployment reached record highs during Hoover's first and only term. When FDR went back on the US government's promise to redeem dollars for gold, the Federal Reserve could flood the economy with new dollars, the prices began to rise again. Because wage rates were not allowed to fall to their new, market-clearing level, [[Inflation|inflating]] the currency has paradoxically reduced unemployment.<ref name="Murphy_Depression">Robert P. Murphy. [http://mises.org/story/3778 "The Gold Standard and the Great Depression"], Mises Daily, posted on October 30, 2009, referenced 2009-11-18.</ref>

The Fed has expanded bank reserves in the 1930s. Panicking at the inflationary potential, it doubled the minimum reserve requirements to 20 percent in 1938, sending the economy into a tailspin of credit liquidation. The Fed, ever since that period, has been very cautious about the degree of its changes and changed bank reserve requirements fairly often, but in very small steps, by fractions of one percent.<ref name="Rothbard_Fed_requirements">[[Murray N. Rothbard]]. [http://mises.org/books/fed.pdf "The Case Against the Fed"] (pdf), How the Fed Rules and Inflates, p. 144, referenced 2010-03-23.</ref>

After 1933, Federal Reserve Notes and deposits were no longer redeemable in gold coins to Americans, their gold was confiscated and exchanged for Federal Reserve Notes, which became legal tender; and Americans were stuck in a regime of fiat paper issued by the government and the Federal Reserve.<ref name="Rothbard_Fed_gold">[[Murray N. Rothbard]]. [http://mises.org/books/fed.pdf "The Case Against the Fed"] (pdf), The New Deal and the Displacement of the Morgans, p. 131-132, referenced 2010-05-10.</ref>

===Tax revolt in the USA===
There has been a widespread opposition to real estate taxes in cities across America and some Americans were in fact not paying their taxes. The movement declined quickly, some scholars acknowledge certain influence, but ultimately declare it a failure.<ref name="Beito_revolt">David T. Beito. [http://mises.org/books/taxpayersinrevolt.pdf Taxpayers in Revolt - Tax Resistance during the Great Depression] (pdf), referenced 2010-06-15.</ref> Others consider it a resounding success, however.

President Hoover's massive tax increase bill that passed into law as the [[Revenue Act of 1932]], with many new taxes. The most burdensome taxes for many Americans, however, was the property tax. Property taxes required taxpayers to make an explicit tax payment of significant size from which they could not evade without losing what was often their most significant piece of property and wealth. The property taxes have risen in the decade before the Depression; throughout the 1920s, the general property tax accounted for over 90 percent of taxes levied by all cities over 30,000 in population. One reason for this dependence was that alcohol revenue from sales taxes and licenses had "dried up" due to prohibition. The burden of taxes increased significantly, even if tax rates remained the same. Another source of taxpayer ire was that the real wages of public employees rose nearly 12% between 1929 and 1933.

Tax delinquency increased from its normal rate of 10% to more than 30%. Tax protest organization formed quickly and spontaneously in rural regions in response to tax authorities selling the land of farmers. Estimates placed the number of taxpayer organizations at between 3,000 and 4,000 organizations nationwide.

The tax limitation movement was effective in several states in establishing cuts and limitations on property tax rates. The second success, which was both more important and far less obvious, was the passage of the 21st Amendment that repealed alcohol [[Prohibition in the United States|prohibition]]. The legalization of alcohol sales in most states provided federal, state, and local government with increased tax revenues to offset cuts in property taxes while simultaneously providing a drastic decrease in the price of alcohol and in effect granting the American public a type of tax cut. Income tax revenue fell 60% from 1930 to 1933 placing a severe financial constraint on Congress. The search for an alternative revenue source led to the conversion of F.D.R. from a "dry" to a "wet" and resulted in the 1932 Democratic party platform to call for Repeal in order to provide "a proper and needed revenue." Revenue shortfalls made Repeal possible and the alcohol tax provided 13% of all federal revenue by 1936.<ref name="Thornton_revolt">Mark Thornton and Chetley Weise. [http://mises.org/journals/jls/15_3/15_3_4.pdf The Great Depression Tax Revolts Revisited.] (pdf), Journal of Libertarian Studies, Volume 15, no. 3 (Summer 2001), referenced 2010-06-15.</ref><ref name="Thornton_success_revolt">Mark Thornton and Chetley Weise. [http://mises.org/journals/scholar/Thornton1.PDF The Success of the Great Depression Tax Revolts] (pdf), referenced 2010-06-15.</ref>

==1933, end of Hoover's term==
Seeking reelection, Hoover boasted of his many interventions with the economy. In his acceptance speech for the Presidential renomination he said:
<blockquote>''"We might have done nothing. That would have been utter ruin. Instead, we met the situation with proposals to private business and to the Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic. We put that program in action."''<ref name="Hoover_nomination">Herbert Hoover. [http://americanhistory.about.com/library/docs/blhooverspeech1932.htm "Address Accepting the Republican Presidential Nomination"], August 11, 1932. The address was carried over the National Broadcasting Company and the Columbia Broadcasting System radio networks. This is a transcript taken from a sound recording of the address. Referenced 2010-06-20.</ref></blockquote>

After the election of [[Franklin D. Roosevelt|Roosevelt]], as the new Presidential term approached, dark rumors circulated about the radicalism of Roosevelt’s advisers, and of their willingness to go off the [[gold standard]]. Consequently, not only did gold "hoarding" by foreigners develop momentum, but even gold hoarding by domestic citizens. For the first time in the depression, American citizens were beginning to lose confidence in the dollar itself. The loss of confidence reached its apogee in February, 1933, the month before the Roosevelt inaugural. In that one month, the monetary gold stock fell by $173 million, and money in circulation increased by the phenomenal amount of $900 million, the reflection of domestic loss of confidence. Money in circulation totaled $5.4 billion at the end of January, and $6.3 billion by the end of February. $700 million of this increase was in Federal Reserve notes, and $140 million in gold coin and gold certificates.

The Federal Reserve did its best to combat this deflationary pull on bank reserves, but its inflationary measures only served to diminish confidence in the dollar still further. Total money supply fell from $64.72 to $61.61 billion over 1933, and all or more of this fall took place in the first half of the year. Bank failures skyrocketed during this period. The number of commercial bank failures increased from 1,453 in 1932 to 4,000 in 1933 (most of which took place in the first quarter).

The reaction to this growing insistence of the people on claiming their rightful, legally-owned property, was a series of attacks on property rights by state after state. One by one, states imposed "bank holidays" by fiat, permitting the banks to stay in business while refusing to pay virtually all of the just claims of their depositors. The bank holiday movement began in earnest with the proclamation of an eight-day holiday on February 14, 1933, by Governor William Comstock of Michigan. This precipitated the bank runs and deflation of the latter part of February and depositors began an intense scramble to take their money out of the banks. Many national banks, which had worked hard to keep themselves in an at least relatively sound position, did not want to use the special privilege of bank holiday, and had to be coerced into doing so.

By March 4, every state in the Union had declared a bank holiday, and the stage was set for President Roosevelt’s dramatic and illegal closing of all the banks. President Roosevelt closed down all the banks throughout the nation for an entire week, from March 6 to 13, with many banks remaining closed even longer. Restrictions against so-called "hoarding" were continued afterward, and much hoarded gold returned to the banks following a Federal Reserve threat to publish a list, for full public scorn, of the leading "gold hoarders."

Mr. Hoover left office in March, 1933, at the very depth of the greatest depression in American history. Production had fallen by more than one-half: industrial production had been at an index of 114 in August, 1929, and then fell to 54 by March, 1933. Unemployment was persisting at nearly 25 percent of the labor force, and gross national product had also fallen almost in half. Hardest hit was investment, especially business construction, the latter falling from about $8.7 billion in 1929 to $1.4 billion in 1933. The index of non-durable manufacturing production fell from 94 to 66 from August, 1929, to March, 1933—a decline of 30 percent; the index of durable manufactures fell from 140 to 32, in the same period, a decline of 77 percent. In durable goods industries (e.g., building, roads, metals, iron and steel, lumber, railroad, etc.) it was estimated that their total employment fell from 10 million in 1929 to 4 million in 1932–1933, while employment in consumer goods industries (e.g., food, farming, textiles, electricity, fuel, etc.) only fell from 15 million to 13 million in the same period. Stock prices (industrials) fell by 76 percent during the depression, wholesale prices fell by 30 percent, and the total money supply declined by one-sixth.

Wage rates were kept very high during the first two years of the depression. By 1932, however, with profits wiped out, the pressure became too great, and wage rates fell considerably. Total fall over the 1929–1933 period, however, was only 23 percent - less than the decline in wholesale prices. Therefore, real wage rates, for the workers still remaining employed, actually increased. While real average hourly earnings rose, actual hours worked in industry fell drastically during the depression. Weekly hours averaged over 48 in 1929, and fell to less than 32 by mid-1932. In no previous depression had hours worked fallen by more than 10 percent. This was a form of reduced employment caused by the high-wage policy. As a result, average weekly earnings fell by over 40 percent during the depression, and real weekly earnings fell by over 30 percent. But hardest hit were the unemployed, the percentage of whom rose to 25 percent by 1932–1933, and reached 47 percent in selected manufacturing industries. The fall in man-hours combined with the fall in average hourly earnings caused a truly precipitate drop in total factory payrolls - the base of the very "purchasing power" that the policy was supposed to sustain.<ref name="Rothbard_Hoover_End">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 12. The Close of the Hoover Term, p. 321-337, referenced 2010-06-20.</ref>

==The New Deal==
===Roosevelt's Campaign===
Under the Democratic platform of 1932, which Franklin D. Roosevelt endorsed, contained several subsidies and regulations, but it hardly embraced the enormous expansion in federal power that FDR would achieve. The very first plank called for "an immediate and drastic reduction of governmental expenditures by abolishing useless commissions and offices, consolidating departments and bureaus, and eliminating extravagance to accomplish a saving of not less than twenty-five per cent in the cost of the Federal Government."<ref name="Woolley_Dem_1932">John T. Woolley and Gerhard Peters. [http://www.presidency.ucsb.edu/ws/index.php?pid=29595 "Democratic Party Platform of 1932"], June 27, 1932, from The American Presidency Project [online]. Referenced 2010-06-20.</ref> Subsequent planks demanded a balanced budget, a low tariff, the repeal of Prohibition, "a sound currency to be preserved at all hazards," "no interference in the internal affairs of other nations," and "the removal of government from all fields of private enterprise except where necessary to develop public works and natural resources in the common interest." The document concluded with a quote from Andrew Jackson: "equal rights to all; special privilege to none."

FDR's campaign reflected that platform. He accused Herbert Hoover of "reckless and extravagant spending," and he further denounced the Republican incumbent for believing "we ought to center control of everything in Washington as rapidly as possible." Even when he called for interventions in the economy, he generally couched his words in the old liberals' language of equal treatment rather than the new liberals' vision of enlightened central planning. In his famous Forgotten Man speech of April 1932 (see [http://newdeal.feri.org/speeches/1932c.htm transcript]), the Democratic candidate pointed to the wave of foreclosures sweeping the nation. Noting that Hoover had created a "two billion dollar fund...put at the disposal of the big banks, the railroads and the corporations of the Nation," FDR averred that the government should "provide at least as much assistance to the little fellow as it is now giving to the large banks and corporations." Once in office, the new administration did indeed repeal Prohibition, and it eventually lowered some trade barriers as well. By the time of FDR's death, the federal bureaucracy's power had grown so enormously that Hoover was widely remembered as the last apostle of laissez faire.<ref name="Walker_FDR">Jesse Walker. [http://reason.com/archives/2008/04/10/the-new-franklin-roosevelts "The New Franklin Roosevelts"], April 10, 2008. Referenced 2010-06-20.</ref>

===Policy===
A principal feature of '''[[New Deal]]''' economic policy was government-sponsored industrial [[cartel]]s (the [[National Recovery Act]]); agricultural cartels (the [[Agricultural Adjustment Act]]); and labor cartels (the [[Norris – La Guardia Act|Norris-LaGuardia]] and [[National Labor Relations Act|Wagner Acts]]). The purpose of any cartel is to restrict output and raise prices. Lower levels of production leads to higher unemployment, which is exactly what the NRA and AAA did.

The NRA was almost identical to the Italian corporatist system that existed at the time. In Italy each trade or industrial group was organized into a government-controlled "corporative" association that had the power to plan production and pricing. In the U.S. the NRA organized each industry into federally-supervised trade associations called "Code Authorities" which could also limit output and set prices. The antitrust laws were explicitly set aside.

Over 700 industrial codes were created and were rigorously enforced by thousands of government code enforcers who, "could enter a man's factory, send him out, line up his employees, subject them to minute interrogation, take over his books on the instant." A hapless New Jersey tailor named Jack Magid became nationally famous after he was arrested, convicted, and imprisoned by the code police for the "crime" of pressing a suit of clothes for 35 cents when the Tailors' Code fixed the price at 40 cents. The NRA was ruled unconstitutional by the U.S. Supreme Court on May 27, 1935.<ref name="DiLorenzo_New_Deal">Thomas J. DiLorenzo. [http://mises.org/daily/55 "A New, New Deal"], Mises Daily, October 1998, referenced 2010-06-20.</ref> A study of the Act noted that "the licensing provision, giving the president the power of life or death over business enterprises, is the ultimate weapon of enforcement and the capstone of the powers granted to the president ... the most extraordinary extension of presidential power in American history." The Supreme Court's decision has noted, that 'fair competition' is not defined in the law and could be a convenient designation for whatever set of laws that is proposed and the president may approve. It ruled that NIRA was "an unconstitutional delegation of legislative power."

But after [[Judiciary Reorganization Bill of 1937|Roosevelt's court-packing threat]] of 1937, the justices succumbed to whatever creative definition of fairness that Congress or federal agencies chose to proclaim. For instance, in 1942, Congress passed the Emergency Price Control Act, which created an Office of Price Administration. The OPA had sweeping power to set or strike down prices in any industry or activity that it considered to be "defense-related" — a vague term that could have encompassed practically the entire national economy. The act contained no substantive guidelines for the administrator's decisions but merely required prices that "in his judgment will be generally fair and equitable."<ref name="Bovard_Cuttthroat">James Bovard. [http://www.fff.org/freedom/0499d.asp "Cutthroat Competition and Dead Chickens"], The Future of Freedom Foundation, April 1999. Referenced 2010-06-20.</ref>

===Effects===
The Roosevelt administration also orchestrated various price-fixing schemes in labor markets, principally for the benefit of unions. Payroll taxes to finance Social Security and Unemployment Insurance programs increased employers' wage bills even further, which also reduced the level of employment. According to an econometric estimate, government-mandated payroll cost increases added nearly 1.2 million people to the unemployment rolls by 1938.

The unemployment rate during the 1933-1940 period averaged about 18% and was as high as 28.3% in March of 1933. By the end of 1938, on the eve of World War II, the U.S. unemployment rate still hovered at just over 18 percent and was higher than it was in 1933, President Franklin D. Roosevelt's first year in office. This occurred despite (or rather, because of) six years of unprecedented levels of government intervention into the U.S. economy. The American recovery was slower than in most European nations; by 1937 Great Britain's unemployment rate had declined to 10.3 percent.

Herbert Hoover's [[Reconstruction Finance Corporation]] was greatly expanded by Roosevelt, but its effect was to make capital markets less efficient, thereby prolonging the Depression even further. As explained by RFC director Jesse Jones in his autobiography, ''Fifty Billion Dollars'', "The law specified that we should lend only where the borrower could not get the money from others on reasonable terms." That is, only to uncreditworthy borrowers. Guided by this directive, Jones and the RFC redirected billions of dollars in valuable capital to politically-connected but economically-questionable businesses. "We even loaned money to [the owners of] a drove of reindeer in Alaska," Jones boasted. The RFC was abolished in the 1955 under a cloud of corruption and scandal.

Roosevelt's public works programs may have been an economic failure, but they were a resounding political success as they provided virtually unlimited opportunities for political patronage. In 1939 a special U.S. Senate Committee on Campaign Expenditures investigated the programs and found that in many states workers were required to sign a pledge to vote Democratic and, in some cases, to make campaign contributions, as a condition of employment. Businesses that sold supplies to the government were in some places required to make campaign contributions to the Democratic party in return for the contracts. The New Deal was largely a legalized [[Extortion|shake-down]] operation.<ref name="DiLorenzo_New_Deal" /><ref name="Anderson_WPA">William L. Anderson. [http://mises.org/daily/3921 "The Curse of Good Government"], Mises Daily, December 2009, refers to the spending of New Deal money. Referenced 2010-06-20.</ref>

Roosevelt's billions, adroitly used, had broken down every political machine in America. The patronage they once lived on and the local money they once had to disburse to help the poor was trivial compared to the vast floods of money Roosevelt controlled. And no political boss could compete with him in any county in America in the distribution of money and jobs.<ref name="Flynn_Roosevelt">John T. Flynn. [http://mises.org/books/rooseveltmyth.pdf "The Roosevelt Myth"] (pdf), p. 65; 1948. Referenced 2010-06-21.</ref>

As Henry Morgenthau, the secretary of the treasury and one of the most powerful men in America, said before the Democrats on the House Ways and Means Committee in 1939<ref name="Folsom_spending">Burton Folsom Jr. [http://search.barnesandnoble.com/New-Deal-or-Raw-Deal/Burton-Folsom-Jr/e/9781416592228#EXC "New Deal or Raw Deal?: How FDR's Economic Legacy Has Damaged America"], an excerpt from the book. Referenced 2010-06-21.</ref>:

<blockquote>''"We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong...somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises....I say after eight years of this Administration we have just as much unemployment as when we started....And an enormous debt to boot!"''</blockquote>

==During World War II==
The recovery from the Great Depression in the United States is usually associated with the advent of World War II, a period when real GDP appeared to increase phenomenally and the rate of unemployment fell almost to zero. A more detailed view produces a different picture, with large government "make-work" programs at first and military employment during the war - but a very slow actual recovery. When using hours worked as measure of employment, only in 1941 total work hours exceed the 1929 value (by 3 percent), with the population vigorously engaged in mobilization for war.<ref name="Higgs_hours">Robert Higgs. [http://www.independent.org/pdf/tir/tir_14_01_8_higgs.pdf "A Revealing Window on the U.S. Economy in Depression and War - Hours Worked, 1929–1950"] (pdf), The Independent Review, v. 14, n.1, Summer 2009. Referenced 2010-06-21.</ref>

Private [[investment]] has fallen significantly. Gross private investment plunged from almost 16 percent of GDP in 1929 to less than 2 percent in 1932; recovered to 13 percent in 1937 before falling again in the recession of 1938; and as late as 1941 stood at only 14 percent. During the war years, private investment ratios ranged from 3 to 6 percent. From 1946 through 1950 they ranged from 14 to 19 percent and averaged 16 percent — the same as in 1929. In 1929, when gross private investment was $16.2 billion, net investment was $8.3 billion. Net investment fell precipitously to $2.3 billion in 1930 and then became negative during each of the following five years. For the eleven-year period of 1930 to 1940, net private investment totaled minus $3.1 billion. Only in 1941 did net private investment ($9.7 billion) exceed the 1929 amount. During the 1930s, private investment remained at depths never plumbed in any other decade for which data exist.

One hypothesis is, that the New Deal prolonged the Great Depression by creating an extraordinarily high degree of '''[[regime uncertainty]]''' for the investors. Given the unparalleled outpouring of business-threatening laws, regulations, and court decisions, the oft-stated hostility of President Roosevelt and his lieutenants toward investors as a class, the political climate could hardly have failed to discourage some investors from making long-term commitments. There also exists a great deal of direct evidence that investors felt extraordinarily uncertain about the future of the property-rights regime between 1935 and 1941. Historians have recorded countless statements by contemporaries to that effect; in the years just before the war most business executives expected substantial weakening of private property rights ranging up to "complete economic dictatorship". The possibility that the United States might undergo an extreme regime shift seemed to many investors in the late 1930s and early 1940s not only possible but likely.<ref name="Higgs_investment">Robert Higgs. [http://www.independent.org/pdf/tir/tir_01_4_higgs.pdf "Regime Uncertainty - Why the Great Depression Lasted So Long and Why Prosperity Resumed after the War"] (pdf), The Independent Review, Vol, I, No. 4, Spring 1997. Referenced 2010-06-21.</ref><ref name="Higgs_China">Robert Higgs. [http://www.independent.org/blog/index.php?p=2620 "Regime Uncertainty in the 1930s: A New Deal Insider’s Account"], ''The Beacon'', blog of the The Independent Institute, Jun 29, 2009. Referenced 2010-08-15.</ref>

==See also==

* [[Austrian Business Cycle Theory]]

==References==
{{Reflist|2}}

==External links==
* [http://www.lewrockwell.com/gordon/gordon-gd-biblio.html Bibliography on the Great Depression] by David Gordon, 2009
* [http://mises.org/daily/3941 The Myth that Is FDR] by Garet Garrett, January 2010
* [http://mises.org/daily/4350 Did Hoover Really Slash Spending?] by Robert P. Murphy, May 2010
* [http://www.ameshistoricalsociety.org/exhibits/events/rationing.htm World War II Rationing], collected by the Ames Historical Society and the [[Wikipedia:Rationing|Wikipedia]] article on the same
* [http://www.mackinac.org/article.aspx?ID=4028 Free Markets or Free Lunches?] by Lawrence W. Reed, January 1998
* [http://www.mackinac.org/article.aspx?ID=4013 Great Myths of the Great Depression] by Lawrence W. Reed, January 1998
* [http://mises.org/daily/3778 The Gold Standard and the Great Depression] by Robert P. Murphy, October 2009
* [http://mises.org/daily/1623 The New Deal Debunked (again)] by Thomas J. DiLorenzo, September 2004
* [http://www.independent.org/newsroom/article.asp?id=138 Wartime Prosperity? A Reassessment of the U.S. Economy in the 1940s] by Robert Higgs, March 1992
* [http://mises.org/daily/3661 My Summer Reading: Hyper-Inflation in Weimar Germany] by Ralph Fucetola, September 2009 (notes that the crisis was seen as insignificant at the beginning)
* [http://mises.org/journals/qjae/pdf/qjae11_3_5.pdf The Great Depression: Mises vs. Fisher] (pdf) by Mark Thornton, November 2008
* [http://www.thefreemanonline.org/featured/the-depression-youve-never-heard-of-1920-1921/ The Depression You’ve Never Heard Of: 1920-1921] by Robert P. Murphy, December 2009
* [http://mises.org/daily/3866 Reliving the Crash of '29] by Murray N. Rothbard, first published in November 1979
* [http://mises.org/daily/4039 Dangerous Lessons of 1937] by Jonathan M. Finegold Catalan, February 2010
* [http://mises.org/daily/4797 The Real Reason for FDR's Popularity] by Mark Thornton, October 2010
* [[Wikipedia:Great Depression|Great Depression]] on Wikipedia

[[Category:History of the United States]]
[[Category:Financial crises]]

Great Depression

2011-03-28T18:25:33Z

Daniel Hewitt: /* 1931, "The Tragic Year" */ add refs

{{RightTOC}}
The '''Great Depression''' was the longest and most severe economic depression ever experienced by the Western world.<ref name="Britannica_debt">Encyclopædia Britannica. [http://www.britannica.com/EBchecked/topic/243118/Great-Depression "Great Depression"], Encyclopædia Britannica Online, referenced 2010-06-12.</ref>

==Prelude==
In the forty years 1890 to 1930, the population of the United States doubled, the value of farm property increased three and a half times, pig iron production four and a half times, exports five times, coal production five times, and freight traffic five and a half times, but commercial bank deposits increased over seventeen and a half times. Thus, while the gold stock had increased proportionally with the increase of industrial production, the expansion in bank credit had far outstripped both and had thus been at the expense of a thinning gold reserve. The monetary gold stock available to support and redeem this tremendous amount of bank liabilities that was being created, which had been 25.3 per cent of total note and deposit liabilities of banks in 1865, and 23.9 per cent in 1880, steadily dropped under the pressure of the public upon the banking interest for more and more credit, standing in 1900 at 20.4 per cent, in 1910 at 14.2 per cent and in 1930 at 10.4 per cent. Such had been the diminution of reserves that by the decade 1920-1930, banking was being conducted "on a shoestring." In 1900 the ratio of vault cash to deposit liabilities of commercial banks had dropped to 14.8 per cent, and in 1910 to 12.7 per cent—vault cash in those years being respectively $706,302,000 and $1,366,164,000.<ref name="Groseclose_Money">Elgin Groseclose. [http://mises.org/resources/3138/Money-and-Man Money and Man], 1934, p.209-210. Referenced 2011-03-24.</ref>

From June 1914 to January 1920, when [[Demand deposits|demand deposits]] grew by 96.9 percent, [[Time deposits|time deposits]] rose by 126.1 percent. In the great boom of the 1920s, that started after the [[Depression of 1920–21|recession of 1920–21]] (a short recession, thanks to the budget cutting and lowering of taxes by [[Warren Harding]]<ref name="Woods_Harding">Thomas E. Woods, Jr. [http://www.firstprinciplesjournal.com/articles.aspx?article=1322&theme=home&loc=b "Warren Harding and the Forgotten Depression of 1920"], First Principles, Fall 2009 issue of The Intercollegiate Review. See also the [http://www.youtube.com/watch?v=czcUmnsprQI video]. Referenced 2009-10-11.</ref>), total demand deposits rose from 1921 to 1929 by 36.5 percent. Time deposits in banks expanded in the same period by 75.9 percent. The great boom of the 1920s (also called "[[Roaring Twenties]]") was largely fueled by credit expansion going into time deposits. The greatest expansion of time deposits came in Central Reserve Cities (New York and Chicago), where the [[Federal Reserve System|Fed]]’s open market operations were all conducted, as opposed to Reserve Cities and Country Banks. As acknowledged by Federal Reserve officials, time or savings deposits were then, for all practical purposes, equivalent to demand deposits and should be paid on demand in case of a run on a bank.

With the passage of the [[Federal Reserve Act]], [[Woodrow Wilson|President Wilson]] appointed [[Benjamin Strong, Jr.|Benjamin Strong]] to the most powerful post in the Federal Reserve System, Governor of the [[Reserve Bank of New York|Federal Reserve Bank of New York]]. He made quickly this position dominant in the System and decided on Fed policy without consulting or even against the wishes of the Federal Reserve Board in Washington. Strong was the dominant leader of the Fed from 1914 until his death in 1928. He pursued an inflationary policy, to finance the war effort for [[World War I|WWI]], connected to the interests of the [[J.P. Morgan & Co.|House of Morgan]]. Another motivation was the attempt to prop up the [[Bank of England]] in the 1920s, when it returned to the [[gold standard]] with an overvalued pound. To prevent the loss of gold to the States, its governor [[Montagu Norman, 1st Baron Norman|Montagu Norman]] secretly convinced Strong to inflate in order to help England. The expansion ended only after Strong's death and the '''Great Depression''' followed soon after. In 1928 Strong admitted that "very few people indeed realized that we were now paying the penalty for the decision which was reached early in 1924 to help the rest of the world back to a sound financial and monetary basis" - that is, to help Britain maintain a phony and inflationary form of gold standard.<ref name="Rothbard_Federal_Reserve">[[Murray N. Rothbard]]. [http://mises.org/books/mysteryofbanking.pdf "The Mystery of Banking"] (pdf), Chapter XVI: Central banking in the United States IV: The Federal Reserve System, p.235-246, referenced 2009-10-03.</ref>

The inflation was also motivated by a desire to help American exporters (particularly farmers), by stimulation of foreign lending. At the same time the U.S. turned to a sharp protectionist policy with the [[Fordney–McCumber Tariff]] of 1922. In the foreign lending boom, other countries were hampered in trying to sell their goods to the United States, but were encouraged to borrow dollars. The government did not have any peacetime authority to interfere with loans, but did so illegally. In 1921, President [[Warren G. Harding|Harding]] and his cabinet conferred with several American investment bankers, at the instigation of Secretary of Commerce [[Herbert Hoover|Hoover]], to be informed in advance of foreign loans, so that the government "might express itself regarding them". The bankers agreed. Hoover commented that even bad loans helped American exports and provided a cheap form of relief and employment. Later Hoover demanded from bankers, that foreign loans would be inspected by agents of the [[Department of Commerce]]. Both requests were mostly ignored. While admitted to be legally unenforceable, it was all in the name of "national interests".<ref name="Rothbard_pre_Depression">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 5. The Development of the Inflation, p. 137-167, referenced 2009-11-17.</ref>

{{See also|Federal Reserve System}}

===Housing bubble===
An outlet for the excessive credit created by the banking system was in financing an urban real estate boom in the U.S. During the decade 1920-1930, people were moving in a constant stream into the cities; the population of the sixty-three metropolitan zones (cities of 100,000 or more plus adjacent counties) rose from 46,491,000 to 59,118,000, or from 44 per cent of total population to 48 per cent. Seventy-four per cent of the increase in total population during the decade occurred in the metropolitan areas.

A huge building boom followed, the Federal Reserve Board index of building contracts awarded, 1923-1925 taken as 100, rising from 63 in 1920 to 122 in 1925, and 135 in 1928. This boom occurred chiefly in skyscraper offices and expensive apartment house developments, whose notes were more readily marketable, rather than in the modest single family accommodations. The result was that when the era had passed the slums still existed. In New York City, for instance, where at least four skyscrapers were built in these years with the only object, apparently, of surpassing the record for the world's tallest building, from a quarter to a third of the population, say 1,800,000 persons, still occupied houses that had been outlawed thirty-three years earlier by the Tenement House Act of 1901.<ref name="Groseclose_Money">Elgin Groseclose. [http://mises.org/resources/3138/Money-and-Man Money and Man], 1934, p.225, 244. Referenced 2011-03-24.</ref>

==The Crash==
{{Main|Wall Street Crash of 1929}}
The great boom of the 1920s began around July, 1921, after a year or more of sharp recession, and ended about July, 1929, when the production and business activity began to decline, although the [[Wall Street Crash of 1929|famous stock market crash]] came in October of that year. [[Herbert Hoover]], an avid proponent of interventionism became President. Characteristic for him were "voluntary" measures that the government desired, with the implicit threat that if business did not "volunteer" properly, compulsory controls would soon follow.<ref name="Rothbard_1920s_boom">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 5. The Development of Hoover's Interventionism: Unemployment, p. 188-189, referenced 2009-11-20.</ref>

After the stock-market crash, Hoover began a series of conferences with big business and labor leaders, telling them that cutting wage rates (the standard response in previous depressions) would be disastrous, because then the workers wouldn't make enough to buy the products.<ref name="Hoover 11-15-29 NC">John T. Woolley and Gerhard Peters, ''The American Presidency Project'' [online]. Santa Barbara, CA. Available from World Wide Web: http://www.presidency.ucsb.edu/ws/?pid=22005.</ref> This "liquidation" of labor would only deepen the depression by reducing their "purchasing power". Leading industrialists pledged to maintain wage rates, expand construction, and share any reduced work,<ref name="Hoover CC remarks">John T. Woolley and Gerhard Peters, ''The American Presidency Project'' [online]. Santa Barbara, CA. Available from World Wide Web: http://www.presidency.ucsb.edu/ws/?pid=22023.</ref> to fulfill Hoover's request that "the first shock must fall on profits and not on wages".<ref name="hoover44">Herbert Hoover, ''The Memoirs of Herbert Hoover: The great depression, 1929-41'', (New York: Macmillan, 1952) 44-45.</ref>

At the same time, the Federal Reserve expanded rapidly and lowered its interest rates. Its member banks expanded their deposits in the last week of October 1929 alone by 10%, mostly in New York. Hoover praised the Fed for the saving of shaky banks and restoring confidence.<ref name ="Hoover CC remarks" /> The depression should be over in a few months. A large public works program was also initiated.<ref name="Rothbard_public_works">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 8. The Depression Begins: President Hoover Takes Command, p. 209-217, referenced 2009-11-21.</ref><ref name="Hoover 1-3-20">John T. Woolley and Gerhard Peters, ''The American Presidency Project'' [online]. Santa Barbara, CA. Available from World Wide Web: http://www.presidency.ucsb.edu/ws/?pid=22468.</ref>

Hoover promised the farm bloc to support farm cooperatives and prices and established the [[Federal Farm Board]] (FFB). It would make all-purpose loans to farm cooperatives at low interest rates and establish "stabilization corporations" to control farm surpluses and bolster farm prices. Its board was dominated by representatives of these farm cooperatives. To combat falling prices, it made loans to farmers to keep wheat and cotton off the market and later started to buy the surpluses. For a while, prices were held up and farmers increased production, only to find that prices would fall even more. As America held wheat off the market, it lost its former share of the world’s wheat trade. The farmers were urged to decrease their acreage, while the government still promoted reclamation projects to increase farm production. The surpluses of wheat accumulated and prices fell to such a degree, that the FFB decided to dump wheat stocks abroad, resulting in a drastic fall in market prices. The attempts to keep up the price of cotton, wool, livestock, etc. failed as well. A "[[Farmers' Holiday Association|Farm Holiday]]" was declared to stop production, The movement soon turned to violence and failed to stop the falling farm prices. but succeeded to avoid some foreclosures of its members.<ref name="Rothbard_Agriculture">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), The New Deal Farm Program, p. 217-237, referenced 2009-11-21.</ref>

In 1930, the [[Smoot–Hawley Tariff Act|Smoot–Hawley Tariff]] was passed, despite objections of many economists and industrial leaders. Hoover originated a higher tariff on agricultural products to help farmers, but it was raised on many other products. Many other countries have retaliated with their own tariffs and foreign trade declined significantly. (From 1929 to 1932, U.S. imports from Europe decreased from $1,334 million to just $390 million, while U.S. exports to Europe decreased from $2,341 million to $784 million. Overall, world trade decreased by some 66% between 1929 and 1934.<ref>U.S. Department of State. [http://future.state.gov/when/timeline/1921_timeline/smoot_tariff.html Smoot-Hawley Tariff], referenced 2009-11-22.</ref>) Also, to relieve the unemployment problem, and to help keep wage rates up, the President effectively banned further immigration into the United States.<ref name="Rothbard_Depression_1930">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 9. 1930, p. 239-256, referenced 2009-11-22.</ref>

===In Europe===
In Europe, the crisis began in earnest with the ''Boden–Kredit Anstalt'', the most important bank in Austria and Eastern Europe. It had to merge with the [[Creditanstalt|Oesterreichische–Kredit–Anstalt]] after rescue attempts by its government and other banks. When Austria declared a customs union with Germany in March 1931, the French government feared this development and several French banks suddenly insisted on redemption of their debts from both countries. The bank collapsed. After more rescue attempts has the Austrian Government voted a $150 million guarantee to the bank, but the its credit was by the time worthless, and Austria soon declared national bankruptcy by going off the gold standard. Later, Germany, England, and most other European countries renounced their obligations and went off the gold standard as well. While the impact on United States was not very large due to the lowered international trade, it certainly did not help, neither did the many loans granted to prop up foreign banks.<ref name="Rothbard_Depression_1931_Europe">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 10. 1931—"The Tragic Year", p. 257-284, referenced 2009-11-27.</ref>

==1931, "The Tragic Year"==
The crisis worsened in the US in 1931. Production continued to fall drastically, as did prices and foreign trade, and unemployment ran up to almost 16 percent of the labor force. The Federal Reserve Board (FRB) index of manufacturing production, which had been 110 in 1929 and 90 in 1930, fell to 75 in 1931. Hardest hit, in accordance with Austrian [[ABCT|cycle theory]], were producers’ goods and higher order [[capital]] goods industries, rather than the consumer goods’ industries. Despite attempts to inflate, bank deposits and the aggregate [[money supply]] fell sharply, particularly at the end of the year. The British abandoning of the gold standard, bank failures abroad and the growing number of failures at home, caused a growing loss of confidence by Americans in their banking system. The wages were also beginning to fall, first secretly, then openly by the end of 1931.<ref name="Time 4-13-31p">"[http://www.time.com/time/magazine/article/0,9171,752764,00.html "THE PRESIDENCY: The Pledge"], ''TIME,'' April 13, 1931.</ref><ref name="Time 4-13-31i">[http://www.time.com/time/magazine/article/0,9171,752766,00.html "INDUSTRY: Next: Wages?"], ''TIME,'' April 13, 1931.</ref>

The gross national product fell from $91.1 billion in 1930, to $76.3 billion in 1931. Total government receipts fell from $13.5 billion to $12.4 billion, but total government expenditures rose from $13.9 billion to $15.2 billion, in federal, rather than state and local, spending (federal expenditures rose from $4.2 billion in 1930 to $5.5 billion in 1931). In the middle of a great depression when people needed to be relieved of governmental burdens, the dead weight of government rose from 16.4 percent to 21.5 percent of the gross private product. From a modest surplus in 1930, the Federal government so ran up a huge $2.2 billion deficit in 1931.<ref name="Rothbard_Depression_1931_Europe" />

Direct relief was just about the one sphere where President Hoover seemed to prefer voluntary to governmental action. The [[Red Cross]] opposed a bill, in early 1931, that would grant it $25 million for relief, declaring that it would "to a large extent destroy voluntary giving". Many private charity organizations, philanthropists, and social workers had the same views. Governmental unemployment relief was seen to have a role in creating and perpetuating unemployment in Britain (the "dole"). It was attacked by many business leaders, including [[Henry Ford]], the leaders of the [[National Association of Manufacturers]] and the [[United States Chamber of Commerce|Chamber of Commerce]], and former President [[Calvin Coolidge|Coolidge]].<ref name="Rothbard_Depression_1931_Europe" />

The [[Davis-Bacon Act]] was signed by President Hoover in 1931. It mandated that prevailing (union) wages be paid by the Federal Government for public works projects. It has been argued that the Davis-Bacon Act was a [[Jim Crow law]], since its intent <ref name=”williams”>Walter Williams, [http://www.jewishworldreview.com/cols/williams031203.asp "Congress' insidious discrimination"], ''Jewish World Review'' (March 12, 2003), accessed 2011-02-01.</ref> and its effect <ref name=”cato”> David Bernstein, [http://www.cato.org/pubs/briefs/bp-017.html "The Davis-Bacon Act: Let's Bring Jim Crow to an End"], ''Cato Institute Briefing Papers'' (January 18, 1993), accessed 2011-02-01.</ref> was to prevent lower-paid, non-unionized black laborers from competing against higher-paid, unionized white laborers. Hoover promoted and supported the legislation, as he believed that "[t]he very essence of great production is high wages...because it depends upon a widening range of consumption only to be obtained from the purchasing power of high real wages...." <ref name="hoover108">Herbert Hoover, ''The Memoirs of Herbert Hoover: Volume 2, The Cabinet and the Presidency, 1920-33'', (New York: Macmillan, 1952) 108.</ref>

==1932, The Hoover New Deal==
In an atmosphere of crisis, President Hoover called for more drastic measures, including more government aid and loans. With a $2 billion deficit during annual year 1931, Hoover felt that he had to do something to combat it and chose to increase the taxes. The [[Revenue Act of 1932]] was one of the greatest increases in taxation ever enacted in the United States in peacetime. Many wartime
excise taxes were revived, sales taxes were imposed on gasoline, tires, autos, electric energy, malt, toiletries, furs, jewelry, and other articles; admission and stock transfer taxes were increased; new taxes were levied on bank checks, bond transfers, telephone, telegraph, and radio messages; and the personal income tax was raised drastically as follows: the normal rate was increased from a range of 1½ percent–5 percent, to 4 percent–8 percent; personal exemptions were sharply reduced, and an earned credit of 25 percent eliminated; and surtaxes were raised enormously, from a maximum of 25 percent to 63 percent on the highest incomes. Furthermore, the corporate income tax was increased from 12 percent to 13: percent, and an exemption for small corporations eliminated; the estate tax was doubled, and the exemption floor halved; and the gift tax, which had been eliminated, was restored, and graduated up to 33⅓ percent. The postal rates were raised as well.

Despite the drastic increase in tax rates, total Federal revenue for 1932 declined because of the deepened depression—itself partly caused by the increase in tax rates. Total Federal receipts, excluding government enterprises, declined from $2.2 billion in 1931 to $1.9 billion in 1932; including government enterprises, Federal receipts fell from $3.4 billion to $3 billion.

Total government receipts fell from $12.4 billion to $11.5 billion. As a result, the huge Federal deficit continued despite a drop in government expenditures in 1932: Federal expenditures falling from $5.5 billion to $4.4 billion, and aggregate government expenditures falling from $15.2 billion to $13.2 billion (all numbers including government enterprises). Of the $1.7 billion in total government deficit, the bulk of it — $1.4 billion — was in the Federal government account. The state and local governments were forced to cut back their expenditures to near the level of their dwindling receipts. One of the most ominous projects for Federal spending during 1932 was a Congressional move for a huge $2 billion veterans bonus, to be financed by an issue of new currency. It was its final defeat in the Senate in June that did most to defeat a general clamor for much larger government spending.

Meanwhile, however, President Hoover himself was beginning to have doubts about one of his favorite policies: public works. In a conference at the end of February, Hoover admitted that his public works program, which had nearly doubled Federal construction since the start of the depression, had failed. It was very expensive, costing over $1200 per family aided, it was unavailable to the needy in remote regions and to those who were unable to perform such labor, which was, after all, unskilled make-work. By May, Hoover had openly reversed his earlier position. As a result, Federal public works only increased by $60 million in 1932, to reach the $333 million mark. Public works was not to come really to the fore again until the Roosevelt administration.

Holding firm to his interventionist belief that the downward pressure on wages must be resisted <ref name ="hoover108" />, Hoover signed the [[Norris-Laguardia Act]] into law on March 23, 1932. It banned "yellow-dog" contracts, removed federal courts’ authority to issue injunctions against labor disputes, and provided greater ease for workers to organize<ref name="enotes">[http://www.enotes.com/major-acts-congress/norris-laguardia-act "Norris-Laguardia Act (1932): Major Acts of Congress"], accessed 2011-02-01.</ref>; a landmark victory for organized labor.

If Hoover eagerly embraced other forms of [[intervention]], he gave ground but grudgingly on one issue where he had championed the voluntary approach: direct relief. Governor [[Franklin D. Roosevelt]] of New York led the way for state relief programs in the winter of 1931–1932, and he induced New York to establish the first state relief authority: the Temporary Emergency Relief Administration, equipped with $25 million. Other states followed this lead, and a bill was introduced for a $500 million federal relief program. The bill was defeated, but, with depression deepening and a Presidential election approaching, the administration all but surrendered, passing the [[Emergency Relief and Construction Act]] of July, 1932 — the nation’s first Federal relief legislation. All in all, total public relief in 120 of the nation’s leading urban areas amounted to $33 million in 1929, $173 million in 1931, and $308 million in 1932.

One thing Hoover was not reticent about: inflation. The administration first cleared the path for the program by passing the [[Glass–Steagall Act]] in February, which (a) greatly broadened the assets eligible for rediscounts with the Fed, and (b) permitted the Federal Reserve to use government bonds as collateral for its notes, in addition to commercial paper. At the end of February, 1932, total bank reserves had fallen to $1.85 billion. At that point, the [[Federal Reserve System|FRS]] launched a gigantic program of purchasing U.S. government securities. By the end of 1932, total reserves had been raised to $2.51 billion. This enormous increase of $660 million in reserves in less than a year is unprecedented in the previous history of the System. If the banks had kept loaned-up, the money supply of the nation would have increased by approximately $8 billion. Instead, the money supply fell by $3.5 billion during 1932, from $68.25 to $64.72 billion at the end of the year, and with the bank deposit component falling by $3.2 billion. Until the second quarter of 1932, the nation’s banks had always remained loaned up, with only negligible excess reserves. After, the banks accumulated excess reserves, and it is estimated that the proportion of excess to total bank reserves rose from 2.4 percent in the first quarter of 1932, to 10.7 percent in the second quarter. By the fourth quarter of 1932, excess reserves were estimated to a double of 20.3 percent of total bank reserves.

During the 1920s, a typical year might find 700 banks failing, with deposits totaling $170 million. In 1930, 1350 banks failed, with deposits of $837 million; in 1931, 2,293 banks collapsed, with deposits of $1,690 million; and in 1932, 1,453 banks failed, having $706 million in deposits. This enormous increase in bank failures was enough to give any bank pause—particularly when the bankers knew in their hearts that no bank (outside of the nonexisting ideal 100 percent bank) can ever withstand a determined run. Consequently, the banks permitted their commercial loans to run down without increasing their investments. Inflation by the government was turned into deflation by the policies of the public and the banks. The American economy reached the depths of depression during 1932 and 1933, and yet it had begun to turn upward by mid-1932. It is not far-fetched to believe that the considerable deflation of July 1931–July 1932, totaling $7.5 billion of currency and deposits, or 14 percent, was partly responsible for the mid-summer upturn.<ref name="Rothbard_Depression_1932">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 11. The Hoover New Deal of 1932, p. 285-320, referenced 2009-11-27.</ref>

As the Depression got worse and people lost their confidence in the banks, they decided to take custody of their cash. Seeing people in large numbers pulling their money out of banks — money the banks had promised to provide on demand — President Hoover blasted them for their "traitorous hoarding." He organized an antihoarding drive and delivered a radio address ([http://www.bobsuniverse.com/BWAH/31-Hoover/19320306a.pdf transcript], pdf) in which he pleaded with the public to stop hoarding (i.e., to stop converting their bank deposits into cash).<ref name="Smith_hoarding">George F. Smith. [http://mises.org/story/3707 "The Virtue of Hoarding"], Mises Daily, posted on October 09, 2009, referenced 2009-11-18.</ref>

Nominal paychecks fell much more slowly during the early years of the Great Depression than the general [[price]] level (wholesale prices fell by 10 percent in 1930, by 15 percent in 1931)<ref name="Rothbard_Depression_1931_Europe" /> - and those who kept their job experienced a higher increase in real (inflation-adjusted) wages, than during the Roaring 1920s!<ref name="ohanian"> Lee E. Ohanian, "What - or Who - Started the Great Depression?", ''NBER Working Paper No. 15258'' (August 2009). Free copy online [http://www.econ.ucla.edu/people/papers/Ohanian/Ohanian499.pdf "here"]</ref> And so has unemployment reached record highs during Hoover's first and only term. When FDR went back on the US government's promise to redeem dollars for gold, the Federal Reserve could flood the economy with new dollars, the prices began to rise again. Because wage rates were not allowed to fall to their new, market-clearing level, [[Inflation|inflating]] the currency has paradoxically reduced unemployment.<ref name="Murphy_Depression">Robert P. Murphy. [http://mises.org/story/3778 "The Gold Standard and the Great Depression"], Mises Daily, posted on October 30, 2009, referenced 2009-11-18.</ref>

The Fed has expanded bank reserves in the 1930s. Panicking at the inflationary potential, it doubled the minimum reserve requirements to 20 percent in 1938, sending the economy into a tailspin of credit liquidation. The Fed, ever since that period, has been very cautious about the degree of its changes and changed bank reserve requirements fairly often, but in very small steps, by fractions of one percent.<ref name="Rothbard_Fed_requirements">[[Murray N. Rothbard]]. [http://mises.org/books/fed.pdf "The Case Against the Fed"] (pdf), How the Fed Rules and Inflates, p. 144, referenced 2010-03-23.</ref>

After 1933, Federal Reserve Notes and deposits were no longer redeemable in gold coins to Americans, their gold was confiscated and exchanged for Federal Reserve Notes, which became legal tender; and Americans were stuck in a regime of fiat paper issued by the government and the Federal Reserve.<ref name="Rothbard_Fed_gold">[[Murray N. Rothbard]]. [http://mises.org/books/fed.pdf "The Case Against the Fed"] (pdf), The New Deal and the Displacement of the Morgans, p. 131-132, referenced 2010-05-10.</ref>

===Tax revolt in the USA===
There has been a widespread opposition to real estate taxes in cities across America and some Americans were in fact not paying their taxes. The movement declined quickly, some scholars acknowledge certain influence, but ultimately declare it a failure.<ref name="Beito_revolt">David T. Beito. [http://mises.org/books/taxpayersinrevolt.pdf Taxpayers in Revolt - Tax Resistance during the Great Depression] (pdf), referenced 2010-06-15.</ref> Others consider it a resounding success, however.

President Hoover's massive tax increase bill that passed into law as the [[Revenue Act of 1932]], with many new taxes. The most burdensome taxes for many Americans, however, was the property tax. Property taxes required taxpayers to make an explicit tax payment of significant size from which they could not evade without losing what was often their most significant piece of property and wealth. The property taxes have risen in the decade before the Depression; throughout the 1920s, the general property tax accounted for over 90 percent of taxes levied by all cities over 30,000 in population. One reason for this dependence was that alcohol revenue from sales taxes and licenses had "dried up" due to prohibition. The burden of taxes increased significantly, even if tax rates remained the same. Another source of taxpayer ire was that the real wages of public employees rose nearly 12% between 1929 and 1933.

Tax delinquency increased from its normal rate of 10% to more than 30%. Tax protest organization formed quickly and spontaneously in rural regions in response to tax authorities selling the land of farmers. Estimates placed the number of taxpayer organizations at between 3,000 and 4,000 organizations nationwide.

The tax limitation movement was effective in several states in establishing cuts and limitations on property tax rates. The second success, which was both more important and far less obvious, was the passage of the 21st Amendment that repealed alcohol [[Prohibition in the United States|prohibition]]. The legalization of alcohol sales in most states provided federal, state, and local government with increased tax revenues to offset cuts in property taxes while simultaneously providing a drastic decrease in the price of alcohol and in effect granting the American public a type of tax cut. Income tax revenue fell 60% from 1930 to 1933 placing a severe financial constraint on Congress. The search for an alternative revenue source led to the conversion of F.D.R. from a "dry" to a "wet" and resulted in the 1932 Democratic party platform to call for Repeal in order to provide "a proper and needed revenue." Revenue shortfalls made Repeal possible and the alcohol tax provided 13% of all federal revenue by 1936.<ref name="Thornton_revolt">Mark Thornton and Chetley Weise. [http://mises.org/journals/jls/15_3/15_3_4.pdf The Great Depression Tax Revolts Revisited.] (pdf), Journal of Libertarian Studies, Volume 15, no. 3 (Summer 2001), referenced 2010-06-15.</ref><ref name="Thornton_success_revolt">Mark Thornton and Chetley Weise. [http://mises.org/journals/scholar/Thornton1.PDF The Success of the Great Depression Tax Revolts] (pdf), referenced 2010-06-15.</ref>

==1933, end of Hoover's term==
Seeking reelection, Hoover boasted of his many interventions with the economy. In his acceptance speech for the Presidential renomination he said:
<blockquote>''"We might have done nothing. That would have been utter ruin. Instead, we met the situation with proposals to private business and to the Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic. We put that program in action."''<ref name="Hoover_nomination">Herbert Hoover. [http://americanhistory.about.com/library/docs/blhooverspeech1932.htm "Address Accepting the Republican Presidential Nomination"], August 11, 1932. The address was carried over the National Broadcasting Company and the Columbia Broadcasting System radio networks. This is a transcript taken from a sound recording of the address. Referenced 2010-06-20.</ref></blockquote>

After the election of [[Franklin D. Roosevelt|Roosevelt]], as the new Presidential term approached, dark rumors circulated about the radicalism of Roosevelt’s advisers, and of their willingness to go off the [[gold standard]]. Consequently, not only did gold "hoarding" by foreigners develop momentum, but even gold hoarding by domestic citizens. For the first time in the depression, American citizens were beginning to lose confidence in the dollar itself. The loss of confidence reached its apogee in February, 1933, the month before the Roosevelt inaugural. In that one month, the monetary gold stock fell by $173 million, and money in circulation increased by the phenomenal amount of $900 million, the reflection of domestic loss of confidence. Money in circulation totaled $5.4 billion at the end of January, and $6.3 billion by the end of February. $700 million of this increase was in Federal Reserve notes, and $140 million in gold coin and gold certificates.

The Federal Reserve did its best to combat this deflationary pull on bank reserves, but its inflationary measures only served to diminish confidence in the dollar still further. Total money supply fell from $64.72 to $61.61 billion over 1933, and all or more of this fall took place in the first half of the year. Bank failures skyrocketed during this period. The number of commercial bank failures increased from 1,453 in 1932 to 4,000 in 1933 (most of which took place in the first quarter).

The reaction to this growing insistence of the people on claiming their rightful, legally-owned property, was a series of attacks on property rights by state after state. One by one, states imposed "bank holidays" by fiat, permitting the banks to stay in business while refusing to pay virtually all of the just claims of their depositors. The bank holiday movement began in earnest with the proclamation of an eight-day holiday on February 14, 1933, by Governor William Comstock of Michigan. This precipitated the bank runs and deflation of the latter part of February and depositors began an intense scramble to take their money out of the banks. Many national banks, which had worked hard to keep themselves in an at least relatively sound position, did not want to use the special privilege of bank holiday, and had to be coerced into doing so.

By March 4, every state in the Union had declared a bank holiday, and the stage was set for President Roosevelt’s dramatic and illegal closing of all the banks. President Roosevelt closed down all the banks throughout the nation for an entire week, from March 6 to 13, with many banks remaining closed even longer. Restrictions against so-called "hoarding" were continued afterward, and much hoarded gold returned to the banks following a Federal Reserve threat to publish a list, for full public scorn, of the leading "gold hoarders."

Mr. Hoover left office in March, 1933, at the very depth of the greatest depression in American history. Production had fallen by more than one-half: industrial production had been at an index of 114 in August, 1929, and then fell to 54 by March, 1933. Unemployment was persisting at nearly 25 percent of the labor force, and gross national product had also fallen almost in half. Hardest hit was investment, especially business construction, the latter falling from about $8.7 billion in 1929 to $1.4 billion in 1933. The index of non-durable manufacturing production fell from 94 to 66 from August, 1929, to March, 1933—a decline of 30 percent; the index of durable manufactures fell from 140 to 32, in the same period, a decline of 77 percent. In durable goods industries (e.g., building, roads, metals, iron and steel, lumber, railroad, etc.) it was estimated that their total employment fell from 10 million in 1929 to 4 million in 1932–1933, while employment in consumer goods industries (e.g., food, farming, textiles, electricity, fuel, etc.) only fell from 15 million to 13 million in the same period. Stock prices (industrials) fell by 76 percent during the depression, wholesale prices fell by 30 percent, and the total money supply declined by one-sixth.

Wage rates were kept very high during the first two years of the depression. By 1932, however, with profits wiped out, the pressure became too great, and wage rates fell considerably. Total fall over the 1929–1933 period, however, was only 23 percent - less than the decline in wholesale prices. Therefore, real wage rates, for the workers still remaining employed, actually increased. While real average hourly earnings rose, actual hours worked in industry fell drastically during the depression. Weekly hours averaged over 48 in 1929, and fell to less than 32 by mid-1932. In no previous depression had hours worked fallen by more than 10 percent. This was a form of reduced employment caused by the high-wage policy. As a result, average weekly earnings fell by over 40 percent during the depression, and real weekly earnings fell by over 30 percent. But hardest hit were the unemployed, the percentage of whom rose to 25 percent by 1932–1933, and reached 47 percent in selected manufacturing industries. The fall in man-hours combined with the fall in average hourly earnings caused a truly precipitate drop in total factory payrolls - the base of the very "purchasing power" that the policy was supposed to sustain.<ref name="Rothbard_Hoover_End">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 12. The Close of the Hoover Term, p. 321-337, referenced 2010-06-20.</ref>

==The New Deal==
===Roosevelt's Campaign===
Under the Democratic platform of 1932, which Franklin D. Roosevelt endorsed, contained several subsidies and regulations, but it hardly embraced the enormous expansion in federal power that FDR would achieve. The very first plank called for "an immediate and drastic reduction of governmental expenditures by abolishing useless commissions and offices, consolidating departments and bureaus, and eliminating extravagance to accomplish a saving of not less than twenty-five per cent in the cost of the Federal Government."<ref name="Woolley_Dem_1932">John T. Woolley and Gerhard Peters. [http://www.presidency.ucsb.edu/ws/index.php?pid=29595 "Democratic Party Platform of 1932"], June 27, 1932, from The American Presidency Project [online]. Referenced 2010-06-20.</ref> Subsequent planks demanded a balanced budget, a low tariff, the repeal of Prohibition, "a sound currency to be preserved at all hazards," "no interference in the internal affairs of other nations," and "the removal of government from all fields of private enterprise except where necessary to develop public works and natural resources in the common interest." The document concluded with a quote from Andrew Jackson: "equal rights to all; special privilege to none."

FDR's campaign reflected that platform. He accused Herbert Hoover of "reckless and extravagant spending," and he further denounced the Republican incumbent for believing "we ought to center control of everything in Washington as rapidly as possible." Even when he called for interventions in the economy, he generally couched his words in the old liberals' language of equal treatment rather than the new liberals' vision of enlightened central planning. In his famous Forgotten Man speech of April 1932 (see [http://newdeal.feri.org/speeches/1932c.htm transcript]), the Democratic candidate pointed to the wave of foreclosures sweeping the nation. Noting that Hoover had created a "two billion dollar fund...put at the disposal of the big banks, the railroads and the corporations of the Nation," FDR averred that the government should "provide at least as much assistance to the little fellow as it is now giving to the large banks and corporations." Once in office, the new administration did indeed repeal Prohibition, and it eventually lowered some trade barriers as well. By the time of FDR's death, the federal bureaucracy's power had grown so enormously that Hoover was widely remembered as the last apostle of laissez faire.<ref name="Walker_FDR">Jesse Walker. [http://reason.com/archives/2008/04/10/the-new-franklin-roosevelts "The New Franklin Roosevelts"], April 10, 2008. Referenced 2010-06-20.</ref>

===Policy===
A principal feature of '''[[New Deal]]''' economic policy was government-sponsored industrial [[cartel]]s (the [[National Recovery Act]]); agricultural cartels (the [[Agricultural Adjustment Act]]); and labor cartels (the [[Norris – La Guardia Act|Norris-LaGuardia]] and [[National Labor Relations Act|Wagner Acts]]). The purpose of any cartel is to restrict output and raise prices. Lower levels of production leads to higher unemployment, which is exactly what the NRA and AAA did.

The NRA was almost identical to the Italian corporatist system that existed at the time. In Italy each trade or industrial group was organized into a government-controlled "corporative" association that had the power to plan production and pricing. In the U.S. the NRA organized each industry into federally-supervised trade associations called "Code Authorities" which could also limit output and set prices. The antitrust laws were explicitly set aside.

Over 700 industrial codes were created and were rigorously enforced by thousands of government code enforcers who, "could enter a man's factory, send him out, line up his employees, subject them to minute interrogation, take over his books on the instant." A hapless New Jersey tailor named Jack Magid became nationally famous after he was arrested, convicted, and imprisoned by the code police for the "crime" of pressing a suit of clothes for 35 cents when the Tailors' Code fixed the price at 40 cents. The NRA was ruled unconstitutional by the U.S. Supreme Court on May 27, 1935.<ref name="DiLorenzo_New_Deal">Thomas J. DiLorenzo. [http://mises.org/daily/55 "A New, New Deal"], Mises Daily, October 1998, referenced 2010-06-20.</ref> A study of the Act noted that "the licensing provision, giving the president the power of life or death over business enterprises, is the ultimate weapon of enforcement and the capstone of the powers granted to the president ... the most extraordinary extension of presidential power in American history." The Supreme Court's decision has noted, that 'fair competition' is not defined in the law and could be a convenient designation for whatever set of laws that is proposed and the president may approve. It ruled that NIRA was "an unconstitutional delegation of legislative power."

But after [[Judiciary Reorganization Bill of 1937|Roosevelt's court-packing threat]] of 1937, the justices succumbed to whatever creative definition of fairness that Congress or federal agencies chose to proclaim. For instance, in 1942, Congress passed the Emergency Price Control Act, which created an Office of Price Administration. The OPA had sweeping power to set or strike down prices in any industry or activity that it considered to be "defense-related" — a vague term that could have encompassed practically the entire national economy. The act contained no substantive guidelines for the administrator's decisions but merely required prices that "in his judgment will be generally fair and equitable."<ref name="Bovard_Cuttthroat">James Bovard. [http://www.fff.org/freedom/0499d.asp "Cutthroat Competition and Dead Chickens"], The Future of Freedom Foundation, April 1999. Referenced 2010-06-20.</ref>

===Effects===
The Roosevelt administration also orchestrated various price-fixing schemes in labor markets, principally for the benefit of unions. Payroll taxes to finance Social Security and Unemployment Insurance programs increased employers' wage bills even further, which also reduced the level of employment. According to an econometric estimate, government-mandated payroll cost increases added nearly 1.2 million people to the unemployment rolls by 1938.

The unemployment rate during the 1933-1940 period averaged about 18% and was as high as 28.3% in March of 1933. By the end of 1938, on the eve of World War II, the U.S. unemployment rate still hovered at just over 18 percent and was higher than it was in 1933, President Franklin D. Roosevelt's first year in office. This occurred despite (or rather, because of) six years of unprecedented levels of government intervention into the U.S. economy. The American recovery was slower than in most European nations; by 1937 Great Britain's unemployment rate had declined to 10.3 percent.

Herbert Hoover's [[Reconstruction Finance Corporation]] was greatly expanded by Roosevelt, but its effect was to make capital markets less efficient, thereby prolonging the Depression even further. As explained by RFC director Jesse Jones in his autobiography, ''Fifty Billion Dollars'', "The law specified that we should lend only where the borrower could not get the money from others on reasonable terms." That is, only to uncreditworthy borrowers. Guided by this directive, Jones and the RFC redirected billions of dollars in valuable capital to politically-connected but economically-questionable businesses. "We even loaned money to [the owners of] a drove of reindeer in Alaska," Jones boasted. The RFC was abolished in the 1955 under a cloud of corruption and scandal.

Roosevelt's public works programs may have been an economic failure, but they were a resounding political success as they provided virtually unlimited opportunities for political patronage. In 1939 a special U.S. Senate Committee on Campaign Expenditures investigated the programs and found that in many states workers were required to sign a pledge to vote Democratic and, in some cases, to make campaign contributions, as a condition of employment. Businesses that sold supplies to the government were in some places required to make campaign contributions to the Democratic party in return for the contracts. The New Deal was largely a legalized [[Extortion|shake-down]] operation.<ref name="DiLorenzo_New_Deal" /><ref name="Anderson_WPA">William L. Anderson. [http://mises.org/daily/3921 "The Curse of Good Government"], Mises Daily, December 2009, refers to the spending of New Deal money. Referenced 2010-06-20.</ref>

Roosevelt's billions, adroitly used, had broken down every political machine in America. The patronage they once lived on and the local money they once had to disburse to help the poor was trivial compared to the vast floods of money Roosevelt controlled. And no political boss could compete with him in any county in America in the distribution of money and jobs.<ref name="Flynn_Roosevelt">John T. Flynn. [http://mises.org/books/rooseveltmyth.pdf "The Roosevelt Myth"] (pdf), p. 65; 1948. Referenced 2010-06-21.</ref>

As Henry Morgenthau, the secretary of the treasury and one of the most powerful men in America, said before the Democrats on the House Ways and Means Committee in 1939<ref name="Folsom_spending">Burton Folsom Jr. [http://search.barnesandnoble.com/New-Deal-or-Raw-Deal/Burton-Folsom-Jr/e/9781416592228#EXC "New Deal or Raw Deal?: How FDR's Economic Legacy Has Damaged America"], an excerpt from the book. Referenced 2010-06-21.</ref>:

<blockquote>''"We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong...somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises....I say after eight years of this Administration we have just as much unemployment as when we started....And an enormous debt to boot!"''</blockquote>

==During World War II==
The recovery from the Great Depression in the United States is usually associated with the advent of World War II, a period when real GDP appeared to increase phenomenally and the rate of unemployment fell almost to zero. A more detailed view produces a different picture, with large government "make-work" programs at first and military employment during the war - but a very slow actual recovery. When using hours worked as measure of employment, only in 1941 total work hours exceed the 1929 value (by 3 percent), with the population vigorously engaged in mobilization for war.<ref name="Higgs_hours">Robert Higgs. [http://www.independent.org/pdf/tir/tir_14_01_8_higgs.pdf "A Revealing Window on the U.S. Economy in Depression and War - Hours Worked, 1929–1950"] (pdf), The Independent Review, v. 14, n.1, Summer 2009. Referenced 2010-06-21.</ref>

Private [[investment]] has fallen significantly. Gross private investment plunged from almost 16 percent of GDP in 1929 to less than 2 percent in 1932; recovered to 13 percent in 1937 before falling again in the recession of 1938; and as late as 1941 stood at only 14 percent. During the war years, private investment ratios ranged from 3 to 6 percent. From 1946 through 1950 they ranged from 14 to 19 percent and averaged 16 percent — the same as in 1929. In 1929, when gross private investment was $16.2 billion, net investment was $8.3 billion. Net investment fell precipitously to $2.3 billion in 1930 and then became negative during each of the following five years. For the eleven-year period of 1930 to 1940, net private investment totaled minus $3.1 billion. Only in 1941 did net private investment ($9.7 billion) exceed the 1929 amount. During the 1930s, private investment remained at depths never plumbed in any other decade for which data exist.

One hypothesis is, that the New Deal prolonged the Great Depression by creating an extraordinarily high degree of '''[[regime uncertainty]]''' for the investors. Given the unparalleled outpouring of business-threatening laws, regulations, and court decisions, the oft-stated hostility of President Roosevelt and his lieutenants toward investors as a class, the political climate could hardly have failed to discourage some investors from making long-term commitments. There also exists a great deal of direct evidence that investors felt extraordinarily uncertain about the future of the property-rights regime between 1935 and 1941. Historians have recorded countless statements by contemporaries to that effect; in the years just before the war most business executives expected substantial weakening of private property rights ranging up to "complete economic dictatorship". The possibility that the United States might undergo an extreme regime shift seemed to many investors in the late 1930s and early 1940s not only possible but likely.<ref name="Higgs_investment">Robert Higgs. [http://www.independent.org/pdf/tir/tir_01_4_higgs.pdf "Regime Uncertainty - Why the Great Depression Lasted So Long and Why Prosperity Resumed after the War"] (pdf), The Independent Review, Vol, I, No. 4, Spring 1997. Referenced 2010-06-21.</ref><ref name="Higgs_China">Robert Higgs. [http://www.independent.org/blog/index.php?p=2620 "Regime Uncertainty in the 1930s: A New Deal Insider’s Account"], ''The Beacon'', blog of the The Independent Institute, Jun 29, 2009. Referenced 2010-08-15.</ref>

==See also==

* [[Austrian Business Cycle Theory]]

==References==
{{Reflist|2}}

==External links==
* [http://www.lewrockwell.com/gordon/gordon-gd-biblio.html Bibliography on the Great Depression] by David Gordon, 2009
* [http://mises.org/daily/3941 The Myth that Is FDR] by Garet Garrett, January 2010
* [http://mises.org/daily/4350 Did Hoover Really Slash Spending?] by Robert P. Murphy, May 2010
* [http://www.ameshistoricalsociety.org/exhibits/events/rationing.htm World War II Rationing], collected by the Ames Historical Society and the [[Wikipedia:Rationing|Wikipedia]] article on the same
* [http://www.mackinac.org/article.aspx?ID=4028 Free Markets or Free Lunches?] by Lawrence W. Reed, January 1998
* [http://www.mackinac.org/article.aspx?ID=4013 Great Myths of the Great Depression] by Lawrence W. Reed, January 1998
* [http://mises.org/daily/3778 The Gold Standard and the Great Depression] by Robert P. Murphy, October 2009
* [http://mises.org/daily/1623 The New Deal Debunked (again)] by Thomas J. DiLorenzo, September 2004
* [http://www.independent.org/newsroom/article.asp?id=138 Wartime Prosperity? A Reassessment of the U.S. Economy in the 1940s] by Robert Higgs, March 1992
* [http://mises.org/daily/3661 My Summer Reading: Hyper-Inflation in Weimar Germany] by Ralph Fucetola, September 2009 (notes that the crisis was seen as insignificant at the beginning)
* [http://mises.org/journals/qjae/pdf/qjae11_3_5.pdf The Great Depression: Mises vs. Fisher] (pdf) by Mark Thornton, November 2008
* [http://www.thefreemanonline.org/featured/the-depression-youve-never-heard-of-1920-1921/ The Depression You’ve Never Heard Of: 1920-1921] by Robert P. Murphy, December 2009
* [http://mises.org/daily/3866 Reliving the Crash of '29] by Murray N. Rothbard, first published in November 1979
* [http://mises.org/daily/4039 Dangerous Lessons of 1937] by Jonathan M. Finegold Catalan, February 2010
* [http://mises.org/daily/4797 The Real Reason for FDR's Popularity] by Mark Thornton, October 2010
* [[Wikipedia:Great Depression|Great Depression]] on Wikipedia

[[Category:History of the United States]]
[[Category:Financial crises]]

Great Depression

2011-03-28T17:16:20Z

Daniel Hewitt: /* The Crash */ clean up and one more ref

{{RightTOC}}
The '''Great Depression''' was the longest and most severe economic depression ever experienced by the Western world.<ref name="Britannica_debt">Encyclopædia Britannica. [http://www.britannica.com/EBchecked/topic/243118/Great-Depression "Great Depression"], Encyclopædia Britannica Online, referenced 2010-06-12.</ref>

==Prelude==
In the forty years 1890 to 1930, the population of the United States doubled, the value of farm property increased three and a half times, pig iron production four and a half times, exports five times, coal production five times, and freight traffic five and a half times, but commercial bank deposits increased over seventeen and a half times. Thus, while the gold stock had increased proportionally with the increase of industrial production, the expansion in bank credit had far outstripped both and had thus been at the expense of a thinning gold reserve. The monetary gold stock available to support and redeem this tremendous amount of bank liabilities that was being created, which had been 25.3 per cent of total note and deposit liabilities of banks in 1865, and 23.9 per cent in 1880, steadily dropped under the pressure of the public upon the banking interest for more and more credit, standing in 1900 at 20.4 per cent, in 1910 at 14.2 per cent and in 1930 at 10.4 per cent. Such had been the diminution of reserves that by the decade 1920-1930, banking was being conducted "on a shoestring." In 1900 the ratio of vault cash to deposit liabilities of commercial banks had dropped to 14.8 per cent, and in 1910 to 12.7 per cent—vault cash in those years being respectively $706,302,000 and $1,366,164,000.<ref name="Groseclose_Money">Elgin Groseclose. [http://mises.org/resources/3138/Money-and-Man Money and Man], 1934, p.209-210. Referenced 2011-03-24.</ref>

From June 1914 to January 1920, when [[Demand deposits|demand deposits]] grew by 96.9 percent, [[Time deposits|time deposits]] rose by 126.1 percent. In the great boom of the 1920s, that started after the [[Depression of 1920–21|recession of 1920–21]] (a short recession, thanks to the budget cutting and lowering of taxes by [[Warren Harding]]<ref name="Woods_Harding">Thomas E. Woods, Jr. [http://www.firstprinciplesjournal.com/articles.aspx?article=1322&theme=home&loc=b "Warren Harding and the Forgotten Depression of 1920"], First Principles, Fall 2009 issue of The Intercollegiate Review. See also the [http://www.youtube.com/watch?v=czcUmnsprQI video]. Referenced 2009-10-11.</ref>), total demand deposits rose from 1921 to 1929 by 36.5 percent. Time deposits in banks expanded in the same period by 75.9 percent. The great boom of the 1920s (also called "[[Roaring Twenties]]") was largely fueled by credit expansion going into time deposits. The greatest expansion of time deposits came in Central Reserve Cities (New York and Chicago), where the [[Federal Reserve System|Fed]]’s open market operations were all conducted, as opposed to Reserve Cities and Country Banks. As acknowledged by Federal Reserve officials, time or savings deposits were then, for all practical purposes, equivalent to demand deposits and should be paid on demand in case of a run on a bank.

With the passage of the [[Federal Reserve Act]], [[Woodrow Wilson|President Wilson]] appointed [[Benjamin Strong, Jr.|Benjamin Strong]] to the most powerful post in the Federal Reserve System, Governor of the [[Reserve Bank of New York|Federal Reserve Bank of New York]]. He made quickly this position dominant in the System and decided on Fed policy without consulting or even against the wishes of the Federal Reserve Board in Washington. Strong was the dominant leader of the Fed from 1914 until his death in 1928. He pursued an inflationary policy, to finance the war effort for [[World War I|WWI]], connected to the interests of the [[J.P. Morgan & Co.|House of Morgan]]. Another motivation was the attempt to prop up the [[Bank of England]] in the 1920s, when it returned to the [[gold standard]] with an overvalued pound. To prevent the loss of gold to the States, its governor [[Montagu Norman, 1st Baron Norman|Montagu Norman]] secretly convinced Strong to inflate in order to help England. The expansion ended only after Strong's death and the '''Great Depression''' followed soon after. In 1928 Strong admitted that "very few people indeed realized that we were now paying the penalty for the decision which was reached early in 1924 to help the rest of the world back to a sound financial and monetary basis" - that is, to help Britain maintain a phony and inflationary form of gold standard.<ref name="Rothbard_Federal_Reserve">[[Murray N. Rothbard]]. [http://mises.org/books/mysteryofbanking.pdf "The Mystery of Banking"] (pdf), Chapter XVI: Central banking in the United States IV: The Federal Reserve System, p.235-246, referenced 2009-10-03.</ref>

The inflation was also motivated by a desire to help American exporters (particularly farmers), by stimulation of foreign lending. At the same time the U.S. turned to a sharp protectionist policy with the [[Fordney–McCumber Tariff]] of 1922. In the foreign lending boom, other countries were hampered in trying to sell their goods to the United States, but were encouraged to borrow dollars. The government did not have any peacetime authority to interfere with loans, but did so illegally. In 1921, President [[Warren G. Harding|Harding]] and his cabinet conferred with several American investment bankers, at the instigation of Secretary of Commerce [[Herbert Hoover|Hoover]], to be informed in advance of foreign loans, so that the government "might express itself regarding them". The bankers agreed. Hoover commented that even bad loans helped American exports and provided a cheap form of relief and employment. Later Hoover demanded from bankers, that foreign loans would be inspected by agents of the [[Department of Commerce]]. Both requests were mostly ignored. While admitted to be legally unenforceable, it was all in the name of "national interests".<ref name="Rothbard_pre_Depression">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 5. The Development of the Inflation, p. 137-167, referenced 2009-11-17.</ref>

{{See also|Federal Reserve System}}

===Housing bubble===
An outlet for the excessive credit created by the banking system was in financing an urban real estate boom in the U.S. During the decade 1920-1930, people were moving in a constant stream into the cities; the population of the sixty-three metropolitan zones (cities of 100,000 or more plus adjacent counties) rose from 46,491,000 to 59,118,000, or from 44 per cent of total population to 48 per cent. Seventy-four per cent of the increase in total population during the decade occurred in the metropolitan areas.

A huge building boom followed, the Federal Reserve Board index of building contracts awarded, 1923-1925 taken as 100, rising from 63 in 1920 to 122 in 1925, and 135 in 1928. This boom occurred chiefly in skyscraper offices and expensive apartment house developments, whose notes were more readily marketable, rather than in the modest single family accommodations. The result was that when the era had passed the slums still existed. In New York City, for instance, where at least four skyscrapers were built in these years with the only object, apparently, of surpassing the record for the world's tallest building, from a quarter to a third of the population, say 1,800,000 persons, still occupied houses that had been outlawed thirty-three years earlier by the Tenement House Act of 1901.<ref name="Groseclose_Money">Elgin Groseclose. [http://mises.org/resources/3138/Money-and-Man Money and Man], 1934, p.225, 244. Referenced 2011-03-24.</ref>

==The Crash==
{{Main|Wall Street Crash of 1929}}
The great boom of the 1920s began around July, 1921, after a year or more of sharp recession, and ended about July, 1929, when the production and business activity began to decline, although the [[Wall Street Crash of 1929|famous stock market crash]] came in October of that year. [[Herbert Hoover]], an avid proponent of interventionism became President. Characteristic for him were "voluntary" measures that the government desired, with the implicit threat that if business did not "volunteer" properly, compulsory controls would soon follow.<ref name="Rothbard_1920s_boom">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 5. The Development of Hoover's Interventionism: Unemployment, p. 188-189, referenced 2009-11-20.</ref>

After the stock-market crash, Hoover began a series of conferences with big business and labor leaders, telling them that cutting wage rates (the standard response in previous depressions) would be disastrous, because then the workers wouldn't make enough to buy the products.<ref name="Hoover 11-15-29 NC">John T. Woolley and Gerhard Peters, ''The American Presidency Project'' [online]. Santa Barbara, CA. Available from World Wide Web: http://www.presidency.ucsb.edu/ws/?pid=22005.</ref> This "liquidation" of labor would only deepen the depression by reducing their "purchasing power". Leading industrialists pledged to maintain wage rates, expand construction, and share any reduced work,<ref name="Hoover CC remarks">John T. Woolley and Gerhard Peters, ''The American Presidency Project'' [online]. Santa Barbara, CA. Available from World Wide Web: http://www.presidency.ucsb.edu/ws/?pid=22023.</ref> to fulfill Hoover's request that "the first shock must fall on profits and not on wages".<ref name="hoover44">Herbert Hoover, ''The Memoirs of Herbert Hoover: The great depression, 1929-41'', (New York: Macmillan, 1952) 44-45.</ref>

At the same time, the Federal Reserve expanded rapidly and lowered its interest rates. Its member banks expanded their deposits in the last week of October 1929 alone by 10%, mostly in New York. Hoover praised the Fed for the saving of shaky banks and restoring confidence.<ref name ="Hoover CC remarks" /> The depression should be over in a few months. A large public works program was also initiated.<ref name="Rothbard_public_works">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 8. The Depression Begins: President Hoover Takes Command, p. 209-217, referenced 2009-11-21.</ref><ref name="Hoover 1-3-20">John T. Woolley and Gerhard Peters, ''The American Presidency Project'' [online]. Santa Barbara, CA. Available from World Wide Web: http://www.presidency.ucsb.edu/ws/?pid=22468.</ref>

Hoover promised the farm bloc to support farm cooperatives and prices and established the [[Federal Farm Board]] (FFB). It would make all-purpose loans to farm cooperatives at low interest rates and establish "stabilization corporations" to control farm surpluses and bolster farm prices. Its board was dominated by representatives of these farm cooperatives. To combat falling prices, it made loans to farmers to keep wheat and cotton off the market and later started to buy the surpluses. For a while, prices were held up and farmers increased production, only to find that prices would fall even more. As America held wheat off the market, it lost its former share of the world’s wheat trade. The farmers were urged to decrease their acreage, while the government still promoted reclamation projects to increase farm production. The surpluses of wheat accumulated and prices fell to such a degree, that the FFB decided to dump wheat stocks abroad, resulting in a drastic fall in market prices. The attempts to keep up the price of cotton, wool, livestock, etc. failed as well. A "[[Farmers' Holiday Association|Farm Holiday]]" was declared to stop production, The movement soon turned to violence and failed to stop the falling farm prices. but succeeded to avoid some foreclosures of its members.<ref name="Rothbard_Agriculture">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), The New Deal Farm Program, p. 217-237, referenced 2009-11-21.</ref>

In 1930, the [[Smoot–Hawley Tariff Act|Smoot–Hawley Tariff]] was passed, despite objections of many economists and industrial leaders. Hoover originated a higher tariff on agricultural products to help farmers, but it was raised on many other products. Many other countries have retaliated with their own tariffs and foreign trade declined significantly. (From 1929 to 1932, U.S. imports from Europe decreased from $1,334 million to just $390 million, while U.S. exports to Europe decreased from $2,341 million to $784 million. Overall, world trade decreased by some 66% between 1929 and 1934.<ref>U.S. Department of State. [http://future.state.gov/when/timeline/1921_timeline/smoot_tariff.html Smoot-Hawley Tariff], referenced 2009-11-22.</ref>) Also, to relieve the unemployment problem, and to help keep wage rates up, the President effectively banned further immigration into the United States.<ref name="Rothbard_Depression_1930">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 9. 1930, p. 239-256, referenced 2009-11-22.</ref>

===In Europe===
In Europe, the crisis began in earnest with the ''Boden–Kredit Anstalt'', the most important bank in Austria and Eastern Europe. It had to merge with the [[Creditanstalt|Oesterreichische–Kredit–Anstalt]] after rescue attempts by its government and other banks. When Austria declared a customs union with Germany in March 1931, the French government feared this development and several French banks suddenly insisted on redemption of their debts from both countries. The bank collapsed. After more rescue attempts has the Austrian Government voted a $150 million guarantee to the bank, but the its credit was by the time worthless, and Austria soon declared national bankruptcy by going off the gold standard. Later, Germany, England, and most other European countries renounced their obligations and went off the gold standard as well. While the impact on United States was not very large due to the lowered international trade, it certainly did not help, neither did the many loans granted to prop up foreign banks.<ref name="Rothbard_Depression_1931_Europe">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 10. 1931—"The Tragic Year", p. 257-284, referenced 2009-11-27.</ref>

==1931, "The Tragic Year"==
The crisis worsened in the US in 1931. Production continued to fall drastically, as did prices and foreign trade, and unemployment ran up to almost 16 percent of the labor force. The Federal Reserve Board (FRB) index of manufacturing production, which had been 110 in 1929 and 90 in 1930, fell to 75 in 1931. Hardest hit, in accordance with Austrian [[ABCT|cycle theory]], were producers’ goods and higher order [[capital]] goods industries, rather than the consumer goods’ industries. Despite attempts to inflate, bank deposits and the aggregate [[money supply]] fell sharply, particularly at the end of the year. The British abandoning of the gold standard, bank failures abroad and the growing number of failures at home, caused a growing loss of confidence by Americans in their banking system. The wages were also beginning to fall, first secretly, then openly by the end of 1931.

The gross national product fell from $91.1 billion in 1930, to $76.3 billion in 1931. Total government receipts fell from $13.5 billion to $12.4 billion, but total government expenditures rose from $13.9 billion to $15.2 billion, in federal, rather than state and local, spending (federal expenditures rose from $4.2 billion in 1930 to $5.5 billion in 1931). In the middle of a great depression when people needed to be relieved of governmental burdens, the dead weight of government rose from 16.4 percent to 21.5 percent of the gross private product. From a modest surplus in 1930, the Federal government so ran up a huge $2.2 billion deficit in 1931.<ref name="Rothbard_Depression_1931_Europe" />

Direct relief was just about the one sphere where President Hoover seemed to prefer voluntary to governmental action. The [[Red Cross]] opposed a bill, in early 1931, that would grant it $25 million for relief, declaring that it would "to a large extent destroy voluntary giving". Many private charity organizations, philanthropists, and social workers had the same views. Governmental unemployment relief was seen to have a role in creating and perpetuating unemployment in Britain (the "dole"). It was attacked by many business leaders, including [[Henry Ford]], the leaders of the [[National Association of Manufacturers]] and the [[United States Chamber of Commerce|Chamber of Commerce]], and former President [[Calvin Coolidge|Coolidge]].<ref name="Rothbard_Depression_1931_Europe" />

The [[Davis-Bacon Act]] was signed by President Hoover in 1931. It mandated that prevailing (union) wages be paid by the Federal Government for public works projects. It has been argued that the Davis-Bacon Act was a [[Jim Crow law]], since its intent <ref name=”williams”>Walter Williams, [http://www.jewishworldreview.com/cols/williams031203.asp "Congress' insidious discrimination"], ''Jewish World Review'' (March 12, 2003), accessed 2011-02-01.</ref> and its effect <ref name=”cato”> David Bernstein, [http://www.cato.org/pubs/briefs/bp-017.html "The Davis-Bacon Act: Let's Bring Jim Crow to an End"], ''Cato Institute Briefing Papers'' (January 18, 1993), accessed 2011-02-01.</ref> was to prevent lower-paid, non-unionized black laborers from competing against higher-paid, unionized white laborers. Hoover promoted and supported the legislation, as he believed that "[t]he very essence of great production is high wages...because it depends upon a widening range of consumption only to be obtained from the purchasing power of high real wages...." <ref name="hoover108">Herbert Hoover, ''The Memoirs of Herbert Hoover: Volume 2, The Cabinet and the Presidency, 1920-33'', (New York: Macmillan, 1952) 108.</ref>

==1932, The Hoover New Deal==
In an atmosphere of crisis, President Hoover called for more drastic measures, including more government aid and loans. With a $2 billion deficit during annual year 1931, Hoover felt that he had to do something to combat it and chose to increase the taxes. The [[Revenue Act of 1932]] was one of the greatest increases in taxation ever enacted in the United States in peacetime. Many wartime
excise taxes were revived, sales taxes were imposed on gasoline, tires, autos, electric energy, malt, toiletries, furs, jewelry, and other articles; admission and stock transfer taxes were increased; new taxes were levied on bank checks, bond transfers, telephone, telegraph, and radio messages; and the personal income tax was raised drastically as follows: the normal rate was increased from a range of 1½ percent–5 percent, to 4 percent–8 percent; personal exemptions were sharply reduced, and an earned credit of 25 percent eliminated; and surtaxes were raised enormously, from a maximum of 25 percent to 63 percent on the highest incomes. Furthermore, the corporate income tax was increased from 12 percent to 13: percent, and an exemption for small corporations eliminated; the estate tax was doubled, and the exemption floor halved; and the gift tax, which had been eliminated, was restored, and graduated up to 33⅓ percent. The postal rates were raised as well.

Despite the drastic increase in tax rates, total Federal revenue for 1932 declined because of the deepened depression—itself partly caused by the increase in tax rates. Total Federal receipts, excluding government enterprises, declined from $2.2 billion in 1931 to $1.9 billion in 1932; including government enterprises, Federal receipts fell from $3.4 billion to $3 billion.

Total government receipts fell from $12.4 billion to $11.5 billion. As a result, the huge Federal deficit continued despite a drop in government expenditures in 1932: Federal expenditures falling from $5.5 billion to $4.4 billion, and aggregate government expenditures falling from $15.2 billion to $13.2 billion (all numbers including government enterprises). Of the $1.7 billion in total government deficit, the bulk of it — $1.4 billion — was in the Federal government account. The state and local governments were forced to cut back their expenditures to near the level of their dwindling receipts. One of the most ominous projects for Federal spending during 1932 was a Congressional move for a huge $2 billion veterans bonus, to be financed by an issue of new currency. It was its final defeat in the Senate in June that did most to defeat a general clamor for much larger government spending.

Meanwhile, however, President Hoover himself was beginning to have doubts about one of his favorite policies: public works. In a conference at the end of February, Hoover admitted that his public works program, which had nearly doubled Federal construction since the start of the depression, had failed. It was very expensive, costing over $1200 per family aided, it was unavailable to the needy in remote regions and to those who were unable to perform such labor, which was, after all, unskilled make-work. By May, Hoover had openly reversed his earlier position. As a result, Federal public works only increased by $60 million in 1932, to reach the $333 million mark. Public works was not to come really to the fore again until the Roosevelt administration.

Holding firm to his interventionist belief that the downward pressure on wages must be resisted <ref name ="hoover108" />, Hoover signed the [[Norris-Laguardia Act]] into law on March 23, 1932. It banned "yellow-dog" contracts, removed federal courts’ authority to issue injunctions against labor disputes, and provided greater ease for workers to organize<ref name="enotes">[http://www.enotes.com/major-acts-congress/norris-laguardia-act "Norris-Laguardia Act (1932): Major Acts of Congress"], accessed 2011-02-01.</ref>; a landmark victory for organized labor.

If Hoover eagerly embraced other forms of [[intervention]], he gave ground but grudgingly on one issue where he had championed the voluntary approach: direct relief. Governor [[Franklin D. Roosevelt]] of New York led the way for state relief programs in the winter of 1931–1932, and he induced New York to establish the first state relief authority: the Temporary Emergency Relief Administration, equipped with $25 million. Other states followed this lead, and a bill was introduced for a $500 million federal relief program. The bill was defeated, but, with depression deepening and a Presidential election approaching, the administration all but surrendered, passing the [[Emergency Relief and Construction Act]] of July, 1932 — the nation’s first Federal relief legislation. All in all, total public relief in 120 of the nation’s leading urban areas amounted to $33 million in 1929, $173 million in 1931, and $308 million in 1932.

One thing Hoover was not reticent about: inflation. The administration first cleared the path for the program by passing the [[Glass–Steagall Act]] in February, which (a) greatly broadened the assets eligible for rediscounts with the Fed, and (b) permitted the Federal Reserve to use government bonds as collateral for its notes, in addition to commercial paper. At the end of February, 1932, total bank reserves had fallen to $1.85 billion. At that point, the [[Federal Reserve System|FRS]] launched a gigantic program of purchasing U.S. government securities. By the end of 1932, total reserves had been raised to $2.51 billion. This enormous increase of $660 million in reserves in less than a year is unprecedented in the previous history of the System. If the banks had kept loaned-up, the money supply of the nation would have increased by approximately $8 billion. Instead, the money supply fell by $3.5 billion during 1932, from $68.25 to $64.72 billion at the end of the year, and with the bank deposit component falling by $3.2 billion. Until the second quarter of 1932, the nation’s banks had always remained loaned up, with only negligible excess reserves. After, the banks accumulated excess reserves, and it is estimated that the proportion of excess to total bank reserves rose from 2.4 percent in the first quarter of 1932, to 10.7 percent in the second quarter. By the fourth quarter of 1932, excess reserves were estimated to a double of 20.3 percent of total bank reserves.

During the 1920s, a typical year might find 700 banks failing, with deposits totaling $170 million. In 1930, 1350 banks failed, with deposits of $837 million; in 1931, 2,293 banks collapsed, with deposits of $1,690 million; and in 1932, 1,453 banks failed, having $706 million in deposits. This enormous increase in bank failures was enough to give any bank pause—particularly when the bankers knew in their hearts that no bank (outside of the nonexisting ideal 100 percent bank) can ever withstand a determined run. Consequently, the banks permitted their commercial loans to run down without increasing their investments. Inflation by the government was turned into deflation by the policies of the public and the banks. The American economy reached the depths of depression during 1932 and 1933, and yet it had begun to turn upward by mid-1932. It is not far-fetched to believe that the considerable deflation of July 1931–July 1932, totaling $7.5 billion of currency and deposits, or 14 percent, was partly responsible for the mid-summer upturn.<ref name="Rothbard_Depression_1932">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 11. The Hoover New Deal of 1932, p. 285-320, referenced 2009-11-27.</ref>

As the Depression got worse and people lost their confidence in the banks, they decided to take custody of their cash. Seeing people in large numbers pulling their money out of banks — money the banks had promised to provide on demand — President Hoover blasted them for their "traitorous hoarding." He organized an antihoarding drive and delivered a radio address ([http://www.bobsuniverse.com/BWAH/31-Hoover/19320306a.pdf transcript], pdf) in which he pleaded with the public to stop hoarding (i.e., to stop converting their bank deposits into cash).<ref name="Smith_hoarding">George F. Smith. [http://mises.org/story/3707 "The Virtue of Hoarding"], Mises Daily, posted on October 09, 2009, referenced 2009-11-18.</ref>

Nominal paychecks fell much more slowly during the early years of the Great Depression than the general [[price]] level (wholesale prices fell by 10 percent in 1930, by 15 percent in 1931)<ref name="Rothbard_Depression_1931_Europe" /> - and those who kept their job experienced a higher increase in real (inflation-adjusted) wages, than during the Roaring 1920s!<ref name="ohanian"> Lee E. Ohanian, "What - or Who - Started the Great Depression?", ''NBER Working Paper No. 15258'' (August 2009). Free copy online [http://www.econ.ucla.edu/people/papers/Ohanian/Ohanian499.pdf "here"]</ref> And so has unemployment reached record highs during Hoover's first and only term. When FDR went back on the US government's promise to redeem dollars for gold, the Federal Reserve could flood the economy with new dollars, the prices began to rise again. Because wage rates were not allowed to fall to their new, market-clearing level, [[Inflation|inflating]] the currency has paradoxically reduced unemployment.<ref name="Murphy_Depression">Robert P. Murphy. [http://mises.org/story/3778 "The Gold Standard and the Great Depression"], Mises Daily, posted on October 30, 2009, referenced 2009-11-18.</ref>

The Fed has expanded bank reserves in the 1930s. Panicking at the inflationary potential, it doubled the minimum reserve requirements to 20 percent in 1938, sending the economy into a tailspin of credit liquidation. The Fed, ever since that period, has been very cautious about the degree of its changes and changed bank reserve requirements fairly often, but in very small steps, by fractions of one percent.<ref name="Rothbard_Fed_requirements">[[Murray N. Rothbard]]. [http://mises.org/books/fed.pdf "The Case Against the Fed"] (pdf), How the Fed Rules and Inflates, p. 144, referenced 2010-03-23.</ref>

After 1933, Federal Reserve Notes and deposits were no longer redeemable in gold coins to Americans, their gold was confiscated and exchanged for Federal Reserve Notes, which became legal tender; and Americans were stuck in a regime of fiat paper issued by the government and the Federal Reserve.<ref name="Rothbard_Fed_gold">[[Murray N. Rothbard]]. [http://mises.org/books/fed.pdf "The Case Against the Fed"] (pdf), The New Deal and the Displacement of the Morgans, p. 131-132, referenced 2010-05-10.</ref>

===Tax revolt in the USA===
There has been a widespread opposition to real estate taxes in cities across America and some Americans were in fact not paying their taxes. The movement declined quickly, some scholars acknowledge certain influence, but ultimately declare it a failure.<ref name="Beito_revolt">David T. Beito. [http://mises.org/books/taxpayersinrevolt.pdf Taxpayers in Revolt - Tax Resistance during the Great Depression] (pdf), referenced 2010-06-15.</ref> Others consider it a resounding success, however.

President Hoover's massive tax increase bill that passed into law as the [[Revenue Act of 1932]], with many new taxes. The most burdensome taxes for many Americans, however, was the property tax. Property taxes required taxpayers to make an explicit tax payment of significant size from which they could not evade without losing what was often their most significant piece of property and wealth. The property taxes have risen in the decade before the Depression; throughout the 1920s, the general property tax accounted for over 90 percent of taxes levied by all cities over 30,000 in population. One reason for this dependence was that alcohol revenue from sales taxes and licenses had "dried up" due to prohibition. The burden of taxes increased significantly, even if tax rates remained the same. Another source of taxpayer ire was that the real wages of public employees rose nearly 12% between 1929 and 1933.

Tax delinquency increased from its normal rate of 10% to more than 30%. Tax protest organization formed quickly and spontaneously in rural regions in response to tax authorities selling the land of farmers. Estimates placed the number of taxpayer organizations at between 3,000 and 4,000 organizations nationwide.

The tax limitation movement was effective in several states in establishing cuts and limitations on property tax rates. The second success, which was both more important and far less obvious, was the passage of the 21st Amendment that repealed alcohol [[Prohibition in the United States|prohibition]]. The legalization of alcohol sales in most states provided federal, state, and local government with increased tax revenues to offset cuts in property taxes while simultaneously providing a drastic decrease in the price of alcohol and in effect granting the American public a type of tax cut. Income tax revenue fell 60% from 1930 to 1933 placing a severe financial constraint on Congress. The search for an alternative revenue source led to the conversion of F.D.R. from a "dry" to a "wet" and resulted in the 1932 Democratic party platform to call for Repeal in order to provide "a proper and needed revenue." Revenue shortfalls made Repeal possible and the alcohol tax provided 13% of all federal revenue by 1936.<ref name="Thornton_revolt">Mark Thornton and Chetley Weise. [http://mises.org/journals/jls/15_3/15_3_4.pdf The Great Depression Tax Revolts Revisited.] (pdf), Journal of Libertarian Studies, Volume 15, no. 3 (Summer 2001), referenced 2010-06-15.</ref><ref name="Thornton_success_revolt">Mark Thornton and Chetley Weise. [http://mises.org/journals/scholar/Thornton1.PDF The Success of the Great Depression Tax Revolts] (pdf), referenced 2010-06-15.</ref>

==1933, end of Hoover's term==
Seeking reelection, Hoover boasted of his many interventions with the economy. In his acceptance speech for the Presidential renomination he said:
<blockquote>''"We might have done nothing. That would have been utter ruin. Instead, we met the situation with proposals to private business and to the Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic. We put that program in action."''<ref name="Hoover_nomination">Herbert Hoover. [http://americanhistory.about.com/library/docs/blhooverspeech1932.htm "Address Accepting the Republican Presidential Nomination"], August 11, 1932. The address was carried over the National Broadcasting Company and the Columbia Broadcasting System radio networks. This is a transcript taken from a sound recording of the address. Referenced 2010-06-20.</ref></blockquote>

After the election of [[Franklin D. Roosevelt|Roosevelt]], as the new Presidential term approached, dark rumors circulated about the radicalism of Roosevelt’s advisers, and of their willingness to go off the [[gold standard]]. Consequently, not only did gold "hoarding" by foreigners develop momentum, but even gold hoarding by domestic citizens. For the first time in the depression, American citizens were beginning to lose confidence in the dollar itself. The loss of confidence reached its apogee in February, 1933, the month before the Roosevelt inaugural. In that one month, the monetary gold stock fell by $173 million, and money in circulation increased by the phenomenal amount of $900 million, the reflection of domestic loss of confidence. Money in circulation totaled $5.4 billion at the end of January, and $6.3 billion by the end of February. $700 million of this increase was in Federal Reserve notes, and $140 million in gold coin and gold certificates.

The Federal Reserve did its best to combat this deflationary pull on bank reserves, but its inflationary measures only served to diminish confidence in the dollar still further. Total money supply fell from $64.72 to $61.61 billion over 1933, and all or more of this fall took place in the first half of the year. Bank failures skyrocketed during this period. The number of commercial bank failures increased from 1,453 in 1932 to 4,000 in 1933 (most of which took place in the first quarter).

The reaction to this growing insistence of the people on claiming their rightful, legally-owned property, was a series of attacks on property rights by state after state. One by one, states imposed "bank holidays" by fiat, permitting the banks to stay in business while refusing to pay virtually all of the just claims of their depositors. The bank holiday movement began in earnest with the proclamation of an eight-day holiday on February 14, 1933, by Governor William Comstock of Michigan. This precipitated the bank runs and deflation of the latter part of February and depositors began an intense scramble to take their money out of the banks. Many national banks, which had worked hard to keep themselves in an at least relatively sound position, did not want to use the special privilege of bank holiday, and had to be coerced into doing so.

By March 4, every state in the Union had declared a bank holiday, and the stage was set for President Roosevelt’s dramatic and illegal closing of all the banks. President Roosevelt closed down all the banks throughout the nation for an entire week, from March 6 to 13, with many banks remaining closed even longer. Restrictions against so-called "hoarding" were continued afterward, and much hoarded gold returned to the banks following a Federal Reserve threat to publish a list, for full public scorn, of the leading "gold hoarders."

Mr. Hoover left office in March, 1933, at the very depth of the greatest depression in American history. Production had fallen by more than one-half: industrial production had been at an index of 114 in August, 1929, and then fell to 54 by March, 1933. Unemployment was persisting at nearly 25 percent of the labor force, and gross national product had also fallen almost in half. Hardest hit was investment, especially business construction, the latter falling from about $8.7 billion in 1929 to $1.4 billion in 1933. The index of non-durable manufacturing production fell from 94 to 66 from August, 1929, to March, 1933—a decline of 30 percent; the index of durable manufactures fell from 140 to 32, in the same period, a decline of 77 percent. In durable goods industries (e.g., building, roads, metals, iron and steel, lumber, railroad, etc.) it was estimated that their total employment fell from 10 million in 1929 to 4 million in 1932–1933, while employment in consumer goods industries (e.g., food, farming, textiles, electricity, fuel, etc.) only fell from 15 million to 13 million in the same period. Stock prices (industrials) fell by 76 percent during the depression, wholesale prices fell by 30 percent, and the total money supply declined by one-sixth.

Wage rates were kept very high during the first two years of the depression. By 1932, however, with profits wiped out, the pressure became too great, and wage rates fell considerably. Total fall over the 1929–1933 period, however, was only 23 percent - less than the decline in wholesale prices. Therefore, real wage rates, for the workers still remaining employed, actually increased. While real average hourly earnings rose, actual hours worked in industry fell drastically during the depression. Weekly hours averaged over 48 in 1929, and fell to less than 32 by mid-1932. In no previous depression had hours worked fallen by more than 10 percent. This was a form of reduced employment caused by the high-wage policy. As a result, average weekly earnings fell by over 40 percent during the depression, and real weekly earnings fell by over 30 percent. But hardest hit were the unemployed, the percentage of whom rose to 25 percent by 1932–1933, and reached 47 percent in selected manufacturing industries. The fall in man-hours combined with the fall in average hourly earnings caused a truly precipitate drop in total factory payrolls - the base of the very "purchasing power" that the policy was supposed to sustain.<ref name="Rothbard_Hoover_End">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 12. The Close of the Hoover Term, p. 321-337, referenced 2010-06-20.</ref>

==The New Deal==
===Roosevelt's Campaign===
Under the Democratic platform of 1932, which Franklin D. Roosevelt endorsed, contained several subsidies and regulations, but it hardly embraced the enormous expansion in federal power that FDR would achieve. The very first plank called for "an immediate and drastic reduction of governmental expenditures by abolishing useless commissions and offices, consolidating departments and bureaus, and eliminating extravagance to accomplish a saving of not less than twenty-five per cent in the cost of the Federal Government."<ref name="Woolley_Dem_1932">John T. Woolley and Gerhard Peters. [http://www.presidency.ucsb.edu/ws/index.php?pid=29595 "Democratic Party Platform of 1932"], June 27, 1932, from The American Presidency Project [online]. Referenced 2010-06-20.</ref> Subsequent planks demanded a balanced budget, a low tariff, the repeal of Prohibition, "a sound currency to be preserved at all hazards," "no interference in the internal affairs of other nations," and "the removal of government from all fields of private enterprise except where necessary to develop public works and natural resources in the common interest." The document concluded with a quote from Andrew Jackson: "equal rights to all; special privilege to none."

FDR's campaign reflected that platform. He accused Herbert Hoover of "reckless and extravagant spending," and he further denounced the Republican incumbent for believing "we ought to center control of everything in Washington as rapidly as possible." Even when he called for interventions in the economy, he generally couched his words in the old liberals' language of equal treatment rather than the new liberals' vision of enlightened central planning. In his famous Forgotten Man speech of April 1932 (see [http://newdeal.feri.org/speeches/1932c.htm transcript]), the Democratic candidate pointed to the wave of foreclosures sweeping the nation. Noting that Hoover had created a "two billion dollar fund...put at the disposal of the big banks, the railroads and the corporations of the Nation," FDR averred that the government should "provide at least as much assistance to the little fellow as it is now giving to the large banks and corporations." Once in office, the new administration did indeed repeal Prohibition, and it eventually lowered some trade barriers as well. By the time of FDR's death, the federal bureaucracy's power had grown so enormously that Hoover was widely remembered as the last apostle of laissez faire.<ref name="Walker_FDR">Jesse Walker. [http://reason.com/archives/2008/04/10/the-new-franklin-roosevelts "The New Franklin Roosevelts"], April 10, 2008. Referenced 2010-06-20.</ref>

===Policy===
A principal feature of '''[[New Deal]]''' economic policy was government-sponsored industrial [[cartel]]s (the [[National Recovery Act]]); agricultural cartels (the [[Agricultural Adjustment Act]]); and labor cartels (the [[Norris – La Guardia Act|Norris-LaGuardia]] and [[National Labor Relations Act|Wagner Acts]]). The purpose of any cartel is to restrict output and raise prices. Lower levels of production leads to higher unemployment, which is exactly what the NRA and AAA did.

The NRA was almost identical to the Italian corporatist system that existed at the time. In Italy each trade or industrial group was organized into a government-controlled "corporative" association that had the power to plan production and pricing. In the U.S. the NRA organized each industry into federally-supervised trade associations called "Code Authorities" which could also limit output and set prices. The antitrust laws were explicitly set aside.

Over 700 industrial codes were created and were rigorously enforced by thousands of government code enforcers who, "could enter a man's factory, send him out, line up his employees, subject them to minute interrogation, take over his books on the instant." A hapless New Jersey tailor named Jack Magid became nationally famous after he was arrested, convicted, and imprisoned by the code police for the "crime" of pressing a suit of clothes for 35 cents when the Tailors' Code fixed the price at 40 cents. The NRA was ruled unconstitutional by the U.S. Supreme Court on May 27, 1935.<ref name="DiLorenzo_New_Deal">Thomas J. DiLorenzo. [http://mises.org/daily/55 "A New, New Deal"], Mises Daily, October 1998, referenced 2010-06-20.</ref> A study of the Act noted that "the licensing provision, giving the president the power of life or death over business enterprises, is the ultimate weapon of enforcement and the capstone of the powers granted to the president ... the most extraordinary extension of presidential power in American history." The Supreme Court's decision has noted, that 'fair competition' is not defined in the law and could be a convenient designation for whatever set of laws that is proposed and the president may approve. It ruled that NIRA was "an unconstitutional delegation of legislative power."

But after [[Judiciary Reorganization Bill of 1937|Roosevelt's court-packing threat]] of 1937, the justices succumbed to whatever creative definition of fairness that Congress or federal agencies chose to proclaim. For instance, in 1942, Congress passed the Emergency Price Control Act, which created an Office of Price Administration. The OPA had sweeping power to set or strike down prices in any industry or activity that it considered to be "defense-related" — a vague term that could have encompassed practically the entire national economy. The act contained no substantive guidelines for the administrator's decisions but merely required prices that "in his judgment will be generally fair and equitable."<ref name="Bovard_Cuttthroat">James Bovard. [http://www.fff.org/freedom/0499d.asp "Cutthroat Competition and Dead Chickens"], The Future of Freedom Foundation, April 1999. Referenced 2010-06-20.</ref>

===Effects===
The Roosevelt administration also orchestrated various price-fixing schemes in labor markets, principally for the benefit of unions. Payroll taxes to finance Social Security and Unemployment Insurance programs increased employers' wage bills even further, which also reduced the level of employment. According to an econometric estimate, government-mandated payroll cost increases added nearly 1.2 million people to the unemployment rolls by 1938.

The unemployment rate during the 1933-1940 period averaged about 18% and was as high as 28.3% in March of 1933. By the end of 1938, on the eve of World War II, the U.S. unemployment rate still hovered at just over 18 percent and was higher than it was in 1933, President Franklin D. Roosevelt's first year in office. This occurred despite (or rather, because of) six years of unprecedented levels of government intervention into the U.S. economy. The American recovery was slower than in most European nations; by 1937 Great Britain's unemployment rate had declined to 10.3 percent.

Herbert Hoover's [[Reconstruction Finance Corporation]] was greatly expanded by Roosevelt, but its effect was to make capital markets less efficient, thereby prolonging the Depression even further. As explained by RFC director Jesse Jones in his autobiography, ''Fifty Billion Dollars'', "The law specified that we should lend only where the borrower could not get the money from others on reasonable terms." That is, only to uncreditworthy borrowers. Guided by this directive, Jones and the RFC redirected billions of dollars in valuable capital to politically-connected but economically-questionable businesses. "We even loaned money to [the owners of] a drove of reindeer in Alaska," Jones boasted. The RFC was abolished in the 1955 under a cloud of corruption and scandal.

Roosevelt's public works programs may have been an economic failure, but they were a resounding political success as they provided virtually unlimited opportunities for political patronage. In 1939 a special U.S. Senate Committee on Campaign Expenditures investigated the programs and found that in many states workers were required to sign a pledge to vote Democratic and, in some cases, to make campaign contributions, as a condition of employment. Businesses that sold supplies to the government were in some places required to make campaign contributions to the Democratic party in return for the contracts. The New Deal was largely a legalized [[Extortion|shake-down]] operation.<ref name="DiLorenzo_New_Deal" /><ref name="Anderson_WPA">William L. Anderson. [http://mises.org/daily/3921 "The Curse of Good Government"], Mises Daily, December 2009, refers to the spending of New Deal money. Referenced 2010-06-20.</ref>

Roosevelt's billions, adroitly used, had broken down every political machine in America. The patronage they once lived on and the local money they once had to disburse to help the poor was trivial compared to the vast floods of money Roosevelt controlled. And no political boss could compete with him in any county in America in the distribution of money and jobs.<ref name="Flynn_Roosevelt">John T. Flynn. [http://mises.org/books/rooseveltmyth.pdf "The Roosevelt Myth"] (pdf), p. 65; 1948. Referenced 2010-06-21.</ref>

As Henry Morgenthau, the secretary of the treasury and one of the most powerful men in America, said before the Democrats on the House Ways and Means Committee in 1939<ref name="Folsom_spending">Burton Folsom Jr. [http://search.barnesandnoble.com/New-Deal-or-Raw-Deal/Burton-Folsom-Jr/e/9781416592228#EXC "New Deal or Raw Deal?: How FDR's Economic Legacy Has Damaged America"], an excerpt from the book. Referenced 2010-06-21.</ref>:

<blockquote>''"We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong...somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises....I say after eight years of this Administration we have just as much unemployment as when we started....And an enormous debt to boot!"''</blockquote>

==During World War II==
The recovery from the Great Depression in the United States is usually associated with the advent of World War II, a period when real GDP appeared to increase phenomenally and the rate of unemployment fell almost to zero. A more detailed view produces a different picture, with large government "make-work" programs at first and military employment during the war - but a very slow actual recovery. When using hours worked as measure of employment, only in 1941 total work hours exceed the 1929 value (by 3 percent), with the population vigorously engaged in mobilization for war.<ref name="Higgs_hours">Robert Higgs. [http://www.independent.org/pdf/tir/tir_14_01_8_higgs.pdf "A Revealing Window on the U.S. Economy in Depression and War - Hours Worked, 1929–1950"] (pdf), The Independent Review, v. 14, n.1, Summer 2009. Referenced 2010-06-21.</ref>

Private [[investment]] has fallen significantly. Gross private investment plunged from almost 16 percent of GDP in 1929 to less than 2 percent in 1932; recovered to 13 percent in 1937 before falling again in the recession of 1938; and as late as 1941 stood at only 14 percent. During the war years, private investment ratios ranged from 3 to 6 percent. From 1946 through 1950 they ranged from 14 to 19 percent and averaged 16 percent — the same as in 1929. In 1929, when gross private investment was $16.2 billion, net investment was $8.3 billion. Net investment fell precipitously to $2.3 billion in 1930 and then became negative during each of the following five years. For the eleven-year period of 1930 to 1940, net private investment totaled minus $3.1 billion. Only in 1941 did net private investment ($9.7 billion) exceed the 1929 amount. During the 1930s, private investment remained at depths never plumbed in any other decade for which data exist.

One hypothesis is, that the New Deal prolonged the Great Depression by creating an extraordinarily high degree of '''[[regime uncertainty]]''' for the investors. Given the unparalleled outpouring of business-threatening laws, regulations, and court decisions, the oft-stated hostility of President Roosevelt and his lieutenants toward investors as a class, the political climate could hardly have failed to discourage some investors from making long-term commitments. There also exists a great deal of direct evidence that investors felt extraordinarily uncertain about the future of the property-rights regime between 1935 and 1941. Historians have recorded countless statements by contemporaries to that effect; in the years just before the war most business executives expected substantial weakening of private property rights ranging up to "complete economic dictatorship". The possibility that the United States might undergo an extreme regime shift seemed to many investors in the late 1930s and early 1940s not only possible but likely.<ref name="Higgs_investment">Robert Higgs. [http://www.independent.org/pdf/tir/tir_01_4_higgs.pdf "Regime Uncertainty - Why the Great Depression Lasted So Long and Why Prosperity Resumed after the War"] (pdf), The Independent Review, Vol, I, No. 4, Spring 1997. Referenced 2010-06-21.</ref><ref name="Higgs_China">Robert Higgs. [http://www.independent.org/blog/index.php?p=2620 "Regime Uncertainty in the 1930s: A New Deal Insider’s Account"], ''The Beacon'', blog of the The Independent Institute, Jun 29, 2009. Referenced 2010-08-15.</ref>

==See also==

* [[Austrian Business Cycle Theory]]

==References==
{{Reflist|2}}

==External links==
* [http://www.lewrockwell.com/gordon/gordon-gd-biblio.html Bibliography on the Great Depression] by David Gordon, 2009
* [http://mises.org/daily/3941 The Myth that Is FDR] by Garet Garrett, January 2010
* [http://mises.org/daily/4350 Did Hoover Really Slash Spending?] by Robert P. Murphy, May 2010
* [http://www.ameshistoricalsociety.org/exhibits/events/rationing.htm World War II Rationing], collected by the Ames Historical Society and the [[Wikipedia:Rationing|Wikipedia]] article on the same
* [http://www.mackinac.org/article.aspx?ID=4028 Free Markets or Free Lunches?] by Lawrence W. Reed, January 1998
* [http://www.mackinac.org/article.aspx?ID=4013 Great Myths of the Great Depression] by Lawrence W. Reed, January 1998
* [http://mises.org/daily/3778 The Gold Standard and the Great Depression] by Robert P. Murphy, October 2009
* [http://mises.org/daily/1623 The New Deal Debunked (again)] by Thomas J. DiLorenzo, September 2004
* [http://www.independent.org/newsroom/article.asp?id=138 Wartime Prosperity? A Reassessment of the U.S. Economy in the 1940s] by Robert Higgs, March 1992
* [http://mises.org/daily/3661 My Summer Reading: Hyper-Inflation in Weimar Germany] by Ralph Fucetola, September 2009 (notes that the crisis was seen as insignificant at the beginning)
* [http://mises.org/journals/qjae/pdf/qjae11_3_5.pdf The Great Depression: Mises vs. Fisher] (pdf) by Mark Thornton, November 2008
* [http://www.thefreemanonline.org/featured/the-depression-youve-never-heard-of-1920-1921/ The Depression You’ve Never Heard Of: 1920-1921] by Robert P. Murphy, December 2009
* [http://mises.org/daily/3866 Reliving the Crash of '29] by Murray N. Rothbard, first published in November 1979
* [http://mises.org/daily/4039 Dangerous Lessons of 1937] by Jonathan M. Finegold Catalan, February 2010
* [http://mises.org/daily/4797 The Real Reason for FDR's Popularity] by Mark Thornton, October 2010
* [[Wikipedia:Great Depression|Great Depression]] on Wikipedia

[[Category:History of the United States]]
[[Category:Financial crises]]

Great Depression

2011-03-28T17:05:20Z

Daniel Hewitt: /* The Crash */

{{RightTOC}}
The '''Great Depression''' was the longest and most severe economic depression ever experienced by the Western world.<ref name="Britannica_debt">Encyclopædia Britannica. [http://www.britannica.com/EBchecked/topic/243118/Great-Depression "Great Depression"], Encyclopædia Britannica Online, referenced 2010-06-12.</ref>

==Prelude==
In the forty years 1890 to 1930, the population of the United States doubled, the value of farm property increased three and a half times, pig iron production four and a half times, exports five times, coal production five times, and freight traffic five and a half times, but commercial bank deposits increased over seventeen and a half times. Thus, while the gold stock had increased proportionally with the increase of industrial production, the expansion in bank credit had far outstripped both and had thus been at the expense of a thinning gold reserve. The monetary gold stock available to support and redeem this tremendous amount of bank liabilities that was being created, which had been 25.3 per cent of total note and deposit liabilities of banks in 1865, and 23.9 per cent in 1880, steadily dropped under the pressure of the public upon the banking interest for more and more credit, standing in 1900 at 20.4 per cent, in 1910 at 14.2 per cent and in 1930 at 10.4 per cent. Such had been the diminution of reserves that by the decade 1920-1930, banking was being conducted "on a shoestring." In 1900 the ratio of vault cash to deposit liabilities of commercial banks had dropped to 14.8 per cent, and in 1910 to 12.7 per cent—vault cash in those years being respectively $706,302,000 and $1,366,164,000.<ref name="Groseclose_Money">Elgin Groseclose. [http://mises.org/resources/3138/Money-and-Man Money and Man], 1934, p.209-210. Referenced 2011-03-24.</ref>

From June 1914 to January 1920, when [[Demand deposits|demand deposits]] grew by 96.9 percent, [[Time deposits|time deposits]] rose by 126.1 percent. In the great boom of the 1920s, that started after the [[Depression of 1920–21|recession of 1920–21]] (a short recession, thanks to the budget cutting and lowering of taxes by [[Warren Harding]]<ref name="Woods_Harding">Thomas E. Woods, Jr. [http://www.firstprinciplesjournal.com/articles.aspx?article=1322&theme=home&loc=b "Warren Harding and the Forgotten Depression of 1920"], First Principles, Fall 2009 issue of The Intercollegiate Review. See also the [http://www.youtube.com/watch?v=czcUmnsprQI video]. Referenced 2009-10-11.</ref>), total demand deposits rose from 1921 to 1929 by 36.5 percent. Time deposits in banks expanded in the same period by 75.9 percent. The great boom of the 1920s (also called "[[Roaring Twenties]]") was largely fueled by credit expansion going into time deposits. The greatest expansion of time deposits came in Central Reserve Cities (New York and Chicago), where the [[Federal Reserve System|Fed]]’s open market operations were all conducted, as opposed to Reserve Cities and Country Banks. As acknowledged by Federal Reserve officials, time or savings deposits were then, for all practical purposes, equivalent to demand deposits and should be paid on demand in case of a run on a bank.

With the passage of the [[Federal Reserve Act]], [[Woodrow Wilson|President Wilson]] appointed [[Benjamin Strong, Jr.|Benjamin Strong]] to the most powerful post in the Federal Reserve System, Governor of the [[Reserve Bank of New York|Federal Reserve Bank of New York]]. He made quickly this position dominant in the System and decided on Fed policy without consulting or even against the wishes of the Federal Reserve Board in Washington. Strong was the dominant leader of the Fed from 1914 until his death in 1928. He pursued an inflationary policy, to finance the war effort for [[World War I|WWI]], connected to the interests of the [[J.P. Morgan & Co.|House of Morgan]]. Another motivation was the attempt to prop up the [[Bank of England]] in the 1920s, when it returned to the [[gold standard]] with an overvalued pound. To prevent the loss of gold to the States, its governor [[Montagu Norman, 1st Baron Norman|Montagu Norman]] secretly convinced Strong to inflate in order to help England. The expansion ended only after Strong's death and the '''Great Depression''' followed soon after. In 1928 Strong admitted that "very few people indeed realized that we were now paying the penalty for the decision which was reached early in 1924 to help the rest of the world back to a sound financial and monetary basis" - that is, to help Britain maintain a phony and inflationary form of gold standard.<ref name="Rothbard_Federal_Reserve">[[Murray N. Rothbard]]. [http://mises.org/books/mysteryofbanking.pdf "The Mystery of Banking"] (pdf), Chapter XVI: Central banking in the United States IV: The Federal Reserve System, p.235-246, referenced 2009-10-03.</ref>

The inflation was also motivated by a desire to help American exporters (particularly farmers), by stimulation of foreign lending. At the same time the U.S. turned to a sharp protectionist policy with the [[Fordney–McCumber Tariff]] of 1922. In the foreign lending boom, other countries were hampered in trying to sell their goods to the United States, but were encouraged to borrow dollars. The government did not have any peacetime authority to interfere with loans, but did so illegally. In 1921, President [[Warren G. Harding|Harding]] and his cabinet conferred with several American investment bankers, at the instigation of Secretary of Commerce [[Herbert Hoover|Hoover]], to be informed in advance of foreign loans, so that the government "might express itself regarding them". The bankers agreed. Hoover commented that even bad loans helped American exports and provided a cheap form of relief and employment. Later Hoover demanded from bankers, that foreign loans would be inspected by agents of the [[Department of Commerce]]. Both requests were mostly ignored. While admitted to be legally unenforceable, it was all in the name of "national interests".<ref name="Rothbard_pre_Depression">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 5. The Development of the Inflation, p. 137-167, referenced 2009-11-17.</ref>

{{See also|Federal Reserve System}}

===Housing bubble===
An outlet for the excessive credit created by the banking system was in financing an urban real estate boom in the U.S. During the decade 1920-1930, people were moving in a constant stream into the cities; the population of the sixty-three metropolitan zones (cities of 100,000 or more plus adjacent counties) rose from 46,491,000 to 59,118,000, or from 44 per cent of total population to 48 per cent. Seventy-four per cent of the increase in total population during the decade occurred in the metropolitan areas.

A huge building boom followed, the Federal Reserve Board index of building contracts awarded, 1923-1925 taken as 100, rising from 63 in 1920 to 122 in 1925, and 135 in 1928. This boom occurred chiefly in skyscraper offices and expensive apartment house developments, whose notes were more readily marketable, rather than in the modest single family accommodations. The result was that when the era had passed the slums still existed. In New York City, for instance, where at least four skyscrapers were built in these years with the only object, apparently, of surpassing the record for the world's tallest building, from a quarter to a third of the population, say 1,800,000 persons, still occupied houses that had been outlawed thirty-three years earlier by the Tenement House Act of 1901.<ref name="Groseclose_Money">Elgin Groseclose. [http://mises.org/resources/3138/Money-and-Man Money and Man], 1934, p.225, 244. Referenced 2011-03-24.</ref>

==The Crash==
{{Main|Wall Street Crash of 1929}}
The great boom of the 1920s began around July, 1921, after a year or more of sharp recession, and ended about July, 1929, when the production and business activity began to decline, although the [[Wall Street Crash of 1929|famous stock market crash]] came in October of that year. [[Herbert Hoover]], an avid proponent of interventionism became President. Characteristic for him were "voluntary" measures that the government desired, with the implicit threat that if business did not "volunteer" properly, compulsory controls would soon follow.<ref name="Rothbard_1920s_boom">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 5. The Development of Hoover's Interventionism: Unemployment, p. 188-189, referenced 2009-11-20.</ref>

After the stock-market crash, Hoover began a series of conferences with big business and labor leaders, telling them that cutting wage rates (the standard response in previous depressions) would be disastrous, because then the workers wouldn't make enough to buy the products. This "liquidation" of labor would only deepen the depression by reducing their "purchasing power". Leading industrialists have pledged to maintain wage rates, expand construction, and share any reduced work.

After the stock-market crash, Hoover began a series of conferences with big business and labor leaders, telling them that cutting wage rates (the standard response in previous depressions) would be disastrous, because then the workers wouldn't make enough to buy the products.<ref name="Hoover 11-15-29 NC">John T. Woolley and Gerhard Peters, ''The American Presidency Project'' [online]. Santa Barbara, CA. Available from World Wide Web: http://www.presidency.ucsb.edu/ws/?pid=22005.</ref> This "liquidation" of labor would only deepen the depression by reducing their "purchasing power". Leading industrialists pledged to maintain wage rates, expand construction, and share any reduced work,<ref name="Hoover CC remarks">John T. Woolley and Gerhard Peters, ''The American Presidency Project'' [online]. Santa Barbara, CA. Available from World Wide Web: http://www.presidency.ucsb.edu/ws/?pid=22023.</ref> to fulfill Hoover's request that "the first shock must fall on profits and not on wages".<ref name="hoover44">Herbert Hoover, ''The Memoirs of Herbert Hoover: The great depression, 1929-41'', (New York: Macmillan, 1952) 44-45.</ref>

At the same time, the Federal Reserve expanded rapidly and lowered its interest rates. Its member banks expanded their deposits in the last week of October 1929 alone by 10%, mostly in New York. Hoover praised the Fed for the saving of shaky banks and restoring confidence.<ref name ="Hoover CC remarks" /> The depression should be over in a few months. A large public works program was also initiated.<ref name="Rothbard_public_works">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 8. The Depression Begins: President Hoover Takes Command, p. 209-217, referenced 2009-11-21.</ref>

Hoover promised the farm bloc to support farm cooperatives and prices and established the [[Federal Farm Board]] (FFB). It would make all-purpose loans to farm cooperatives at low interest rates and establish "stabilization corporations" to control farm surpluses and bolster farm prices. Its board was dominated by representatives of these farm cooperatives. To combat falling prices, it made loans to farmers to keep wheat and cotton off the market and later started to buy the surpluses. For a while, prices were held up and farmers increased production, only to find that prices would fall even more. As America held wheat off the market, it lost its former share of the world’s wheat trade. The farmers were urged to decrease their acreage, while the government still promoted reclamation projects to increase farm production. The surpluses of wheat accumulated and prices fell to such a degree, that the FFB decided to dump wheat stocks abroad, resulting in a drastic fall in market prices. The attempts to keep up the price of cotton, wool, livestock, etc. failed as well. A "[[Farmers' Holiday Association|Farm Holiday]]" was declared to stop production, The movement soon turned to violence and failed to stop the falling farm prices. but succeeded to avoid some foreclosures of its members.<ref name="Rothbard_Agriculture">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), The New Deal Farm Program, p. 217-237, referenced 2009-11-21.</ref>

In 1930, the [[Smoot–Hawley Tariff Act|Smoot–Hawley Tariff]] was passed, despite objections of many economists and industrial leaders. Hoover originated a higher tariff on agricultural products to help farmers, but it was raised on many other products. Many other countries have retaliated with their own tariffs and foreign trade declined significantly. (From 1929 to 1932, U.S. imports from Europe decreased from $1,334 million to just $390 million, while U.S. exports to Europe decreased from $2,341 million to $784 million. Overall, world trade decreased by some 66% between 1929 and 1934.<ref>U.S. Department of State. [http://future.state.gov/when/timeline/1921_timeline/smoot_tariff.html Smoot-Hawley Tariff], referenced 2009-11-22.</ref>) Also, to relieve the unemployment problem, and to help keep wage rates up, the President effectively banned further immigration into the United States.<ref name="Rothbard_Depression_1930">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 9. 1930, p. 239-256, referenced 2009-11-22.</ref>

===In Europe===
In Europe, the crisis began in earnest with the ''Boden–Kredit Anstalt'', the most important bank in Austria and Eastern Europe. It had to merge with the [[Creditanstalt|Oesterreichische–Kredit–Anstalt]] after rescue attempts by its government and other banks. When Austria declared a customs union with Germany in March 1931, the French government feared this development and several French banks suddenly insisted on redemption of their debts from both countries. The bank collapsed. After more rescue attempts has the Austrian Government voted a $150 million guarantee to the bank, but the its credit was by the time worthless, and Austria soon declared national bankruptcy by going off the gold standard. Later, Germany, England, and most other European countries renounced their obligations and went off the gold standard as well. While the impact on United States was not very large due to the lowered international trade, it certainly did not help, neither did the many loans granted to prop up foreign banks.<ref name="Rothbard_Depression_1931_Europe">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 10. 1931—"The Tragic Year", p. 257-284, referenced 2009-11-27.</ref>

==1931, "The Tragic Year"==
The crisis worsened in the US in 1931. Production continued to fall drastically, as did prices and foreign trade, and unemployment ran up to almost 16 percent of the labor force. The Federal Reserve Board (FRB) index of manufacturing production, which had been 110 in 1929 and 90 in 1930, fell to 75 in 1931. Hardest hit, in accordance with Austrian [[ABCT|cycle theory]], were producers’ goods and higher order [[capital]] goods industries, rather than the consumer goods’ industries. Despite attempts to inflate, bank deposits and the aggregate [[money supply]] fell sharply, particularly at the end of the year. The British abandoning of the gold standard, bank failures abroad and the growing number of failures at home, caused a growing loss of confidence by Americans in their banking system. The wages were also beginning to fall, first secretly, then openly by the end of 1931.

The gross national product fell from $91.1 billion in 1930, to $76.3 billion in 1931. Total government receipts fell from $13.5 billion to $12.4 billion, but total government expenditures rose from $13.9 billion to $15.2 billion, in federal, rather than state and local, spending (federal expenditures rose from $4.2 billion in 1930 to $5.5 billion in 1931). In the middle of a great depression when people needed to be relieved of governmental burdens, the dead weight of government rose from 16.4 percent to 21.5 percent of the gross private product. From a modest surplus in 1930, the Federal government so ran up a huge $2.2 billion deficit in 1931.<ref name="Rothbard_Depression_1931_Europe" />

Direct relief was just about the one sphere where President Hoover seemed to prefer voluntary to governmental action. The [[Red Cross]] opposed a bill, in early 1931, that would grant it $25 million for relief, declaring that it would "to a large extent destroy voluntary giving". Many private charity organizations, philanthropists, and social workers had the same views. Governmental unemployment relief was seen to have a role in creating and perpetuating unemployment in Britain (the "dole"). It was attacked by many business leaders, including [[Henry Ford]], the leaders of the [[National Association of Manufacturers]] and the [[United States Chamber of Commerce|Chamber of Commerce]], and former President [[Calvin Coolidge|Coolidge]].<ref name="Rothbard_Depression_1931_Europe" />

The [[Davis-Bacon Act]] was signed by President Hoover in 1931. It mandated that prevailing (union) wages be paid by the Federal Government for public works projects. It has been argued that the Davis-Bacon Act was a [[Jim Crow law]], since its intent <ref name=”williams”>Walter Williams, [http://www.jewishworldreview.com/cols/williams031203.asp "Congress' insidious discrimination"], ''Jewish World Review'' (March 12, 2003), accessed 2011-02-01.</ref> and its effect <ref name=”cato”> David Bernstein, [http://www.cato.org/pubs/briefs/bp-017.html "The Davis-Bacon Act: Let's Bring Jim Crow to an End"], ''Cato Institute Briefing Papers'' (January 18, 1993), accessed 2011-02-01.</ref> was to prevent lower-paid, non-unionized black laborers from competing against higher-paid, unionized white laborers. Hoover promoted and supported the legislation, as he believed that "[t]he very essence of great production is high wages...because it depends upon a widening range of consumption only to be obtained from the purchasing power of high real wages...." <ref name="hoover108">Herbert Hoover, ''The Memoirs of Herbert Hoover: Volume 2, The Cabinet and the Presidency, 1920-33'', (New York: Macmillan, 1952) 108.</ref>

==1932, The Hoover New Deal==
In an atmosphere of crisis, President Hoover called for more drastic measures, including more government aid and loans. With a $2 billion deficit during annual year 1931, Hoover felt that he had to do something to combat it and chose to increase the taxes. The [[Revenue Act of 1932]] was one of the greatest increases in taxation ever enacted in the United States in peacetime. Many wartime
excise taxes were revived, sales taxes were imposed on gasoline, tires, autos, electric energy, malt, toiletries, furs, jewelry, and other articles; admission and stock transfer taxes were increased; new taxes were levied on bank checks, bond transfers, telephone, telegraph, and radio messages; and the personal income tax was raised drastically as follows: the normal rate was increased from a range of 1½ percent–5 percent, to 4 percent–8 percent; personal exemptions were sharply reduced, and an earned credit of 25 percent eliminated; and surtaxes were raised enormously, from a maximum of 25 percent to 63 percent on the highest incomes. Furthermore, the corporate income tax was increased from 12 percent to 13: percent, and an exemption for small corporations eliminated; the estate tax was doubled, and the exemption floor halved; and the gift tax, which had been eliminated, was restored, and graduated up to 33⅓ percent. The postal rates were raised as well.

Despite the drastic increase in tax rates, total Federal revenue for 1932 declined because of the deepened depression—itself partly caused by the increase in tax rates. Total Federal receipts, excluding government enterprises, declined from $2.2 billion in 1931 to $1.9 billion in 1932; including government enterprises, Federal receipts fell from $3.4 billion to $3 billion.

Total government receipts fell from $12.4 billion to $11.5 billion. As a result, the huge Federal deficit continued despite a drop in government expenditures in 1932: Federal expenditures falling from $5.5 billion to $4.4 billion, and aggregate government expenditures falling from $15.2 billion to $13.2 billion (all numbers including government enterprises). Of the $1.7 billion in total government deficit, the bulk of it — $1.4 billion — was in the Federal government account. The state and local governments were forced to cut back their expenditures to near the level of their dwindling receipts. One of the most ominous projects for Federal spending during 1932 was a Congressional move for a huge $2 billion veterans bonus, to be financed by an issue of new currency. It was its final defeat in the Senate in June that did most to defeat a general clamor for much larger government spending.

Meanwhile, however, President Hoover himself was beginning to have doubts about one of his favorite policies: public works. In a conference at the end of February, Hoover admitted that his public works program, which had nearly doubled Federal construction since the start of the depression, had failed. It was very expensive, costing over $1200 per family aided, it was unavailable to the needy in remote regions and to those who were unable to perform such labor, which was, after all, unskilled make-work. By May, Hoover had openly reversed his earlier position. As a result, Federal public works only increased by $60 million in 1932, to reach the $333 million mark. Public works was not to come really to the fore again until the Roosevelt administration.

Holding firm to his interventionist belief that the downward pressure on wages must be resisted <ref name ="hoover108" />, Hoover signed the [[Norris-Laguardia Act]] into law on March 23, 1932. It banned "yellow-dog" contracts, removed federal courts’ authority to issue injunctions against labor disputes, and provided greater ease for workers to organize<ref name="enotes">[http://www.enotes.com/major-acts-congress/norris-laguardia-act "Norris-Laguardia Act (1932): Major Acts of Congress"], accessed 2011-02-01.</ref>; a landmark victory for organized labor.

If Hoover eagerly embraced other forms of [[intervention]], he gave ground but grudgingly on one issue where he had championed the voluntary approach: direct relief. Governor [[Franklin D. Roosevelt]] of New York led the way for state relief programs in the winter of 1931–1932, and he induced New York to establish the first state relief authority: the Temporary Emergency Relief Administration, equipped with $25 million. Other states followed this lead, and a bill was introduced for a $500 million federal relief program. The bill was defeated, but, with depression deepening and a Presidential election approaching, the administration all but surrendered, passing the [[Emergency Relief and Construction Act]] of July, 1932 — the nation’s first Federal relief legislation. All in all, total public relief in 120 of the nation’s leading urban areas amounted to $33 million in 1929, $173 million in 1931, and $308 million in 1932.

One thing Hoover was not reticent about: inflation. The administration first cleared the path for the program by passing the [[Glass–Steagall Act]] in February, which (a) greatly broadened the assets eligible for rediscounts with the Fed, and (b) permitted the Federal Reserve to use government bonds as collateral for its notes, in addition to commercial paper. At the end of February, 1932, total bank reserves had fallen to $1.85 billion. At that point, the [[Federal Reserve System|FRS]] launched a gigantic program of purchasing U.S. government securities. By the end of 1932, total reserves had been raised to $2.51 billion. This enormous increase of $660 million in reserves in less than a year is unprecedented in the previous history of the System. If the banks had kept loaned-up, the money supply of the nation would have increased by approximately $8 billion. Instead, the money supply fell by $3.5 billion during 1932, from $68.25 to $64.72 billion at the end of the year, and with the bank deposit component falling by $3.2 billion. Until the second quarter of 1932, the nation’s banks had always remained loaned up, with only negligible excess reserves. After, the banks accumulated excess reserves, and it is estimated that the proportion of excess to total bank reserves rose from 2.4 percent in the first quarter of 1932, to 10.7 percent in the second quarter. By the fourth quarter of 1932, excess reserves were estimated to a double of 20.3 percent of total bank reserves.

During the 1920s, a typical year might find 700 banks failing, with deposits totaling $170 million. In 1930, 1350 banks failed, with deposits of $837 million; in 1931, 2,293 banks collapsed, with deposits of $1,690 million; and in 1932, 1,453 banks failed, having $706 million in deposits. This enormous increase in bank failures was enough to give any bank pause—particularly when the bankers knew in their hearts that no bank (outside of the nonexisting ideal 100 percent bank) can ever withstand a determined run. Consequently, the banks permitted their commercial loans to run down without increasing their investments. Inflation by the government was turned into deflation by the policies of the public and the banks. The American economy reached the depths of depression during 1932 and 1933, and yet it had begun to turn upward by mid-1932. It is not far-fetched to believe that the considerable deflation of July 1931–July 1932, totaling $7.5 billion of currency and deposits, or 14 percent, was partly responsible for the mid-summer upturn.<ref name="Rothbard_Depression_1932">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 11. The Hoover New Deal of 1932, p. 285-320, referenced 2009-11-27.</ref>

As the Depression got worse and people lost their confidence in the banks, they decided to take custody of their cash. Seeing people in large numbers pulling their money out of banks — money the banks had promised to provide on demand — President Hoover blasted them for their "traitorous hoarding." He organized an antihoarding drive and delivered a radio address ([http://www.bobsuniverse.com/BWAH/31-Hoover/19320306a.pdf transcript], pdf) in which he pleaded with the public to stop hoarding (i.e., to stop converting their bank deposits into cash).<ref name="Smith_hoarding">George F. Smith. [http://mises.org/story/3707 "The Virtue of Hoarding"], Mises Daily, posted on October 09, 2009, referenced 2009-11-18.</ref>

Nominal paychecks fell much more slowly during the early years of the Great Depression than the general [[price]] level (wholesale prices fell by 10 percent in 1930, by 15 percent in 1931)<ref name="Rothbard_Depression_1931_Europe" /> - and those who kept their job experienced a higher increase in real (inflation-adjusted) wages, than during the Roaring 1920s!<ref name="ohanian"> Lee E. Ohanian, "What - or Who - Started the Great Depression?", ''NBER Working Paper No. 15258'' (August 2009). Free copy online [http://www.econ.ucla.edu/people/papers/Ohanian/Ohanian499.pdf "here"]</ref> And so has unemployment reached record highs during Hoover's first and only term. When FDR went back on the US government's promise to redeem dollars for gold, the Federal Reserve could flood the economy with new dollars, the prices began to rise again. Because wage rates were not allowed to fall to their new, market-clearing level, [[Inflation|inflating]] the currency has paradoxically reduced unemployment.<ref name="Murphy_Depression">Robert P. Murphy. [http://mises.org/story/3778 "The Gold Standard and the Great Depression"], Mises Daily, posted on October 30, 2009, referenced 2009-11-18.</ref>

The Fed has expanded bank reserves in the 1930s. Panicking at the inflationary potential, it doubled the minimum reserve requirements to 20 percent in 1938, sending the economy into a tailspin of credit liquidation. The Fed, ever since that period, has been very cautious about the degree of its changes and changed bank reserve requirements fairly often, but in very small steps, by fractions of one percent.<ref name="Rothbard_Fed_requirements">[[Murray N. Rothbard]]. [http://mises.org/books/fed.pdf "The Case Against the Fed"] (pdf), How the Fed Rules and Inflates, p. 144, referenced 2010-03-23.</ref>

After 1933, Federal Reserve Notes and deposits were no longer redeemable in gold coins to Americans, their gold was confiscated and exchanged for Federal Reserve Notes, which became legal tender; and Americans were stuck in a regime of fiat paper issued by the government and the Federal Reserve.<ref name="Rothbard_Fed_gold">[[Murray N. Rothbard]]. [http://mises.org/books/fed.pdf "The Case Against the Fed"] (pdf), The New Deal and the Displacement of the Morgans, p. 131-132, referenced 2010-05-10.</ref>

===Tax revolt in the USA===
There has been a widespread opposition to real estate taxes in cities across America and some Americans were in fact not paying their taxes. The movement declined quickly, some scholars acknowledge certain influence, but ultimately declare it a failure.<ref name="Beito_revolt">David T. Beito. [http://mises.org/books/taxpayersinrevolt.pdf Taxpayers in Revolt - Tax Resistance during the Great Depression] (pdf), referenced 2010-06-15.</ref> Others consider it a resounding success, however.

President Hoover's massive tax increase bill that passed into law as the [[Revenue Act of 1932]], with many new taxes. The most burdensome taxes for many Americans, however, was the property tax. Property taxes required taxpayers to make an explicit tax payment of significant size from which they could not evade without losing what was often their most significant piece of property and wealth. The property taxes have risen in the decade before the Depression; throughout the 1920s, the general property tax accounted for over 90 percent of taxes levied by all cities over 30,000 in population. One reason for this dependence was that alcohol revenue from sales taxes and licenses had "dried up" due to prohibition. The burden of taxes increased significantly, even if tax rates remained the same. Another source of taxpayer ire was that the real wages of public employees rose nearly 12% between 1929 and 1933.

Tax delinquency increased from its normal rate of 10% to more than 30%. Tax protest organization formed quickly and spontaneously in rural regions in response to tax authorities selling the land of farmers. Estimates placed the number of taxpayer organizations at between 3,000 and 4,000 organizations nationwide.

The tax limitation movement was effective in several states in establishing cuts and limitations on property tax rates. The second success, which was both more important and far less obvious, was the passage of the 21st Amendment that repealed alcohol [[Prohibition in the United States|prohibition]]. The legalization of alcohol sales in most states provided federal, state, and local government with increased tax revenues to offset cuts in property taxes while simultaneously providing a drastic decrease in the price of alcohol and in effect granting the American public a type of tax cut. Income tax revenue fell 60% from 1930 to 1933 placing a severe financial constraint on Congress. The search for an alternative revenue source led to the conversion of F.D.R. from a "dry" to a "wet" and resulted in the 1932 Democratic party platform to call for Repeal in order to provide "a proper and needed revenue." Revenue shortfalls made Repeal possible and the alcohol tax provided 13% of all federal revenue by 1936.<ref name="Thornton_revolt">Mark Thornton and Chetley Weise. [http://mises.org/journals/jls/15_3/15_3_4.pdf The Great Depression Tax Revolts Revisited.] (pdf), Journal of Libertarian Studies, Volume 15, no. 3 (Summer 2001), referenced 2010-06-15.</ref><ref name="Thornton_success_revolt">Mark Thornton and Chetley Weise. [http://mises.org/journals/scholar/Thornton1.PDF The Success of the Great Depression Tax Revolts] (pdf), referenced 2010-06-15.</ref>

==1933, end of Hoover's term==
Seeking reelection, Hoover boasted of his many interventions with the economy. In his acceptance speech for the Presidential renomination he said:
<blockquote>''"We might have done nothing. That would have been utter ruin. Instead, we met the situation with proposals to private business and to the Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic. We put that program in action."''<ref name="Hoover_nomination">Herbert Hoover. [http://americanhistory.about.com/library/docs/blhooverspeech1932.htm "Address Accepting the Republican Presidential Nomination"], August 11, 1932. The address was carried over the National Broadcasting Company and the Columbia Broadcasting System radio networks. This is a transcript taken from a sound recording of the address. Referenced 2010-06-20.</ref></blockquote>

After the election of [[Franklin D. Roosevelt|Roosevelt]], as the new Presidential term approached, dark rumors circulated about the radicalism of Roosevelt’s advisers, and of their willingness to go off the [[gold standard]]. Consequently, not only did gold "hoarding" by foreigners develop momentum, but even gold hoarding by domestic citizens. For the first time in the depression, American citizens were beginning to lose confidence in the dollar itself. The loss of confidence reached its apogee in February, 1933, the month before the Roosevelt inaugural. In that one month, the monetary gold stock fell by $173 million, and money in circulation increased by the phenomenal amount of $900 million, the reflection of domestic loss of confidence. Money in circulation totaled $5.4 billion at the end of January, and $6.3 billion by the end of February. $700 million of this increase was in Federal Reserve notes, and $140 million in gold coin and gold certificates.

The Federal Reserve did its best to combat this deflationary pull on bank reserves, but its inflationary measures only served to diminish confidence in the dollar still further. Total money supply fell from $64.72 to $61.61 billion over 1933, and all or more of this fall took place in the first half of the year. Bank failures skyrocketed during this period. The number of commercial bank failures increased from 1,453 in 1932 to 4,000 in 1933 (most of which took place in the first quarter).

The reaction to this growing insistence of the people on claiming their rightful, legally-owned property, was a series of attacks on property rights by state after state. One by one, states imposed "bank holidays" by fiat, permitting the banks to stay in business while refusing to pay virtually all of the just claims of their depositors. The bank holiday movement began in earnest with the proclamation of an eight-day holiday on February 14, 1933, by Governor William Comstock of Michigan. This precipitated the bank runs and deflation of the latter part of February and depositors began an intense scramble to take their money out of the banks. Many national banks, which had worked hard to keep themselves in an at least relatively sound position, did not want to use the special privilege of bank holiday, and had to be coerced into doing so.

By March 4, every state in the Union had declared a bank holiday, and the stage was set for President Roosevelt’s dramatic and illegal closing of all the banks. President Roosevelt closed down all the banks throughout the nation for an entire week, from March 6 to 13, with many banks remaining closed even longer. Restrictions against so-called "hoarding" were continued afterward, and much hoarded gold returned to the banks following a Federal Reserve threat to publish a list, for full public scorn, of the leading "gold hoarders."

Mr. Hoover left office in March, 1933, at the very depth of the greatest depression in American history. Production had fallen by more than one-half: industrial production had been at an index of 114 in August, 1929, and then fell to 54 by March, 1933. Unemployment was persisting at nearly 25 percent of the labor force, and gross national product had also fallen almost in half. Hardest hit was investment, especially business construction, the latter falling from about $8.7 billion in 1929 to $1.4 billion in 1933. The index of non-durable manufacturing production fell from 94 to 66 from August, 1929, to March, 1933—a decline of 30 percent; the index of durable manufactures fell from 140 to 32, in the same period, a decline of 77 percent. In durable goods industries (e.g., building, roads, metals, iron and steel, lumber, railroad, etc.) it was estimated that their total employment fell from 10 million in 1929 to 4 million in 1932–1933, while employment in consumer goods industries (e.g., food, farming, textiles, electricity, fuel, etc.) only fell from 15 million to 13 million in the same period. Stock prices (industrials) fell by 76 percent during the depression, wholesale prices fell by 30 percent, and the total money supply declined by one-sixth.

Wage rates were kept very high during the first two years of the depression. By 1932, however, with profits wiped out, the pressure became too great, and wage rates fell considerably. Total fall over the 1929–1933 period, however, was only 23 percent - less than the decline in wholesale prices. Therefore, real wage rates, for the workers still remaining employed, actually increased. While real average hourly earnings rose, actual hours worked in industry fell drastically during the depression. Weekly hours averaged over 48 in 1929, and fell to less than 32 by mid-1932. In no previous depression had hours worked fallen by more than 10 percent. This was a form of reduced employment caused by the high-wage policy. As a result, average weekly earnings fell by over 40 percent during the depression, and real weekly earnings fell by over 30 percent. But hardest hit were the unemployed, the percentage of whom rose to 25 percent by 1932–1933, and reached 47 percent in selected manufacturing industries. The fall in man-hours combined with the fall in average hourly earnings caused a truly precipitate drop in total factory payrolls - the base of the very "purchasing power" that the policy was supposed to sustain.<ref name="Rothbard_Hoover_End">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 12. The Close of the Hoover Term, p. 321-337, referenced 2010-06-20.</ref>

==The New Deal==
===Roosevelt's Campaign===
Under the Democratic platform of 1932, which Franklin D. Roosevelt endorsed, contained several subsidies and regulations, but it hardly embraced the enormous expansion in federal power that FDR would achieve. The very first plank called for "an immediate and drastic reduction of governmental expenditures by abolishing useless commissions and offices, consolidating departments and bureaus, and eliminating extravagance to accomplish a saving of not less than twenty-five per cent in the cost of the Federal Government."<ref name="Woolley_Dem_1932">John T. Woolley and Gerhard Peters. [http://www.presidency.ucsb.edu/ws/index.php?pid=29595 "Democratic Party Platform of 1932"], June 27, 1932, from The American Presidency Project [online]. Referenced 2010-06-20.</ref> Subsequent planks demanded a balanced budget, a low tariff, the repeal of Prohibition, "a sound currency to be preserved at all hazards," "no interference in the internal affairs of other nations," and "the removal of government from all fields of private enterprise except where necessary to develop public works and natural resources in the common interest." The document concluded with a quote from Andrew Jackson: "equal rights to all; special privilege to none."

FDR's campaign reflected that platform. He accused Herbert Hoover of "reckless and extravagant spending," and he further denounced the Republican incumbent for believing "we ought to center control of everything in Washington as rapidly as possible." Even when he called for interventions in the economy, he generally couched his words in the old liberals' language of equal treatment rather than the new liberals' vision of enlightened central planning. In his famous Forgotten Man speech of April 1932 (see [http://newdeal.feri.org/speeches/1932c.htm transcript]), the Democratic candidate pointed to the wave of foreclosures sweeping the nation. Noting that Hoover had created a "two billion dollar fund...put at the disposal of the big banks, the railroads and the corporations of the Nation," FDR averred that the government should "provide at least as much assistance to the little fellow as it is now giving to the large banks and corporations." Once in office, the new administration did indeed repeal Prohibition, and it eventually lowered some trade barriers as well. By the time of FDR's death, the federal bureaucracy's power had grown so enormously that Hoover was widely remembered as the last apostle of laissez faire.<ref name="Walker_FDR">Jesse Walker. [http://reason.com/archives/2008/04/10/the-new-franklin-roosevelts "The New Franklin Roosevelts"], April 10, 2008. Referenced 2010-06-20.</ref>

===Policy===
A principal feature of '''[[New Deal]]''' economic policy was government-sponsored industrial [[cartel]]s (the [[National Recovery Act]]); agricultural cartels (the [[Agricultural Adjustment Act]]); and labor cartels (the [[Norris – La Guardia Act|Norris-LaGuardia]] and [[National Labor Relations Act|Wagner Acts]]). The purpose of any cartel is to restrict output and raise prices. Lower levels of production leads to higher unemployment, which is exactly what the NRA and AAA did.

The NRA was almost identical to the Italian corporatist system that existed at the time. In Italy each trade or industrial group was organized into a government-controlled "corporative" association that had the power to plan production and pricing. In the U.S. the NRA organized each industry into federally-supervised trade associations called "Code Authorities" which could also limit output and set prices. The antitrust laws were explicitly set aside.

Over 700 industrial codes were created and were rigorously enforced by thousands of government code enforcers who, "could enter a man's factory, send him out, line up his employees, subject them to minute interrogation, take over his books on the instant." A hapless New Jersey tailor named Jack Magid became nationally famous after he was arrested, convicted, and imprisoned by the code police for the "crime" of pressing a suit of clothes for 35 cents when the Tailors' Code fixed the price at 40 cents. The NRA was ruled unconstitutional by the U.S. Supreme Court on May 27, 1935.<ref name="DiLorenzo_New_Deal">Thomas J. DiLorenzo. [http://mises.org/daily/55 "A New, New Deal"], Mises Daily, October 1998, referenced 2010-06-20.</ref> A study of the Act noted that "the licensing provision, giving the president the power of life or death over business enterprises, is the ultimate weapon of enforcement and the capstone of the powers granted to the president ... the most extraordinary extension of presidential power in American history." The Supreme Court's decision has noted, that 'fair competition' is not defined in the law and could be a convenient designation for whatever set of laws that is proposed and the president may approve. It ruled that NIRA was "an unconstitutional delegation of legislative power."

But after [[Judiciary Reorganization Bill of 1937|Roosevelt's court-packing threat]] of 1937, the justices succumbed to whatever creative definition of fairness that Congress or federal agencies chose to proclaim. For instance, in 1942, Congress passed the Emergency Price Control Act, which created an Office of Price Administration. The OPA had sweeping power to set or strike down prices in any industry or activity that it considered to be "defense-related" — a vague term that could have encompassed practically the entire national economy. The act contained no substantive guidelines for the administrator's decisions but merely required prices that "in his judgment will be generally fair and equitable."<ref name="Bovard_Cuttthroat">James Bovard. [http://www.fff.org/freedom/0499d.asp "Cutthroat Competition and Dead Chickens"], The Future of Freedom Foundation, April 1999. Referenced 2010-06-20.</ref>

===Effects===
The Roosevelt administration also orchestrated various price-fixing schemes in labor markets, principally for the benefit of unions. Payroll taxes to finance Social Security and Unemployment Insurance programs increased employers' wage bills even further, which also reduced the level of employment. According to an econometric estimate, government-mandated payroll cost increases added nearly 1.2 million people to the unemployment rolls by 1938.

The unemployment rate during the 1933-1940 period averaged about 18% and was as high as 28.3% in March of 1933. By the end of 1938, on the eve of World War II, the U.S. unemployment rate still hovered at just over 18 percent and was higher than it was in 1933, President Franklin D. Roosevelt's first year in office. This occurred despite (or rather, because of) six years of unprecedented levels of government intervention into the U.S. economy. The American recovery was slower than in most European nations; by 1937 Great Britain's unemployment rate had declined to 10.3 percent.

Herbert Hoover's [[Reconstruction Finance Corporation]] was greatly expanded by Roosevelt, but its effect was to make capital markets less efficient, thereby prolonging the Depression even further. As explained by RFC director Jesse Jones in his autobiography, ''Fifty Billion Dollars'', "The law specified that we should lend only where the borrower could not get the money from others on reasonable terms." That is, only to uncreditworthy borrowers. Guided by this directive, Jones and the RFC redirected billions of dollars in valuable capital to politically-connected but economically-questionable businesses. "We even loaned money to [the owners of] a drove of reindeer in Alaska," Jones boasted. The RFC was abolished in the 1955 under a cloud of corruption and scandal.

Roosevelt's public works programs may have been an economic failure, but they were a resounding political success as they provided virtually unlimited opportunities for political patronage. In 1939 a special U.S. Senate Committee on Campaign Expenditures investigated the programs and found that in many states workers were required to sign a pledge to vote Democratic and, in some cases, to make campaign contributions, as a condition of employment. Businesses that sold supplies to the government were in some places required to make campaign contributions to the Democratic party in return for the contracts. The New Deal was largely a legalized [[Extortion|shake-down]] operation.<ref name="DiLorenzo_New_Deal" /><ref name="Anderson_WPA">William L. Anderson. [http://mises.org/daily/3921 "The Curse of Good Government"], Mises Daily, December 2009, refers to the spending of New Deal money. Referenced 2010-06-20.</ref>

Roosevelt's billions, adroitly used, had broken down every political machine in America. The patronage they once lived on and the local money they once had to disburse to help the poor was trivial compared to the vast floods of money Roosevelt controlled. And no political boss could compete with him in any county in America in the distribution of money and jobs.<ref name="Flynn_Roosevelt">John T. Flynn. [http://mises.org/books/rooseveltmyth.pdf "The Roosevelt Myth"] (pdf), p. 65; 1948. Referenced 2010-06-21.</ref>

As Henry Morgenthau, the secretary of the treasury and one of the most powerful men in America, said before the Democrats on the House Ways and Means Committee in 1939<ref name="Folsom_spending">Burton Folsom Jr. [http://search.barnesandnoble.com/New-Deal-or-Raw-Deal/Burton-Folsom-Jr/e/9781416592228#EXC "New Deal or Raw Deal?: How FDR's Economic Legacy Has Damaged America"], an excerpt from the book. Referenced 2010-06-21.</ref>:

<blockquote>''"We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong...somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises....I say after eight years of this Administration we have just as much unemployment as when we started....And an enormous debt to boot!"''</blockquote>

==During World War II==
The recovery from the Great Depression in the United States is usually associated with the advent of World War II, a period when real GDP appeared to increase phenomenally and the rate of unemployment fell almost to zero. A more detailed view produces a different picture, with large government "make-work" programs at first and military employment during the war - but a very slow actual recovery. When using hours worked as measure of employment, only in 1941 total work hours exceed the 1929 value (by 3 percent), with the population vigorously engaged in mobilization for war.<ref name="Higgs_hours">Robert Higgs. [http://www.independent.org/pdf/tir/tir_14_01_8_higgs.pdf "A Revealing Window on the U.S. Economy in Depression and War - Hours Worked, 1929–1950"] (pdf), The Independent Review, v. 14, n.1, Summer 2009. Referenced 2010-06-21.</ref>

Private [[investment]] has fallen significantly. Gross private investment plunged from almost 16 percent of GDP in 1929 to less than 2 percent in 1932; recovered to 13 percent in 1937 before falling again in the recession of 1938; and as late as 1941 stood at only 14 percent. During the war years, private investment ratios ranged from 3 to 6 percent. From 1946 through 1950 they ranged from 14 to 19 percent and averaged 16 percent — the same as in 1929. In 1929, when gross private investment was $16.2 billion, net investment was $8.3 billion. Net investment fell precipitously to $2.3 billion in 1930 and then became negative during each of the following five years. For the eleven-year period of 1930 to 1940, net private investment totaled minus $3.1 billion. Only in 1941 did net private investment ($9.7 billion) exceed the 1929 amount. During the 1930s, private investment remained at depths never plumbed in any other decade for which data exist.

One hypothesis is, that the New Deal prolonged the Great Depression by creating an extraordinarily high degree of '''[[regime uncertainty]]''' for the investors. Given the unparalleled outpouring of business-threatening laws, regulations, and court decisions, the oft-stated hostility of President Roosevelt and his lieutenants toward investors as a class, the political climate could hardly have failed to discourage some investors from making long-term commitments. There also exists a great deal of direct evidence that investors felt extraordinarily uncertain about the future of the property-rights regime between 1935 and 1941. Historians have recorded countless statements by contemporaries to that effect; in the years just before the war most business executives expected substantial weakening of private property rights ranging up to "complete economic dictatorship". The possibility that the United States might undergo an extreme regime shift seemed to many investors in the late 1930s and early 1940s not only possible but likely.<ref name="Higgs_investment">Robert Higgs. [http://www.independent.org/pdf/tir/tir_01_4_higgs.pdf "Regime Uncertainty - Why the Great Depression Lasted So Long and Why Prosperity Resumed after the War"] (pdf), The Independent Review, Vol, I, No. 4, Spring 1997. Referenced 2010-06-21.</ref><ref name="Higgs_China">Robert Higgs. [http://www.independent.org/blog/index.php?p=2620 "Regime Uncertainty in the 1930s: A New Deal Insider’s Account"], ''The Beacon'', blog of the The Independent Institute, Jun 29, 2009. Referenced 2010-08-15.</ref>

==See also==

* [[Austrian Business Cycle Theory]]

==References==
{{Reflist|2}}

==External links==
* [http://www.lewrockwell.com/gordon/gordon-gd-biblio.html Bibliography on the Great Depression] by David Gordon, 2009
* [http://mises.org/daily/3941 The Myth that Is FDR] by Garet Garrett, January 2010
* [http://mises.org/daily/4350 Did Hoover Really Slash Spending?] by Robert P. Murphy, May 2010
* [http://www.ameshistoricalsociety.org/exhibits/events/rationing.htm World War II Rationing], collected by the Ames Historical Society and the [[Wikipedia:Rationing|Wikipedia]] article on the same
* [http://www.mackinac.org/article.aspx?ID=4028 Free Markets or Free Lunches?] by Lawrence W. Reed, January 1998
* [http://www.mackinac.org/article.aspx?ID=4013 Great Myths of the Great Depression] by Lawrence W. Reed, January 1998
* [http://mises.org/daily/3778 The Gold Standard and the Great Depression] by Robert P. Murphy, October 2009
* [http://mises.org/daily/1623 The New Deal Debunked (again)] by Thomas J. DiLorenzo, September 2004
* [http://www.independent.org/newsroom/article.asp?id=138 Wartime Prosperity? A Reassessment of the U.S. Economy in the 1940s] by Robert Higgs, March 1992
* [http://mises.org/daily/3661 My Summer Reading: Hyper-Inflation in Weimar Germany] by Ralph Fucetola, September 2009 (notes that the crisis was seen as insignificant at the beginning)
* [http://mises.org/journals/qjae/pdf/qjae11_3_5.pdf The Great Depression: Mises vs. Fisher] (pdf) by Mark Thornton, November 2008
* [http://www.thefreemanonline.org/featured/the-depression-youve-never-heard-of-1920-1921/ The Depression You’ve Never Heard Of: 1920-1921] by Robert P. Murphy, December 2009
* [http://mises.org/daily/3866 Reliving the Crash of '29] by Murray N. Rothbard, first published in November 1979
* [http://mises.org/daily/4039 Dangerous Lessons of 1937] by Jonathan M. Finegold Catalan, February 2010
* [http://mises.org/daily/4797 The Real Reason for FDR's Popularity] by Mark Thornton, October 2010
* [[Wikipedia:Great Depression|Great Depression]] on Wikipedia

[[Category:History of the United States]]
[[Category:Financial crises]]

Great Depression

2011-03-28T17:02:13Z

Daniel Hewitt: /* The Crash */ add refs and quote

{{RightTOC}}
The '''Great Depression''' was the longest and most severe economic depression ever experienced by the Western world.<ref name="Britannica_debt">Encyclopædia Britannica. [http://www.britannica.com/EBchecked/topic/243118/Great-Depression "Great Depression"], Encyclopædia Britannica Online, referenced 2010-06-12.</ref>

==Prelude==
In the forty years 1890 to 1930, the population of the United States doubled, the value of farm property increased three and a half times, pig iron production four and a half times, exports five times, coal production five times, and freight traffic five and a half times, but commercial bank deposits increased over seventeen and a half times. Thus, while the gold stock had increased proportionally with the increase of industrial production, the expansion in bank credit had far outstripped both and had thus been at the expense of a thinning gold reserve. The monetary gold stock available to support and redeem this tremendous amount of bank liabilities that was being created, which had been 25.3 per cent of total note and deposit liabilities of banks in 1865, and 23.9 per cent in 1880, steadily dropped under the pressure of the public upon the banking interest for more and more credit, standing in 1900 at 20.4 per cent, in 1910 at 14.2 per cent and in 1930 at 10.4 per cent. Such had been the diminution of reserves that by the decade 1920-1930, banking was being conducted "on a shoestring." In 1900 the ratio of vault cash to deposit liabilities of commercial banks had dropped to 14.8 per cent, and in 1910 to 12.7 per cent—vault cash in those years being respectively $706,302,000 and $1,366,164,000.<ref name="Groseclose_Money">Elgin Groseclose. [http://mises.org/resources/3138/Money-and-Man Money and Man], 1934, p.209-210. Referenced 2011-03-24.</ref>

From June 1914 to January 1920, when [[Demand deposits|demand deposits]] grew by 96.9 percent, [[Time deposits|time deposits]] rose by 126.1 percent. In the great boom of the 1920s, that started after the [[Depression of 1920–21|recession of 1920–21]] (a short recession, thanks to the budget cutting and lowering of taxes by [[Warren Harding]]<ref name="Woods_Harding">Thomas E. Woods, Jr. [http://www.firstprinciplesjournal.com/articles.aspx?article=1322&theme=home&loc=b "Warren Harding and the Forgotten Depression of 1920"], First Principles, Fall 2009 issue of The Intercollegiate Review. See also the [http://www.youtube.com/watch?v=czcUmnsprQI video]. Referenced 2009-10-11.</ref>), total demand deposits rose from 1921 to 1929 by 36.5 percent. Time deposits in banks expanded in the same period by 75.9 percent. The great boom of the 1920s (also called "[[Roaring Twenties]]") was largely fueled by credit expansion going into time deposits. The greatest expansion of time deposits came in Central Reserve Cities (New York and Chicago), where the [[Federal Reserve System|Fed]]’s open market operations were all conducted, as opposed to Reserve Cities and Country Banks. As acknowledged by Federal Reserve officials, time or savings deposits were then, for all practical purposes, equivalent to demand deposits and should be paid on demand in case of a run on a bank.

With the passage of the [[Federal Reserve Act]], [[Woodrow Wilson|President Wilson]] appointed [[Benjamin Strong, Jr.|Benjamin Strong]] to the most powerful post in the Federal Reserve System, Governor of the [[Reserve Bank of New York|Federal Reserve Bank of New York]]. He made quickly this position dominant in the System and decided on Fed policy without consulting or even against the wishes of the Federal Reserve Board in Washington. Strong was the dominant leader of the Fed from 1914 until his death in 1928. He pursued an inflationary policy, to finance the war effort for [[World War I|WWI]], connected to the interests of the [[J.P. Morgan & Co.|House of Morgan]]. Another motivation was the attempt to prop up the [[Bank of England]] in the 1920s, when it returned to the [[gold standard]] with an overvalued pound. To prevent the loss of gold to the States, its governor [[Montagu Norman, 1st Baron Norman|Montagu Norman]] secretly convinced Strong to inflate in order to help England. The expansion ended only after Strong's death and the '''Great Depression''' followed soon after. In 1928 Strong admitted that "very few people indeed realized that we were now paying the penalty for the decision which was reached early in 1924 to help the rest of the world back to a sound financial and monetary basis" - that is, to help Britain maintain a phony and inflationary form of gold standard.<ref name="Rothbard_Federal_Reserve">[[Murray N. Rothbard]]. [http://mises.org/books/mysteryofbanking.pdf "The Mystery of Banking"] (pdf), Chapter XVI: Central banking in the United States IV: The Federal Reserve System, p.235-246, referenced 2009-10-03.</ref>

The inflation was also motivated by a desire to help American exporters (particularly farmers), by stimulation of foreign lending. At the same time the U.S. turned to a sharp protectionist policy with the [[Fordney–McCumber Tariff]] of 1922. In the foreign lending boom, other countries were hampered in trying to sell their goods to the United States, but were encouraged to borrow dollars. The government did not have any peacetime authority to interfere with loans, but did so illegally. In 1921, President [[Warren G. Harding|Harding]] and his cabinet conferred with several American investment bankers, at the instigation of Secretary of Commerce [[Herbert Hoover|Hoover]], to be informed in advance of foreign loans, so that the government "might express itself regarding them". The bankers agreed. Hoover commented that even bad loans helped American exports and provided a cheap form of relief and employment. Later Hoover demanded from bankers, that foreign loans would be inspected by agents of the [[Department of Commerce]]. Both requests were mostly ignored. While admitted to be legally unenforceable, it was all in the name of "national interests".<ref name="Rothbard_pre_Depression">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 5. The Development of the Inflation, p. 137-167, referenced 2009-11-17.</ref>

{{See also|Federal Reserve System}}

===Housing bubble===
An outlet for the excessive credit created by the banking system was in financing an urban real estate boom in the U.S. During the decade 1920-1930, people were moving in a constant stream into the cities; the population of the sixty-three metropolitan zones (cities of 100,000 or more plus adjacent counties) rose from 46,491,000 to 59,118,000, or from 44 per cent of total population to 48 per cent. Seventy-four per cent of the increase in total population during the decade occurred in the metropolitan areas.

A huge building boom followed, the Federal Reserve Board index of building contracts awarded, 1923-1925 taken as 100, rising from 63 in 1920 to 122 in 1925, and 135 in 1928. This boom occurred chiefly in skyscraper offices and expensive apartment house developments, whose notes were more readily marketable, rather than in the modest single family accommodations. The result was that when the era had passed the slums still existed. In New York City, for instance, where at least four skyscrapers were built in these years with the only object, apparently, of surpassing the record for the world's tallest building, from a quarter to a third of the population, say 1,800,000 persons, still occupied houses that had been outlawed thirty-three years earlier by the Tenement House Act of 1901.<ref name="Groseclose_Money">Elgin Groseclose. [http://mises.org/resources/3138/Money-and-Man Money and Man], 1934, p.225, 244. Referenced 2011-03-24.</ref>

==The Crash==
{{Main|Wall Street Crash of 1929}}
The great boom of the 1920s began around July, 1921, after a year or more of sharp recession, and ended about July, 1929, when the production and business activity began to decline, although the [[Wall Street Crash of 1929|famous stock market crash]] came in October of that year. [[Herbert Hoover]], an avid proponent of interventionism became President. Characteristic for him were "voluntary" measures that the government desired, with the implicit threat that if business did not "volunteer" properly, compulsory controls would soon follow.<ref name="Rothbard_1920s_boom">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 5. The Development of Hoover's Interventionism: Unemployment, p. 188-189, referenced 2009-11-20.</ref>

After the stock-market crash, Hoover began a series of conferences with big business and labor leaders, telling them that cutting wage rates (the standard response in previous depressions) would be disastrous, because then the workers wouldn't make enough to buy the products. This "liquidation" of labor would only deepen the depression by reducing their "purchasing power". Leading industrialists have pledged to maintain wage rates, expand construction, and share any reduced work.

After the stock-market crash, Hoover began a series of conferences with big business and labor leaders, telling them that cutting wage rates (the standard response in previous depressions) would be disastrous, because then the workers wouldn't make enough to buy the products.<ref name="Hoover 11-15-29 NC">John T. Woolley and Gerhard Peters, ''The American Presidency Project'' [online]. Santa Barbara, CA. Available from World Wide Web: http://www.presidency.ucsb.edu/ws/?pid=22005.</ref> This "liquidation" of labor would only deepen the depression by reducing their "purchasing power". Leading industrialists pledged to maintain wage rates, expand construction, and share any reduced work,<ref name="Hoover CC remarks">John T. Woolley and Gerhard Peters, ''The American Presidency Project'' [online]. Santa Barbara, CA. Available from World Wide Web: http://www.presidency.ucsb.edu/ws/?pid=22023.</ref> to fulfill Hoover's request that "the first shock must fall on profits and not on wages".<ref name="hoover44">Herbert Hoover, ''The Memoirs of Herbert Hoover: The great depression, 1929-41'', (New York: Macmillan, 1952) 44-45.</ref>

At the same time, the Federal Reserve expanded rapidly and lowered its interest rates. Its member banks expanded their deposits in the last week of October 1929 alone by 10%, mostly in New York. Hoover praised the Fed for the saving of shaky banks and restoring confidence. The depression should be over in a few months. A large public works program was also initiated.<ref name="Rothbard_public_works">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 8. The Depression Begins: President Hoover Takes Command, p. 209-217, referenced 2009-11-21.</ref>

Hoover promised the farm bloc to support farm cooperatives and prices and established the [[Federal Farm Board]] (FFB). It would make all-purpose loans to farm cooperatives at low interest rates and establish "stabilization corporations" to control farm surpluses and bolster farm prices. Its board was dominated by representatives of these farm cooperatives. To combat falling prices, it made loans to farmers to keep wheat and cotton off the market and later started to buy the surpluses. For a while, prices were held up and farmers increased production, only to find that prices would fall even more. As America held wheat off the market, it lost its former share of the world’s wheat trade. The farmers were urged to decrease their acreage, while the government still promoted reclamation projects to increase farm production. The surpluses of wheat accumulated and prices fell to such a degree, that the FFB decided to dump wheat stocks abroad, resulting in a drastic fall in market prices. The attempts to keep up the price of cotton, wool, livestock, etc. failed as well. A "[[Farmers' Holiday Association|Farm Holiday]]" was declared to stop production, The movement soon turned to violence and failed to stop the falling farm prices. but succeeded to avoid some foreclosures of its members.<ref name="Rothbard_Agriculture">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), The New Deal Farm Program, p. 217-237, referenced 2009-11-21.</ref>

In 1930, the [[Smoot–Hawley Tariff Act|Smoot–Hawley Tariff]] was passed, despite objections of many economists and industrial leaders. Hoover originated a higher tariff on agricultural products to help farmers, but it was raised on many other products. Many other countries have retaliated with their own tariffs and foreign trade declined significantly. (From 1929 to 1932, U.S. imports from Europe decreased from $1,334 million to just $390 million, while U.S. exports to Europe decreased from $2,341 million to $784 million. Overall, world trade decreased by some 66% between 1929 and 1934.<ref>U.S. Department of State. [http://future.state.gov/when/timeline/1921_timeline/smoot_tariff.html Smoot-Hawley Tariff], referenced 2009-11-22.</ref>) Also, to relieve the unemployment problem, and to help keep wage rates up, the President effectively banned further immigration into the United States.<ref name="Rothbard_Depression_1930">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 9. 1930, p. 239-256, referenced 2009-11-22.</ref>

===In Europe===
In Europe, the crisis began in earnest with the ''Boden–Kredit Anstalt'', the most important bank in Austria and Eastern Europe. It had to merge with the [[Creditanstalt|Oesterreichische–Kredit–Anstalt]] after rescue attempts by its government and other banks. When Austria declared a customs union with Germany in March 1931, the French government feared this development and several French banks suddenly insisted on redemption of their debts from both countries. The bank collapsed. After more rescue attempts has the Austrian Government voted a $150 million guarantee to the bank, but the its credit was by the time worthless, and Austria soon declared national bankruptcy by going off the gold standard. Later, Germany, England, and most other European countries renounced their obligations and went off the gold standard as well. While the impact on United States was not very large due to the lowered international trade, it certainly did not help, neither did the many loans granted to prop up foreign banks.<ref name="Rothbard_Depression_1931_Europe">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 10. 1931—"The Tragic Year", p. 257-284, referenced 2009-11-27.</ref>

==1931, "The Tragic Year"==
The crisis worsened in the US in 1931. Production continued to fall drastically, as did prices and foreign trade, and unemployment ran up to almost 16 percent of the labor force. The Federal Reserve Board (FRB) index of manufacturing production, which had been 110 in 1929 and 90 in 1930, fell to 75 in 1931. Hardest hit, in accordance with Austrian [[ABCT|cycle theory]], were producers’ goods and higher order [[capital]] goods industries, rather than the consumer goods’ industries. Despite attempts to inflate, bank deposits and the aggregate [[money supply]] fell sharply, particularly at the end of the year. The British abandoning of the gold standard, bank failures abroad and the growing number of failures at home, caused a growing loss of confidence by Americans in their banking system. The wages were also beginning to fall, first secretly, then openly by the end of 1931.

The gross national product fell from $91.1 billion in 1930, to $76.3 billion in 1931. Total government receipts fell from $13.5 billion to $12.4 billion, but total government expenditures rose from $13.9 billion to $15.2 billion, in federal, rather than state and local, spending (federal expenditures rose from $4.2 billion in 1930 to $5.5 billion in 1931). In the middle of a great depression when people needed to be relieved of governmental burdens, the dead weight of government rose from 16.4 percent to 21.5 percent of the gross private product. From a modest surplus in 1930, the Federal government so ran up a huge $2.2 billion deficit in 1931.<ref name="Rothbard_Depression_1931_Europe" />

Direct relief was just about the one sphere where President Hoover seemed to prefer voluntary to governmental action. The [[Red Cross]] opposed a bill, in early 1931, that would grant it $25 million for relief, declaring that it would "to a large extent destroy voluntary giving". Many private charity organizations, philanthropists, and social workers had the same views. Governmental unemployment relief was seen to have a role in creating and perpetuating unemployment in Britain (the "dole"). It was attacked by many business leaders, including [[Henry Ford]], the leaders of the [[National Association of Manufacturers]] and the [[United States Chamber of Commerce|Chamber of Commerce]], and former President [[Calvin Coolidge|Coolidge]].<ref name="Rothbard_Depression_1931_Europe" />

The [[Davis-Bacon Act]] was signed by President Hoover in 1931. It mandated that prevailing (union) wages be paid by the Federal Government for public works projects. It has been argued that the Davis-Bacon Act was a [[Jim Crow law]], since its intent <ref name=”williams”>Walter Williams, [http://www.jewishworldreview.com/cols/williams031203.asp "Congress' insidious discrimination"], ''Jewish World Review'' (March 12, 2003), accessed 2011-02-01.</ref> and its effect <ref name=”cato”> David Bernstein, [http://www.cato.org/pubs/briefs/bp-017.html "The Davis-Bacon Act: Let's Bring Jim Crow to an End"], ''Cato Institute Briefing Papers'' (January 18, 1993), accessed 2011-02-01.</ref> was to prevent lower-paid, non-unionized black laborers from competing against higher-paid, unionized white laborers. Hoover promoted and supported the legislation, as he believed that "[t]he very essence of great production is high wages...because it depends upon a widening range of consumption only to be obtained from the purchasing power of high real wages...." <ref name="hoover108">Herbert Hoover, ''The Memoirs of Herbert Hoover: Volume 2, The Cabinet and the Presidency, 1920-33'', (New York: Macmillan, 1952) 108.</ref>

==1932, The Hoover New Deal==
In an atmosphere of crisis, President Hoover called for more drastic measures, including more government aid and loans. With a $2 billion deficit during annual year 1931, Hoover felt that he had to do something to combat it and chose to increase the taxes. The [[Revenue Act of 1932]] was one of the greatest increases in taxation ever enacted in the United States in peacetime. Many wartime
excise taxes were revived, sales taxes were imposed on gasoline, tires, autos, electric energy, malt, toiletries, furs, jewelry, and other articles; admission and stock transfer taxes were increased; new taxes were levied on bank checks, bond transfers, telephone, telegraph, and radio messages; and the personal income tax was raised drastically as follows: the normal rate was increased from a range of 1½ percent–5 percent, to 4 percent–8 percent; personal exemptions were sharply reduced, and an earned credit of 25 percent eliminated; and surtaxes were raised enormously, from a maximum of 25 percent to 63 percent on the highest incomes. Furthermore, the corporate income tax was increased from 12 percent to 13: percent, and an exemption for small corporations eliminated; the estate tax was doubled, and the exemption floor halved; and the gift tax, which had been eliminated, was restored, and graduated up to 33⅓ percent. The postal rates were raised as well.

Despite the drastic increase in tax rates, total Federal revenue for 1932 declined because of the deepened depression—itself partly caused by the increase in tax rates. Total Federal receipts, excluding government enterprises, declined from $2.2 billion in 1931 to $1.9 billion in 1932; including government enterprises, Federal receipts fell from $3.4 billion to $3 billion.

Total government receipts fell from $12.4 billion to $11.5 billion. As a result, the huge Federal deficit continued despite a drop in government expenditures in 1932: Federal expenditures falling from $5.5 billion to $4.4 billion, and aggregate government expenditures falling from $15.2 billion to $13.2 billion (all numbers including government enterprises). Of the $1.7 billion in total government deficit, the bulk of it — $1.4 billion — was in the Federal government account. The state and local governments were forced to cut back their expenditures to near the level of their dwindling receipts. One of the most ominous projects for Federal spending during 1932 was a Congressional move for a huge $2 billion veterans bonus, to be financed by an issue of new currency. It was its final defeat in the Senate in June that did most to defeat a general clamor for much larger government spending.

Meanwhile, however, President Hoover himself was beginning to have doubts about one of his favorite policies: public works. In a conference at the end of February, Hoover admitted that his public works program, which had nearly doubled Federal construction since the start of the depression, had failed. It was very expensive, costing over $1200 per family aided, it was unavailable to the needy in remote regions and to those who were unable to perform such labor, which was, after all, unskilled make-work. By May, Hoover had openly reversed his earlier position. As a result, Federal public works only increased by $60 million in 1932, to reach the $333 million mark. Public works was not to come really to the fore again until the Roosevelt administration.

Holding firm to his interventionist belief that the downward pressure on wages must be resisted <ref name ="hoover108" />, Hoover signed the [[Norris-Laguardia Act]] into law on March 23, 1932. It banned "yellow-dog" contracts, removed federal courts’ authority to issue injunctions against labor disputes, and provided greater ease for workers to organize<ref name="enotes">[http://www.enotes.com/major-acts-congress/norris-laguardia-act "Norris-Laguardia Act (1932): Major Acts of Congress"], accessed 2011-02-01.</ref>; a landmark victory for organized labor.

If Hoover eagerly embraced other forms of [[intervention]], he gave ground but grudgingly on one issue where he had championed the voluntary approach: direct relief. Governor [[Franklin D. Roosevelt]] of New York led the way for state relief programs in the winter of 1931–1932, and he induced New York to establish the first state relief authority: the Temporary Emergency Relief Administration, equipped with $25 million. Other states followed this lead, and a bill was introduced for a $500 million federal relief program. The bill was defeated, but, with depression deepening and a Presidential election approaching, the administration all but surrendered, passing the [[Emergency Relief and Construction Act]] of July, 1932 — the nation’s first Federal relief legislation. All in all, total public relief in 120 of the nation’s leading urban areas amounted to $33 million in 1929, $173 million in 1931, and $308 million in 1932.

One thing Hoover was not reticent about: inflation. The administration first cleared the path for the program by passing the [[Glass–Steagall Act]] in February, which (a) greatly broadened the assets eligible for rediscounts with the Fed, and (b) permitted the Federal Reserve to use government bonds as collateral for its notes, in addition to commercial paper. At the end of February, 1932, total bank reserves had fallen to $1.85 billion. At that point, the [[Federal Reserve System|FRS]] launched a gigantic program of purchasing U.S. government securities. By the end of 1932, total reserves had been raised to $2.51 billion. This enormous increase of $660 million in reserves in less than a year is unprecedented in the previous history of the System. If the banks had kept loaned-up, the money supply of the nation would have increased by approximately $8 billion. Instead, the money supply fell by $3.5 billion during 1932, from $68.25 to $64.72 billion at the end of the year, and with the bank deposit component falling by $3.2 billion. Until the second quarter of 1932, the nation’s banks had always remained loaned up, with only negligible excess reserves. After, the banks accumulated excess reserves, and it is estimated that the proportion of excess to total bank reserves rose from 2.4 percent in the first quarter of 1932, to 10.7 percent in the second quarter. By the fourth quarter of 1932, excess reserves were estimated to a double of 20.3 percent of total bank reserves.

During the 1920s, a typical year might find 700 banks failing, with deposits totaling $170 million. In 1930, 1350 banks failed, with deposits of $837 million; in 1931, 2,293 banks collapsed, with deposits of $1,690 million; and in 1932, 1,453 banks failed, having $706 million in deposits. This enormous increase in bank failures was enough to give any bank pause—particularly when the bankers knew in their hearts that no bank (outside of the nonexisting ideal 100 percent bank) can ever withstand a determined run. Consequently, the banks permitted their commercial loans to run down without increasing their investments. Inflation by the government was turned into deflation by the policies of the public and the banks. The American economy reached the depths of depression during 1932 and 1933, and yet it had begun to turn upward by mid-1932. It is not far-fetched to believe that the considerable deflation of July 1931–July 1932, totaling $7.5 billion of currency and deposits, or 14 percent, was partly responsible for the mid-summer upturn.<ref name="Rothbard_Depression_1932">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 11. The Hoover New Deal of 1932, p. 285-320, referenced 2009-11-27.</ref>

As the Depression got worse and people lost their confidence in the banks, they decided to take custody of their cash. Seeing people in large numbers pulling their money out of banks — money the banks had promised to provide on demand — President Hoover blasted them for their "traitorous hoarding." He organized an antihoarding drive and delivered a radio address ([http://www.bobsuniverse.com/BWAH/31-Hoover/19320306a.pdf transcript], pdf) in which he pleaded with the public to stop hoarding (i.e., to stop converting their bank deposits into cash).<ref name="Smith_hoarding">George F. Smith. [http://mises.org/story/3707 "The Virtue of Hoarding"], Mises Daily, posted on October 09, 2009, referenced 2009-11-18.</ref>

Nominal paychecks fell much more slowly during the early years of the Great Depression than the general [[price]] level (wholesale prices fell by 10 percent in 1930, by 15 percent in 1931)<ref name="Rothbard_Depression_1931_Europe" /> - and those who kept their job experienced a higher increase in real (inflation-adjusted) wages, than during the Roaring 1920s!<ref name="ohanian"> Lee E. Ohanian, "What - or Who - Started the Great Depression?", ''NBER Working Paper No. 15258'' (August 2009). Free copy online [http://www.econ.ucla.edu/people/papers/Ohanian/Ohanian499.pdf "here"]</ref> And so has unemployment reached record highs during Hoover's first and only term. When FDR went back on the US government's promise to redeem dollars for gold, the Federal Reserve could flood the economy with new dollars, the prices began to rise again. Because wage rates were not allowed to fall to their new, market-clearing level, [[Inflation|inflating]] the currency has paradoxically reduced unemployment.<ref name="Murphy_Depression">Robert P. Murphy. [http://mises.org/story/3778 "The Gold Standard and the Great Depression"], Mises Daily, posted on October 30, 2009, referenced 2009-11-18.</ref>

The Fed has expanded bank reserves in the 1930s. Panicking at the inflationary potential, it doubled the minimum reserve requirements to 20 percent in 1938, sending the economy into a tailspin of credit liquidation. The Fed, ever since that period, has been very cautious about the degree of its changes and changed bank reserve requirements fairly often, but in very small steps, by fractions of one percent.<ref name="Rothbard_Fed_requirements">[[Murray N. Rothbard]]. [http://mises.org/books/fed.pdf "The Case Against the Fed"] (pdf), How the Fed Rules and Inflates, p. 144, referenced 2010-03-23.</ref>

After 1933, Federal Reserve Notes and deposits were no longer redeemable in gold coins to Americans, their gold was confiscated and exchanged for Federal Reserve Notes, which became legal tender; and Americans were stuck in a regime of fiat paper issued by the government and the Federal Reserve.<ref name="Rothbard_Fed_gold">[[Murray N. Rothbard]]. [http://mises.org/books/fed.pdf "The Case Against the Fed"] (pdf), The New Deal and the Displacement of the Morgans, p. 131-132, referenced 2010-05-10.</ref>

===Tax revolt in the USA===
There has been a widespread opposition to real estate taxes in cities across America and some Americans were in fact not paying their taxes. The movement declined quickly, some scholars acknowledge certain influence, but ultimately declare it a failure.<ref name="Beito_revolt">David T. Beito. [http://mises.org/books/taxpayersinrevolt.pdf Taxpayers in Revolt - Tax Resistance during the Great Depression] (pdf), referenced 2010-06-15.</ref> Others consider it a resounding success, however.

President Hoover's massive tax increase bill that passed into law as the [[Revenue Act of 1932]], with many new taxes. The most burdensome taxes for many Americans, however, was the property tax. Property taxes required taxpayers to make an explicit tax payment of significant size from which they could not evade without losing what was often their most significant piece of property and wealth. The property taxes have risen in the decade before the Depression; throughout the 1920s, the general property tax accounted for over 90 percent of taxes levied by all cities over 30,000 in population. One reason for this dependence was that alcohol revenue from sales taxes and licenses had "dried up" due to prohibition. The burden of taxes increased significantly, even if tax rates remained the same. Another source of taxpayer ire was that the real wages of public employees rose nearly 12% between 1929 and 1933.

Tax delinquency increased from its normal rate of 10% to more than 30%. Tax protest organization formed quickly and spontaneously in rural regions in response to tax authorities selling the land of farmers. Estimates placed the number of taxpayer organizations at between 3,000 and 4,000 organizations nationwide.

The tax limitation movement was effective in several states in establishing cuts and limitations on property tax rates. The second success, which was both more important and far less obvious, was the passage of the 21st Amendment that repealed alcohol [[Prohibition in the United States|prohibition]]. The legalization of alcohol sales in most states provided federal, state, and local government with increased tax revenues to offset cuts in property taxes while simultaneously providing a drastic decrease in the price of alcohol and in effect granting the American public a type of tax cut. Income tax revenue fell 60% from 1930 to 1933 placing a severe financial constraint on Congress. The search for an alternative revenue source led to the conversion of F.D.R. from a "dry" to a "wet" and resulted in the 1932 Democratic party platform to call for Repeal in order to provide "a proper and needed revenue." Revenue shortfalls made Repeal possible and the alcohol tax provided 13% of all federal revenue by 1936.<ref name="Thornton_revolt">Mark Thornton and Chetley Weise. [http://mises.org/journals/jls/15_3/15_3_4.pdf The Great Depression Tax Revolts Revisited.] (pdf), Journal of Libertarian Studies, Volume 15, no. 3 (Summer 2001), referenced 2010-06-15.</ref><ref name="Thornton_success_revolt">Mark Thornton and Chetley Weise. [http://mises.org/journals/scholar/Thornton1.PDF The Success of the Great Depression Tax Revolts] (pdf), referenced 2010-06-15.</ref>

==1933, end of Hoover's term==
Seeking reelection, Hoover boasted of his many interventions with the economy. In his acceptance speech for the Presidential renomination he said:
<blockquote>''"We might have done nothing. That would have been utter ruin. Instead, we met the situation with proposals to private business and to the Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic. We put that program in action."''<ref name="Hoover_nomination">Herbert Hoover. [http://americanhistory.about.com/library/docs/blhooverspeech1932.htm "Address Accepting the Republican Presidential Nomination"], August 11, 1932. The address was carried over the National Broadcasting Company and the Columbia Broadcasting System radio networks. This is a transcript taken from a sound recording of the address. Referenced 2010-06-20.</ref></blockquote>

After the election of [[Franklin D. Roosevelt|Roosevelt]], as the new Presidential term approached, dark rumors circulated about the radicalism of Roosevelt’s advisers, and of their willingness to go off the [[gold standard]]. Consequently, not only did gold "hoarding" by foreigners develop momentum, but even gold hoarding by domestic citizens. For the first time in the depression, American citizens were beginning to lose confidence in the dollar itself. The loss of confidence reached its apogee in February, 1933, the month before the Roosevelt inaugural. In that one month, the monetary gold stock fell by $173 million, and money in circulation increased by the phenomenal amount of $900 million, the reflection of domestic loss of confidence. Money in circulation totaled $5.4 billion at the end of January, and $6.3 billion by the end of February. $700 million of this increase was in Federal Reserve notes, and $140 million in gold coin and gold certificates.

The Federal Reserve did its best to combat this deflationary pull on bank reserves, but its inflationary measures only served to diminish confidence in the dollar still further. Total money supply fell from $64.72 to $61.61 billion over 1933, and all or more of this fall took place in the first half of the year. Bank failures skyrocketed during this period. The number of commercial bank failures increased from 1,453 in 1932 to 4,000 in 1933 (most of which took place in the first quarter).

The reaction to this growing insistence of the people on claiming their rightful, legally-owned property, was a series of attacks on property rights by state after state. One by one, states imposed "bank holidays" by fiat, permitting the banks to stay in business while refusing to pay virtually all of the just claims of their depositors. The bank holiday movement began in earnest with the proclamation of an eight-day holiday on February 14, 1933, by Governor William Comstock of Michigan. This precipitated the bank runs and deflation of the latter part of February and depositors began an intense scramble to take their money out of the banks. Many national banks, which had worked hard to keep themselves in an at least relatively sound position, did not want to use the special privilege of bank holiday, and had to be coerced into doing so.

By March 4, every state in the Union had declared a bank holiday, and the stage was set for President Roosevelt’s dramatic and illegal closing of all the banks. President Roosevelt closed down all the banks throughout the nation for an entire week, from March 6 to 13, with many banks remaining closed even longer. Restrictions against so-called "hoarding" were continued afterward, and much hoarded gold returned to the banks following a Federal Reserve threat to publish a list, for full public scorn, of the leading "gold hoarders."

Mr. Hoover left office in March, 1933, at the very depth of the greatest depression in American history. Production had fallen by more than one-half: industrial production had been at an index of 114 in August, 1929, and then fell to 54 by March, 1933. Unemployment was persisting at nearly 25 percent of the labor force, and gross national product had also fallen almost in half. Hardest hit was investment, especially business construction, the latter falling from about $8.7 billion in 1929 to $1.4 billion in 1933. The index of non-durable manufacturing production fell from 94 to 66 from August, 1929, to March, 1933—a decline of 30 percent; the index of durable manufactures fell from 140 to 32, in the same period, a decline of 77 percent. In durable goods industries (e.g., building, roads, metals, iron and steel, lumber, railroad, etc.) it was estimated that their total employment fell from 10 million in 1929 to 4 million in 1932–1933, while employment in consumer goods industries (e.g., food, farming, textiles, electricity, fuel, etc.) only fell from 15 million to 13 million in the same period. Stock prices (industrials) fell by 76 percent during the depression, wholesale prices fell by 30 percent, and the total money supply declined by one-sixth.

Wage rates were kept very high during the first two years of the depression. By 1932, however, with profits wiped out, the pressure became too great, and wage rates fell considerably. Total fall over the 1929–1933 period, however, was only 23 percent - less than the decline in wholesale prices. Therefore, real wage rates, for the workers still remaining employed, actually increased. While real average hourly earnings rose, actual hours worked in industry fell drastically during the depression. Weekly hours averaged over 48 in 1929, and fell to less than 32 by mid-1932. In no previous depression had hours worked fallen by more than 10 percent. This was a form of reduced employment caused by the high-wage policy. As a result, average weekly earnings fell by over 40 percent during the depression, and real weekly earnings fell by over 30 percent. But hardest hit were the unemployed, the percentage of whom rose to 25 percent by 1932–1933, and reached 47 percent in selected manufacturing industries. The fall in man-hours combined with the fall in average hourly earnings caused a truly precipitate drop in total factory payrolls - the base of the very "purchasing power" that the policy was supposed to sustain.<ref name="Rothbard_Hoover_End">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 12. The Close of the Hoover Term, p. 321-337, referenced 2010-06-20.</ref>

==The New Deal==
===Roosevelt's Campaign===
Under the Democratic platform of 1932, which Franklin D. Roosevelt endorsed, contained several subsidies and regulations, but it hardly embraced the enormous expansion in federal power that FDR would achieve. The very first plank called for "an immediate and drastic reduction of governmental expenditures by abolishing useless commissions and offices, consolidating departments and bureaus, and eliminating extravagance to accomplish a saving of not less than twenty-five per cent in the cost of the Federal Government."<ref name="Woolley_Dem_1932">John T. Woolley and Gerhard Peters. [http://www.presidency.ucsb.edu/ws/index.php?pid=29595 "Democratic Party Platform of 1932"], June 27, 1932, from The American Presidency Project [online]. Referenced 2010-06-20.</ref> Subsequent planks demanded a balanced budget, a low tariff, the repeal of Prohibition, "a sound currency to be preserved at all hazards," "no interference in the internal affairs of other nations," and "the removal of government from all fields of private enterprise except where necessary to develop public works and natural resources in the common interest." The document concluded with a quote from Andrew Jackson: "equal rights to all; special privilege to none."

FDR's campaign reflected that platform. He accused Herbert Hoover of "reckless and extravagant spending," and he further denounced the Republican incumbent for believing "we ought to center control of everything in Washington as rapidly as possible." Even when he called for interventions in the economy, he generally couched his words in the old liberals' language of equal treatment rather than the new liberals' vision of enlightened central planning. In his famous Forgotten Man speech of April 1932 (see [http://newdeal.feri.org/speeches/1932c.htm transcript]), the Democratic candidate pointed to the wave of foreclosures sweeping the nation. Noting that Hoover had created a "two billion dollar fund...put at the disposal of the big banks, the railroads and the corporations of the Nation," FDR averred that the government should "provide at least as much assistance to the little fellow as it is now giving to the large banks and corporations." Once in office, the new administration did indeed repeal Prohibition, and it eventually lowered some trade barriers as well. By the time of FDR's death, the federal bureaucracy's power had grown so enormously that Hoover was widely remembered as the last apostle of laissez faire.<ref name="Walker_FDR">Jesse Walker. [http://reason.com/archives/2008/04/10/the-new-franklin-roosevelts "The New Franklin Roosevelts"], April 10, 2008. Referenced 2010-06-20.</ref>

===Policy===
A principal feature of '''[[New Deal]]''' economic policy was government-sponsored industrial [[cartel]]s (the [[National Recovery Act]]); agricultural cartels (the [[Agricultural Adjustment Act]]); and labor cartels (the [[Norris – La Guardia Act|Norris-LaGuardia]] and [[National Labor Relations Act|Wagner Acts]]). The purpose of any cartel is to restrict output and raise prices. Lower levels of production leads to higher unemployment, which is exactly what the NRA and AAA did.

The NRA was almost identical to the Italian corporatist system that existed at the time. In Italy each trade or industrial group was organized into a government-controlled "corporative" association that had the power to plan production and pricing. In the U.S. the NRA organized each industry into federally-supervised trade associations called "Code Authorities" which could also limit output and set prices. The antitrust laws were explicitly set aside.

Over 700 industrial codes were created and were rigorously enforced by thousands of government code enforcers who, "could enter a man's factory, send him out, line up his employees, subject them to minute interrogation, take over his books on the instant." A hapless New Jersey tailor named Jack Magid became nationally famous after he was arrested, convicted, and imprisoned by the code police for the "crime" of pressing a suit of clothes for 35 cents when the Tailors' Code fixed the price at 40 cents. The NRA was ruled unconstitutional by the U.S. Supreme Court on May 27, 1935.<ref name="DiLorenzo_New_Deal">Thomas J. DiLorenzo. [http://mises.org/daily/55 "A New, New Deal"], Mises Daily, October 1998, referenced 2010-06-20.</ref> A study of the Act noted that "the licensing provision, giving the president the power of life or death over business enterprises, is the ultimate weapon of enforcement and the capstone of the powers granted to the president ... the most extraordinary extension of presidential power in American history." The Supreme Court's decision has noted, that 'fair competition' is not defined in the law and could be a convenient designation for whatever set of laws that is proposed and the president may approve. It ruled that NIRA was "an unconstitutional delegation of legislative power."

But after [[Judiciary Reorganization Bill of 1937|Roosevelt's court-packing threat]] of 1937, the justices succumbed to whatever creative definition of fairness that Congress or federal agencies chose to proclaim. For instance, in 1942, Congress passed the Emergency Price Control Act, which created an Office of Price Administration. The OPA had sweeping power to set or strike down prices in any industry or activity that it considered to be "defense-related" — a vague term that could have encompassed practically the entire national economy. The act contained no substantive guidelines for the administrator's decisions but merely required prices that "in his judgment will be generally fair and equitable."<ref name="Bovard_Cuttthroat">James Bovard. [http://www.fff.org/freedom/0499d.asp "Cutthroat Competition and Dead Chickens"], The Future of Freedom Foundation, April 1999. Referenced 2010-06-20.</ref>

===Effects===
The Roosevelt administration also orchestrated various price-fixing schemes in labor markets, principally for the benefit of unions. Payroll taxes to finance Social Security and Unemployment Insurance programs increased employers' wage bills even further, which also reduced the level of employment. According to an econometric estimate, government-mandated payroll cost increases added nearly 1.2 million people to the unemployment rolls by 1938.

The unemployment rate during the 1933-1940 period averaged about 18% and was as high as 28.3% in March of 1933. By the end of 1938, on the eve of World War II, the U.S. unemployment rate still hovered at just over 18 percent and was higher than it was in 1933, President Franklin D. Roosevelt's first year in office. This occurred despite (or rather, because of) six years of unprecedented levels of government intervention into the U.S. economy. The American recovery was slower than in most European nations; by 1937 Great Britain's unemployment rate had declined to 10.3 percent.

Herbert Hoover's [[Reconstruction Finance Corporation]] was greatly expanded by Roosevelt, but its effect was to make capital markets less efficient, thereby prolonging the Depression even further. As explained by RFC director Jesse Jones in his autobiography, ''Fifty Billion Dollars'', "The law specified that we should lend only where the borrower could not get the money from others on reasonable terms." That is, only to uncreditworthy borrowers. Guided by this directive, Jones and the RFC redirected billions of dollars in valuable capital to politically-connected but economically-questionable businesses. "We even loaned money to [the owners of] a drove of reindeer in Alaska," Jones boasted. The RFC was abolished in the 1955 under a cloud of corruption and scandal.

Roosevelt's public works programs may have been an economic failure, but they were a resounding political success as they provided virtually unlimited opportunities for political patronage. In 1939 a special U.S. Senate Committee on Campaign Expenditures investigated the programs and found that in many states workers were required to sign a pledge to vote Democratic and, in some cases, to make campaign contributions, as a condition of employment. Businesses that sold supplies to the government were in some places required to make campaign contributions to the Democratic party in return for the contracts. The New Deal was largely a legalized [[Extortion|shake-down]] operation.<ref name="DiLorenzo_New_Deal" /><ref name="Anderson_WPA">William L. Anderson. [http://mises.org/daily/3921 "The Curse of Good Government"], Mises Daily, December 2009, refers to the spending of New Deal money. Referenced 2010-06-20.</ref>

Roosevelt's billions, adroitly used, had broken down every political machine in America. The patronage they once lived on and the local money they once had to disburse to help the poor was trivial compared to the vast floods of money Roosevelt controlled. And no political boss could compete with him in any county in America in the distribution of money and jobs.<ref name="Flynn_Roosevelt">John T. Flynn. [http://mises.org/books/rooseveltmyth.pdf "The Roosevelt Myth"] (pdf), p. 65; 1948. Referenced 2010-06-21.</ref>

As Henry Morgenthau, the secretary of the treasury and one of the most powerful men in America, said before the Democrats on the House Ways and Means Committee in 1939<ref name="Folsom_spending">Burton Folsom Jr. [http://search.barnesandnoble.com/New-Deal-or-Raw-Deal/Burton-Folsom-Jr/e/9781416592228#EXC "New Deal or Raw Deal?: How FDR's Economic Legacy Has Damaged America"], an excerpt from the book. Referenced 2010-06-21.</ref>:

<blockquote>''"We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong...somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises....I say after eight years of this Administration we have just as much unemployment as when we started....And an enormous debt to boot!"''</blockquote>

==During World War II==
The recovery from the Great Depression in the United States is usually associated with the advent of World War II, a period when real GDP appeared to increase phenomenally and the rate of unemployment fell almost to zero. A more detailed view produces a different picture, with large government "make-work" programs at first and military employment during the war - but a very slow actual recovery. When using hours worked as measure of employment, only in 1941 total work hours exceed the 1929 value (by 3 percent), with the population vigorously engaged in mobilization for war.<ref name="Higgs_hours">Robert Higgs. [http://www.independent.org/pdf/tir/tir_14_01_8_higgs.pdf "A Revealing Window on the U.S. Economy in Depression and War - Hours Worked, 1929–1950"] (pdf), The Independent Review, v. 14, n.1, Summer 2009. Referenced 2010-06-21.</ref>

Private [[investment]] has fallen significantly. Gross private investment plunged from almost 16 percent of GDP in 1929 to less than 2 percent in 1932; recovered to 13 percent in 1937 before falling again in the recession of 1938; and as late as 1941 stood at only 14 percent. During the war years, private investment ratios ranged from 3 to 6 percent. From 1946 through 1950 they ranged from 14 to 19 percent and averaged 16 percent — the same as in 1929. In 1929, when gross private investment was $16.2 billion, net investment was $8.3 billion. Net investment fell precipitously to $2.3 billion in 1930 and then became negative during each of the following five years. For the eleven-year period of 1930 to 1940, net private investment totaled minus $3.1 billion. Only in 1941 did net private investment ($9.7 billion) exceed the 1929 amount. During the 1930s, private investment remained at depths never plumbed in any other decade for which data exist.

One hypothesis is, that the New Deal prolonged the Great Depression by creating an extraordinarily high degree of '''[[regime uncertainty]]''' for the investors. Given the unparalleled outpouring of business-threatening laws, regulations, and court decisions, the oft-stated hostility of President Roosevelt and his lieutenants toward investors as a class, the political climate could hardly have failed to discourage some investors from making long-term commitments. There also exists a great deal of direct evidence that investors felt extraordinarily uncertain about the future of the property-rights regime between 1935 and 1941. Historians have recorded countless statements by contemporaries to that effect; in the years just before the war most business executives expected substantial weakening of private property rights ranging up to "complete economic dictatorship". The possibility that the United States might undergo an extreme regime shift seemed to many investors in the late 1930s and early 1940s not only possible but likely.<ref name="Higgs_investment">Robert Higgs. [http://www.independent.org/pdf/tir/tir_01_4_higgs.pdf "Regime Uncertainty - Why the Great Depression Lasted So Long and Why Prosperity Resumed after the War"] (pdf), The Independent Review, Vol, I, No. 4, Spring 1997. Referenced 2010-06-21.</ref><ref name="Higgs_China">Robert Higgs. [http://www.independent.org/blog/index.php?p=2620 "Regime Uncertainty in the 1930s: A New Deal Insider’s Account"], ''The Beacon'', blog of the The Independent Institute, Jun 29, 2009. Referenced 2010-08-15.</ref>

==See also==

* [[Austrian Business Cycle Theory]]

==References==
{{Reflist|2}}

==External links==
* [http://www.lewrockwell.com/gordon/gordon-gd-biblio.html Bibliography on the Great Depression] by David Gordon, 2009
* [http://mises.org/daily/3941 The Myth that Is FDR] by Garet Garrett, January 2010
* [http://mises.org/daily/4350 Did Hoover Really Slash Spending?] by Robert P. Murphy, May 2010
* [http://www.ameshistoricalsociety.org/exhibits/events/rationing.htm World War II Rationing], collected by the Ames Historical Society and the [[Wikipedia:Rationing|Wikipedia]] article on the same
* [http://www.mackinac.org/article.aspx?ID=4028 Free Markets or Free Lunches?] by Lawrence W. Reed, January 1998
* [http://www.mackinac.org/article.aspx?ID=4013 Great Myths of the Great Depression] by Lawrence W. Reed, January 1998
* [http://mises.org/daily/3778 The Gold Standard and the Great Depression] by Robert P. Murphy, October 2009
* [http://mises.org/daily/1623 The New Deal Debunked (again)] by Thomas J. DiLorenzo, September 2004
* [http://www.independent.org/newsroom/article.asp?id=138 Wartime Prosperity? A Reassessment of the U.S. Economy in the 1940s] by Robert Higgs, March 1992
* [http://mises.org/daily/3661 My Summer Reading: Hyper-Inflation in Weimar Germany] by Ralph Fucetola, September 2009 (notes that the crisis was seen as insignificant at the beginning)
* [http://mises.org/journals/qjae/pdf/qjae11_3_5.pdf The Great Depression: Mises vs. Fisher] (pdf) by Mark Thornton, November 2008
* [http://www.thefreemanonline.org/featured/the-depression-youve-never-heard-of-1920-1921/ The Depression You’ve Never Heard Of: 1920-1921] by Robert P. Murphy, December 2009
* [http://mises.org/daily/3866 Reliving the Crash of '29] by Murray N. Rothbard, first published in November 1979
* [http://mises.org/daily/4039 Dangerous Lessons of 1937] by Jonathan M. Finegold Catalan, February 2010
* [http://mises.org/daily/4797 The Real Reason for FDR's Popularity] by Mark Thornton, October 2010
* [[Wikipedia:Great Depression|Great Depression]] on Wikipedia

[[Category:History of the United States]]
[[Category:Financial crises]]

Parable of the broken window

2011-03-13T19:58:06Z

Daniel Hewitt: add examples and link

The '''parable of the broken window''', also known as the '''broken window fallacy''', was originally given in [[Frédéric Bastiat]]'s 1850 essay, ''Ce qu'on voit et ce qu'on ne voit pas'' (''[http://en.wikisource.org/wiki/Essays_on_Political_Economy/That_Which_Is_Seen,_and_That_Which_Is_Not_Seen That Which Is Seen, and That Which Is Not Seen]''). It demonstrates the costs to society that occur when property is destroyed, and illustrates the law of unintended consequences with respect to economic activity.

The book [[Economics in One Lesson]] by [[Henry Hazlitt]] was inspired by this parable.

== The Parable ==

{{quote|
Have you ever witnessed the anger of the good shopkeeper, James B., when his careless son happened to break a square of glass? If you have been present at such a scene, you will most assuredly bear witness to the fact, that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation—"It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?"

Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions.

Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier's trade—that it encourages that trade to the amount of six francs—I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is ''that which is seen''.

But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, "Stop there! your theory is confined to that ''which is seen''; it takes no account of that ''which is not seen''."

''It is not seen'' that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. ''It is not seen'' that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented.}}

==Contemporary Examples==
Paul Krugman, September 11, 2001 terror attacks:<ref name="Krugman_Horror">Paul Krugman. [http://www.nytimes.com/2001/09/14/opinion/reckonings-after-the-horror.html "Reckonings; After The Horror"], September 14, 2001, The New York Times. Referenced 2011-01-05.</ref><blockquote>Ghastly as it may seem to say this, the terror attack -- like the original day of infamy, which brought an end to the Great Depression -- could even do some economic good....

First, the driving force behind the economic slowdown has been a plunge in business investment. Now, all of a sudden, we need some new office buildings. As I've already indicated, the destruction isn't big compared with the economy, but rebuilding will generate at least some increase in business spending.</blockquote>

The Economist, "Cash For Clunkers" program:<ref name="Economist">"Clunky but effective: Why cash-for-clunkers schemes make sense right now," The Economist, accessed 2011-03-13, [http://www.economist.com/node/14162193?story_id=14162193 http://www.economist.com/node/14162193?story_id=14162193].</ref><blockquote>The boost in demand that the rebates have brought about is exactly the sort of stimulus that is urgently needed to escape what John Maynard Keynes called a “liquidity trap”. According to his theory, consumers may become so worried about the economy that they cling to as much liquid wealth as possible, cutting their spending sharply and thereby triggering precisely the slump they feared. Moreover, as stimulus policies go, cash-for-clunkers looks to be unusually effective.</blockquote>

Lawrence Summers, March 2011 Japan earthquake:<ref name="Summers">"Earthquake May Boost Economy Short Term: Summers," CNBC, accessed 2011-03-13, [http://www.cnbc.com/id/42002647 http://www.cnbc.com/id/42002647].</ref><blockquote>Friday's massive earthquake is yet another challenge to Japan's recovery but it may provide a jolt to the economy over the short term, Lawrence Summers, president emeritus of Harvard University and former director of the White House National Economic Council, told CNBC.

The biggest earthquake in 140 years hit Japan Friday, triggering 10-meter high tsunami waves.

"If you look, this is clearly going to add complexity to Japan's challenge of economic recovery," Summers said. "It may lead to some temporary increments, ironically, to GDP, as a process of rebuilding takes place."

After the Kobe earthquake in 1995 Japan actually gained some economic strength due to the process of reconstruction, he added.</blockquote>

==References==
{{Reflist}}

==Links==
{{wikisource|That Which Is Seen, and That Which Is Not Seen}}
* [http://bastiat.org/fr/cqovecqonvp.html "Ce qu'on voit et ce qu'on ne voit pas"] (original essay, in ''French'')
* [http://bastiat.org/en/twisatwins.html That Which is Seen, and That Which is Not Seen] (essay in English)
* [http://blog.mises.org/13436/the-broken-window-2/ "The Broken Window Fallacy" video]

{{DEFAULTSORT:Parable Of The Broken Window}}

[[Category:Economic concepts]]
[[Category:Fallacies]]

Comparative advantage

2011-03-04T14:46:18Z

Daniel Hewitt: /* Links */ added links

Time preference

2011-02-09T14:33:49Z

Daniel Hewitt:

{{Stub}}

'''Time preference''' is the assumption that all people prefer a given end to be achieved sooner rather than later. In the Misesian school it is derived from the assumption about [[human action]]. If people did not prefer to attain their ends sooner rather than later they would never act. The further in the future the attainment of the end appears to be, the less preferable it is. The less waiting [[time]], the more preferable is the end.

It may be called the preference for present satisfaction over future satisfaction or present good over future good, provided the same satisfaction (or [[good]]) is compared over periods of time.<ref name="Rothbard_Time">Murray N. Rothbard. [http://mises.org/rothbard/mes/chap1b.asp "4. Further Implications: Time"], Chapter 1-Fundamentals of Human Action, ''[[Man, Economy and State]]'', online edition, referenced 2010-01-10</ref>

==Preference for future goods==
It is sometimes objected that goods in the future may be preferred to the same good in the present. For example, in winter, a man will care little for ice, but would prefer it in the summer. But a [[good]] is not an item with certain material properties; this is merely a convenient description for goods under most circumstances. However, a good is identified by its function and extent of the satisfaction it provides. As the good "ice-in-the-summer" provides different (and greater) satisfactions than "ice-in-the-winter", they are different goods. In this case, different goods are being compared, even though ice has the same physical composition whether in winter or summer. <ref name="Rothbard_Time" />

==Savings and Time preference==
To enjoy greater [[consumption]], man must extend his [[Production|productivity]] first. Since acquiring the increased productivity comes with a cost — namely, time spent away from using the old method of production and consumption — there must be some means of paying that cost. This is the role of [[saving]]s. Some people have refrained from consumption in the past so that others can be sustained and create the new structure.

Savings remain key to this process of capital construction, and it is the time preference, that manifests itself in savings. Time preference is the extent to which people value current consumption over future consumption. If people enjoy current consumption so much, that the promise of an increased future consumption cannot bring them to save (and sacrifice the current level of consumption), the production will not be improved.

The thrust of the [[Austrian Business Cycle Theory]] is that credit inflation distorts this process, by making it appear that more means exist for current production than are actually sustainable. Since this is in fact an illusion, the endeavors of entrepreneurs to create a structure of production not reflecting actual consumer time preferences (as manifested in available savings for the purchase of producer goods) must end in failure.<ref name="Mahoney_preference">Dan Mahoney. [http://mises.org/story/672 "Austrian Business Cycle Theory: A Brief Explanation"], Mises Daily, May 07 2001, referenced 2010-01-10.</ref>

==Time Preference and the Process of Civilization==
Hans-Hermann Hoppe states that a time preference low enough to allow for production of capital goods initiates the “process of civilization” - a positive feedback loop where time preferences perpetually decrease due to the accumulation of capital, the increase of the relative value of future goods, the further division of labor, and lengthening of life expectancies.<ref name="Hoppe6">Hoppe, Hans-Hermann. ''Democracy: The God that Failed: The Economics and Politics of Monarchy, Democracy, and Natural Order'' (Transaction Publishers, 2001), 6-7.</ref> This process will continue indefinitely, as long as private property is respected.<ref name="Hoppe10">Hoppe, ''Democracy: The God that Failed'', 10.</ref> State violations of property rights are continuous and perpetual, therefore the state acts as a de-civilizing force upon society.<ref name="Hoppe13">Hoppe, ''Democracy: The God that Failed'', 13.</ref>

==References==
{{Reflist}}

==External links==
* [[Wikipedia:Time preference|Time preference]] on Wikipedia
* [http://mises.org/daily/4011 Of Time and Marshmallows] by J. Grayson Lilburne
* [http://www.newyorker.com/reporting/2009/05/18/090518fa_fact_lehrer?currentPage=all Don’t! The secret of self-control.] by Jonah Lehrer. A study on time-preference.
* [http://mises.org/daily/4212 Some Applications of the Time-Preference Theory] by Ludwig von Mises
[[Category:Economic concepts]]

User talk:Forgottenman

2011-02-03T14:34:56Z

Daniel Hewitt:

{{User:Forgottenbot/archive
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|archive = User talk:Forgottenman/Archive/%(year)d/%(monthname)s
|minthreadstoarchive = 1
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<div style="text-align:center; font-size:larger;">'''This is my talk page'''. Click the "New section" tab ("+") above to start a new topic, or simply <span class="plainlinks">[http://wiki.mises.org/mediawiki/index.php?title=User_talk:Forgottenman&action=edit&section=new click here]</span>. <br />Sign your name with <nowiki>~~~~</nowiki> when you're finished, and click "Save page." Thanks!</div>

== Extensions and interwiki links ==

A few questions:
# What Wikimedia extensions are installed here?
# What types of interwiki links are available for external wiki-linking? [[User:Mcornelius|Mcornelius]] 03:59, 12 November 2010 (CST)
:The extensions we have right now can be seen at [[Special:Version]]: we have categorytree, charinsert, parserfunctions, and cite. If we need more, however, we can ask our developers to install them.
:As far as interwiki links go, it looks like we can use the full names of Wikimedia wikis, but not shortcuts. So, [[wikipedia:Ludwig von Mises]] or [[wiktionary:praxeology]]. For Wikisource, we have to specify the language: [[wikisource:en:The Law]]. --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 06:49, 12 November 2010 (CST)

==Rights==
Seems like your rights issue is solved --[[User:Jatucker|Jatucker]] 12:16, 12 November 2010 (CST)
:What do you mean? --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 12:24, 12 November 2010 (CST)
::I thought your permissions were somehow limited but I see that they are not --[[User:Jatucker|Jatucker]] 16:09, 12 November 2010 (CST)
:::No, you gave me "bureaucrat" status, which is pretty much the highest available without being a developer. --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 18:57, 12 November 2010 (CST)

== Missing Templates ==

Impressive work on all the background mechanisms, Forgottenman! May I request a few more templates for citing resources, that seem to be necessary for the many articles and parts imported from Wikipedia (e.g. [[Austrian School|here]])? [[User:Pestergaines|Pestergaines]] 08:25, 16 November 2010 (CST)
:I'll have a look; they would be useful. Hopefully though their existence doesn't encourage more copy / pastes from Wikipedia... we have the opportunity to create articles that have much more detail and a less restrictive license, but if we start with WP text, our article is a derivative work of WP forever. --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 08:42, 16 November 2010 (CST)
::Well, we can always start from scratch if needed. :)
::Oh, and: big thanks for help with the BookSources! It's a small detail, but very useful when needed! [[User:Pestergaines|Pestergaines]] 14:41, 16 November 2010 (CST)
:::I'm thinking that starting from scratch may be a good idea. I'm not convinced that converting everything into metadata is really that useful. I'll start by adapting Wikiqoute's model of cite journal and we can go from there. --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 14:54, 16 November 2010 (CST)

[http://wiki.mises.org/wiki/Full_reserve_banking#cite_note-5 Full reserve banking] has also some template error, as in [[Criticism of fractional reserve banking|this]]; and a video template is required [[Peter Schiff|here]]. That is hopefully all!

On a different topic - do you think it would make sense to start organizing projects in this wiki, or is that premature? [[User:Pestergaines|Pestergaines]] 06:15, 17 November 2010 (CST)
:I'll try to take a look at those templates later today. Are you talking about Wikiprojects? Setting them up is probably best done by someone interested in the subject and not for its own sake – so I wouldn't suggest creating a wide variety of projects, but if there's a particular subject or type of article that interests you, go for it. Active projects can be great ways for people to get involved; abandoned projects make the place look like a big empty building. --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 09:40, 17 November 2010 (CST)
::I've created the [[MisesWiki:WikiProject Economic History]], although the name seems a little unwieldy. Before I start creating more pages, do you think the name and (category) is appropriate, or could we shorten WikiProject to Project? [[User:Pestergaines|Pestergaines]] 05:51, 20 November 2010 (CST)
:::Sounds fine to me. --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 09:32, 22 November 2010 (CST)

Would it be possible to get some CSS added to [[MediaWiki:Common.css]] to fix the formatting on [[Template:Header]]? I would do it myself but I don't have the required permissions. [[User:Anarchei|Anarchei]] 01:43, 29 November 2010 (CST)

==Innovation and original work.==
I've already logged in and made a very small edit to the mises wiki: pollution. I'm trained in sustainable development and pollution related problems and solutions. All I've done is add the word '''soil''' pollution to the list. Its often overlooked but it is useful because it illustrates the property rights, disclosure aspect, knowledge issues and the issue of people going to the hazard.

My question is not about pollution, its about charity and new tools like [http://www.thepoint.com/ The Point], hopefully you know of that because of Bob Murphy's challenge to Krugman.
Both need to be covered but in many cases the ideas of using charitable solutions are very new, particularly using the pledge based strategy in the Point, would they be considered original work?
Charity is critical because we often argue that charity can pick up some key externalities or public goods; particularly welfare. However charities are very restricted, often because they compete with government as a solution, [ Marx saw them as the major threat to socialism and Lenin wiped out church based charities in the first months ]. They have cash flow problems often because they are "not for profit" and this restricts their investment and banking options and because of donor fatigue and recipient privacy constraints. There's much stuff on this in the writings but its blurred a bit by Ayn Rand's opposition to religion and charity. [Yes I know she's not an Austrian school but most don't know that.] How do we deal with the newest solutions.
I've done some work in this field: [http://appliedimpossibilies.blogspot.com/2010/07/saving-world-by-burying-greens.html Saving the world by burying greens.]
The catch is that in a wiki sense this is classic ''"original work"'' but there are so few of us this could become a largish problem. What's plan A when your the only Austrian school player writing in a given field?
[[User:Wesleybruce|Wesleybruce]] 00:07, 17 November 2010 (CST)

:There are writings around on pretty much any topic, but sometimes one needs to pick and choose a little. A Stub for [[Charity]] was created with a few links that could be of use - perhaps that could help out? [[User:Pestergaines|Pestergaines]] 05:39, 17 November 2010 (CST)
:Regarding "original work," I wouldn't worry about it too much. I doubt that we are going to be as hardheaded about that as Wikipedia is in articles on "new" subjects. The preferred approach might be to build articles based on current work, with references, and then branch off based on that. Thus, Hayek said xyz about charity (he didn't think it had much hope of solving the problem), but his paradigm didn't include new charity options. Or Walter Block and Murry Rothbard say xyz about pollution, but other areas that haven't been looked into are ___.
:You might also get in touch with Stephan Kinsella; he runs Libertarian Papers and if you put something together he might be inclined to have it reviewed and published, especially in a new area like this. That way we'd end up with a published, reliable article to cite. --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 07:10, 17 November 2010 (CST)

==Mises Bust for Meritorious Editing==
{| style="border: 1px solid {{{border|gray}}}; background-color: {{{color|#fdffe7}}};"
|rowspan="2" valign="middle" | [[Image:MisesBust.jpg|100px]]
|rowspan="2" |
|style="font-size: x-large; padding: 0; vertical-align: middle; height: 1.1em;" | '''Mises Bust for Meritorious Editing'''
|-
|style="vertical-align: middle; border-top: 1px solid gray;" | For his numerous and highly clueful edits in the early days of the Mises Wiki, I hereby present this Mises Bust to Forgottenman. [[User:DickClarkMises|DickClarkMises]] 13:18, 19 November 2010 (CST)
|}
:That put a smile on my face. Just awesome; thanks. --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 13:20, 19 November 2010 (CST)

== The 'Anniversaries' project ==

Hey, Forgot, a question: With all the unfinished anniversary pages, might you be able to create a little "Project Page" (like the "Economic History" project) that gives us a few guidelines about what to put where? I was wondering because the anniversary dates show up as top-ranked in the [[Special:WantedPages|Most wanted pages]] list and it might be helpful for us folks to know how to add things. Thanks in advance! -- [[User:RayBirks|RayBirks]] 14:32, 27 November 2010 (CST)
:I've added instructions to [[MisesWiki:Anniversaries]]. --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 16:04, 27 November 2010 (CST)
::Yes, noticed almost right away. Thanks! -- [[User:RayBirks|RayBirks]] 18:16, 27 November 2010 (CST) Wondering now about:

==The concept of "Projects"==
Our only official "project" to date is the [[MisesWiki:WikiProject Economic History|Economic history project]]. Do these four pages qualify as "projects" worthy of the category "WikiProjects" ?

:* [[MisesWiki:Meetups|Meetups]]
:* [[MisesWiki:Anniversaries|Anniversaries]]
:* [[MisesWiki:Current events|Current events]]
:* [[MisesWiki:Community portal|Community portal]]

They all have "project page" as their first tab, yet I don't see any code inside the Economic History project page that makes it unique to be a special project. Seems these four may also be special cases needing focus, building, expansion, explanations, etc. Am not pushing hard for these necessarily. I am just looking to see if these deserve the designation. Thanks for your thoughts as time permits. Maybe we can discuss this in our soon-to-be-developed forum! :) If this is too much for your talk page, I could move to the Google mailing list, if you like. -- [[User:RayBirks|RayBirks]] 18:16, 27 November 2010 (CST)
:On Wikipedia at least the Wikiprojects are primarily for content creation or specific maintenance tasks. My preference would be to continue in that tradition; the other pages you mention seem different from that. "Anniversaries" would be closest, I think, to being an actual Wikiproject, but the thing is that it really isn't a project that will need a lot of maintenance once it is set up (though that will take at least several months). I'd say put it on the Community portal to draw attention to it, but I wouldn't call it a wikiproject. --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 19:55, 27 November 2010 (CST)
::'k. -- [[User:RayBirks|RayBirks]] 21:03, 27 November 2010 (CST)

== Placement of stub tags ==

The stubs category page had suggested including the tag at either the beginning or the end of the article. As I see you moving them to the end of various pages, shall we change the instruction as well? Thanks for all your good works. -- [[User:RayBirks|RayBirks]] 11:09, 29 November 2010 (CST)
:Thanks, I didn't realize it said that. If anyone disagrees with my edit comment in my edit to [[:Category:Article stubs|that page]], I'm happy to discuss it. --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 11:19, 29 November 2010 (CST)

== idioms ==

Hello
Can i write in spanish my contributions, changes and wikis?

thanks. {{unsigned|09:15, 3 January 2011|Arenas}}
:Hola Arenas: Es posible que vaya a ser un Mises Wiki en español en el futuro, si hay interés. Pero en este momento hay solamente un Mises Wiki en inglés. Si quieres contribuir, sugiero que agregues contribuciones en español en las páginas de "Talk," y yo puedo traducirlas y añadir el texto al artículo. Por ejémplo, si quieres crear un artículo llamado [[Vicente Fox]], añadir tu contribución en [[Talk:Vicente Fox]] y avísame. Dime si tienes otras preguntas; ayudarte es un placer.
:Hi Arenas: It's possible that in the future there will be a Mises Wiki in Spanish, if there's enough interest. But for now there is only a Mises Wiki in English. If you would like to contribute, I suggest that you add Spanish text to Talk pages, and I can translate them and add the text to the article. For example, if you want to create an article called [[Vicente Fox]], add your text to [[Talk:Vicente Fox]] and let me know. If you have other questions let me know; I'm glad to help. --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 09:40, 3 January 2011 (CST)

== Don't remove ==

See http://wiki.mises.org/wiki/MisesWiki:Commons#Most_wanted_Stub. --[[User:Reserved|Reserved]] 12:26, 6 January 2011 (CST)
:Ah, if that's what you're referring to then let's create a page and link to it. Putting a red link on a page meant to guide new folks is counterintuitive. --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 12:35, 6 January 2011 (CST)
:: Is only an open idea. When you think, it's practicable, then create it, please. --[[User:Reserved|Reserved]] 12:38, 6 January 2011 (CST)
:::I rather doubt it's practicable, but others think so, so I've put it at [[MisesWiki:Most wanted]]. --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 12:55, 6 January 2011 (CST)
:::: I don't know, too. But a test is no risk. --[[User:Reserved|Reserved]] 13:21, 6 January 2011 (CST)

== Template ==

I see from above you are the goto guy for requesting templates :) Might I ask for the <nowiki>'''{{reflist|2}}'''</nowiki> one to be activated? It will allow for a far tidier article layout. Thanks [[User:Mark|Mark]] 14:00, 7 January 2011 (CST)
:I just worked on it a bit but it doesn't appear to be working yet; I'll need to do more research to figure it out. --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 14:20, 7 January 2011 (CST)
::Thank you very much :) [[User:Mark|Mark]] 14:25, 7 January 2011 (CST)
Thank you for doing the reflist|2 template, I have another request, would it be possible to get the <nowiki>{{refbegin|2}} and {{refend))</nowiki> done also? <span style="font-size:smaller;">—''unsigned comment by'' [[User:Mark|Mark]] ([[User talk:Mark|talk]]) {{#if:Mark|11:42, 11 January 2011}}.</span>
:I've set up the framework, but I'm not familiar with these templates and so I don't know if they are working right now or not. I'll research them later and see what I can find, and write some documentation as well. --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 11:08, 11 January 2011 (CST)
::Thanks. I have tried it out here [[Fighting Communist Organizations]] if you look t othe article`s end you will see that any section below the templates (In this case further reading) appears to get squished up? [[User:Mark|Mark]] 11:19, 11 January 2011 (CST)
::Thank you for setting up the template, there is one further issue with it however, '''</dl>''' is showing at the end of the references section? Any idea as to why? [[User:Mark|Mark]] 10:44, 28 January 2011 (CST)
:::Odd. Somehow on Wikipedia that dangling <code><nowiki></dl></nowiki></code> is hidden. Those five characters are only needed if {{tl|refbegin}} uses the "indent" parameter, so I've made them hide unless {{tl|refend}} also uses the indent parameter. --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 11:14, 28 January 2011 (CST)
::::Excellent, thank you. [[User:Mark|Mark]] 13:41, 28 January 2011 (CST)

== About ==

Well edit, but you don't need to make a bow to one person. Tucker said it, I copied it.

The hope that this wiki can eventually come to replace major sections of mises org, is also from him. --[[User:Reserved|Reserved]] 11:15, 11 January 2011 (CST)
:You are the one who introduced the language that the Mises Institute "rules" this wiki; my edit provided support for that claim. --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 11:33, 11 January 2011 (CST)
:: My language is influenced by my troublesomeness to think in English as German. Mr. Tucker may edit this article himself to advance the site (without to quote himself). We are no footmen. --[[User:Reserved|Reserved]] 11:50, 11 January 2011 (CST)

== More on sub-categories ==

I have created a new sub-category of "History of the Soviet Union". When you have a moment, please take a look to see if it is set up properly. You can find it by way of [[Felix Dzerzhinsky]]. Thx. :) -- [[User:RayBirks|RayBirks]] 19:54, 28 January 2011 (CST)

== Renaming a page via 'Move' ==

When offline I recalled the "move" concept. Found the short explanation in the [[Help:Wiki FAQ#Fixing wiki mistakes|'Help' FAQ]]. Have never 'moved' a page before, that I can recall. Would that have worked recently on the original misnaming of the ''History of the Soviet Union'' category as well? I am guessing all live links to the moving page are automatically changed as well, yes? TIA. -- [[User:RayBirks|RayBirks]] 13:54, 30 January 2011 (CST)
:Unfortunately no, categories can't be "moved" like articles can. To rename a category, we have to create a category with the new name, manually move all pages in the old category to the new category, and delete the old category. Right now we don't have many categories with a lot of articles in them, so this is an easy process. In the future, we can use a bot to make the change easier to complete. Regarding [[:Category:History of the Soviet Union]], you did it correctly: put {{tl|delete}} on the category with the wrong name, so that an admin would know to delete it. --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 14:22, 30 January 2011 (CST)

== Mike Shedlock vanity? ==

[[Mike Shedlock]] Is an article about a person sourced entirely to that persons blog suitable for this wiki? It seems to be just a vanity piece to me. [[User:Mark|Mark]] 10:25, 2 February 2011 (CST)
:I think it's okay: the guy seems to be a fairly established writer (even writing occasionally for mises.org). So while yes it would be nice to get better sources, I'm not uncomfortable with letting it stay until then. --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 06:45, 3 February 2011 (CST)
:Added some more links to make it a little more balanced (Murphy/Faber criticism of Mish). Some are Mises links, which look kind of weird under ''external'' links. Is there a special convention for Mises links? [[User:Daniel Hewitt|Daniel Hewitt]] 08:34, 3 February 2011 (CST)

Mike Shedlock

2011-02-03T14:23:37Z

Daniel Hewitt:

'''Mike "Mish" Shedlock''' is an American investment advisor and financial commentator. He operates the blog ''[http://globaleconomicanalysis.blogspot.com MISH'S Global Economic Trend Analysis]'' and believes in the [[Austrian School|Austrian School of economics]].<ref>[http://globaleconomicanalysis.blogspot.com/2008/06/about-mike-mish-shedlock.html About Mike "Mish" Shedlock], retrieved February 1, 2011</ref><ref>[http://globaleconomicanalysis.blogspot.com/2008/04/deflation-in-fiat-regime.html Deflation In A Fiat Regime?], April 22, 2008, retrieved February 1, 2011</ref>

Shedlock is an avid supporter of [[Ron Paul]] and other [[Libertarianism|libertarian-leaning]] political candidates.<ref>[http://globaleconomicanalysis.blogspot.com/2010/10/gold-market-on-us-elections-so-what.html Gold Market on U.S. Elections: So What?], October 14, 2010, retrieved February 1, 2011</ref> He sides with [[Murray Rothbard]] and believes fractional reserve lending is inherently fraudulent, concluding that "[t]he case is irrefutable."<ref>[http://globaleconomicanalysis.blogspot.com/2009/10/fractional-reserve-lending-constitutes.html Fractional Reserve Lending Constitutes Fraud], October 5, 2009, retrieved February 1, 2011</ref>

On July 10, 2007 Shedlock called the top of the stock market suggesting that "the current trend is exhausted"<ref>[http://globaleconomicanalysis.blogspot.com/2007/07/quotes-of-day-top-call.html Quotes of the Day / Top Call], July 10, 2007, retrieved February 1, 2011</ref>, missing the actual top by 3%.

==External links==
* [http://globaleconomicanalysis.blogspot.com Mike Shedlock's blog ''Global Economic Trend Analysis'']
* [http://mises.org/daily/author/948 Mises Daily archive for Mike Shedlock]
* [http://www.minyanville.com/businessmarkets/articles/mish-shedlock-mike-shedlock-interview-deflationist/10/27/2010/id/30789?page=full Interview: Straight Talk With Outspoken Deflationist, Mike "Mish" Shedlock]
* [http://www.lewrockwell.com/orig11/slavo7.1.1.html Marc Faber and Mish on Inflation, Deflation, Doom and the End of Civilization]
* [http://mises.org/daily/3541 Mish Should Ditch His Deflation Fears]
* [http://mises.org/daily/4805 Has Mish Deflated the "Inflationistas"?]

==References==
{{Reflist}}
<references/>

Great Depression

2011-02-01T20:38:16Z

Daniel Hewitt: /* 1932, The Hoover New Deal */

{{RightTOC}}
The '''Great Depression''' was the longest and most severe economic depression ever experienced by the Western world.<ref name="Britannica_debt">Encyclopædia Britannica. [http://www.britannica.com/EBchecked/topic/243118/Great-Depression "Great Depression"], Encyclopædia Britannica Online, referenced 2010-06-12.</ref>

==Prelude==
From June 1914 to January 1920, when [[Demand deposits|demand deposits]] grew by 96.9 percent, [[Time deposits|time deposits]] rose by 126.1 percent. In the great boom of the 1920s, that started after the [[Wikipedia:Depression of 1920–21|recession of 1920–21]] (a short recession, thanks to the budget cutting and lowering of taxes by [[Wikipedia:Warren Harding|Warren Harding]]<ref name="Woods_Harding">Thomas E. Woods, Jr. [http://www.firstprinciplesjournal.com/articles.aspx?article=1322&theme=home&loc=b "Warren Harding and the Forgotten Depression of 1920"], First Principles, Fall 2009 issue of The Intercollegiate Review. See also the [http://www.youtube.com/watch?v=czcUmnsprQI video]. Referenced 2009-10-11.</ref>), total demand deposits rose from 1921 to 1929 by 36.5 percent. Time deposits in banks expanded in the same period by 75.9 percent. The great boom of the 1920s (also called "[[Wikipedia:Roaring Twenties|Roaring Twenties]]") was largely fueled by credit expansion going into time deposits. The greatest expansion of time deposits came in Central Reserve Cities (New York and Chicago), where the [[Federal Reserve System|Fed]]’s open market operations were all conducted, as opposed to Reserve Cities and Country Banks. As acknowledged by Federal Reserve officials, time or savings deposits were then, for all practical purposes, equivalent to demand deposits and should be paid on demand in case of a run on a bank.

With the passage of the [[Federal Reserve Act]], [[Woodrow Wilson|President Wilson]] appointed [[Benjamin Strong, Jr.|Benjamin Strong]] to the most powerful post in the Federal Reserve System, Governor of the [[Reserve Bank of New York|Federal Reserve Bank of New York]]. He made quickly this position dominant in the System and decided on Fed policy without consulting or even against the wishes of the Federal Reserve Board in Washington. Strong was the dominant leader of the Fed from 1914 until his death in 1928. He pursued an inflationary policy, to finance the war effort for [[World War I|WWI]]], connected to the interests of the [[J.P. Morgan & Co.|House of Morgan]]. Another motivation was the attempt to prop up the [[Bank of England]] in the 1920s, when it returned to the [[gold standard]] with an overvalued pound. To prevent the loss of gold to the States, its governor [[Wikipedia:Montagu Norman, 1st Baron Norman|Montagu Norman]] secretly convinced Strong to inflate in order to help England. The expansion ended only after Strong's death and the '''Great Depression''' followed soon after. In 1928 Strong admitted that "very few people indeed realized that we were now paying the penalty for the decision which was reached early in 1924 to help the rest of the world back to a sound financial and monetary basis" - that is, to help Britain maintain a phony and inflationary form of gold standard.<ref name="Rothbard_Federal_Reserve">[[Murray N. Rothbard]]. [http://mises.org/books/mysteryofbanking.pdf "The Mystery of Banking"] (pdf), Chapter XVI: Central banking in the United States IV: The Federal Reserve System, p.235-246, referenced 2009-10-03.</ref>

The inflation was also motivated by a desire to help American exporters (particularly farmers), by stimulation of foreign lending. At the same time the U.S. turned to a sharp protectionist policy with the [[Wikipedia:Fordney–McCumber Tariff|Fordney–McCumber Tariff]] of 1922. In the foreign lending boom, other countries were hampered in trying to sell their goods to the United States, but were encouraged to borrow dollars. The government did not have any peacetime authority to interfere with loans, but did so illegally. In 1921, President [[Warren G. Harding|Harding]] and his cabinet conferred with several American investment bankers, at the instigation of Secretary of Commerce [[Herbert Hoover|Hoover]], to be informed in advance of foreign loans, so that the government "might express itself regarding them". The bankers agreed. Hoover commented that even bad loans helped American exports and provided a cheap form of relief and employment. Later Hoover demanded from bankers, that foreign loans would be inspected by agents of the [[Department of Commerce]]. Both requests were mostly ignored. While admitted to be legally unenforceable, it was all in the name of "national interests".<ref name="Rothbard_pre_Depression">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 5. The Development of the Inflation, p. 137-167, referenced 2009-11-17.</ref>

{{See also|Federal Reserve System}}

==The Crash==
The great boom of the 1920s began around July, 1921, after a year or more of sharp recession, and ended about July, 1929, when the production and business activity began to decline, although the [[Wikipedia:Wall Street Crash of 1929|famous stock market crash]] came in October of that year. [[Wikipedia:Herbert Hoover|Herber Hoover]], an avid proponent of interventionism became President. Characteristic for him were "voluntary" measures that the government desired, with the implicit threat that if business did not "volunteer" properly, compulsory controls would soon follow.<ref name="Rothbard_1920s_boom">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 5. The Development of Hoover's Interventionism: Unemployment, p. 188-189, referenced 2009-11-20.</ref>

After the stock-market crash, Hoover began a series of conferences with big business and labor leaders, telling them that cutting wage rates (the standard response in previous depressions) would be disastrous, because then the workers wouldn't make enough to buy the products. This "liquidation" of labor would only deepen the depression by reducing their "purchasing power". Leading industrialists have pledged to maintain wage rates, expand construction, and share any reduced work. At the same time, the Federal Reserve expanded rapidly and lowered its interest rates. Its member banks expanded their deposits in the last week of October 1929 alone by 10%, mostly in New York. Hoover praised the Fed for the saving of shaky banks and restoring confidence. The depression should be over in a few months. A large public works program was also initiated.<ref name="Rothbard_public_works">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 8. The Depression Begins: President Hoover Takes Command, p. 209-217, referenced 2009-11-21.</ref>

Hoover promised the farm bloc to support farm cooperatives and prices and established the [[Wikipedia:Federal Farm Board|Federal Farm Board]] (FFB). It would make all-purpose loans to farm cooperatives at low interest rates and establish "stabilization corporations" to control farm surpluses and bolster farm prices. Its board was dominated by representatives of these farm cooperatives. To combat falling prices, it made loans to farmers to keep wheat and cotton off the market and later started to buy the surpluses. For a while, prices were held up and farmers increased production, only to find that prices would fall even more. As America held wheat off the market, it lost its former share of the world’s wheat trade. The farmers were urged to decrease their acreage, while the government still promoted reclamation projects to increase farm production. The surpluses of wheat accumulated and prices fell to such a degree, that the FFB decided to dump wheat stocks abroad, resulting in a drastic fall in market prices. The attempts to keep up the price of cotton, wool, livestock, etc. failed as well. A "[[Wikipedia:Farmers' Holiday Association|Farm Holiday]]" was declared to stop production, The movement soon turned to violence and failed to stop the falling farm prices. but succeeded to avoid some foreclosures of its members.<ref name="Rothbard_Agriculture">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), The New Deal Farm Program, p. 217-237, referenced 2009-11-21.</ref>

In 1930, the [[Wikipedia:Smoot–Hawley Tariff Act|Smoot–Hawley Tariff]] was passed, despite objections of many economists and industrial leaders. Hoover originated a higher tariff on agricultural products to help farmers, but it was raised on many other products. Many other countries have retaliated with their own tariffs and foreign trade declined significantly. (From 1929 to 1932, U.S. imports from Europe decreased from $1,334 million to just $390 million, while U.S. exports to Europe decreased from $2,341 million to $784 million. Overall, world trade decreased by some 66% between 1929 and 1934.<ref>U.S. Department of State. [http://future.state.gov/when/timeline/1921_timeline/smoot_tariff.html Smoot-Hawley Tariff], referenced 2009-11-22.</ref>) Also, to relieve the unemployment problem, and to help keep wage rates up, the President effectively banned further immigration into the United States.<ref name="Rothbard_Depression_1930">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 9. 1930, p. 239-256, referenced 2009-11-22.</ref>

===In Europe===
In Europe, the crisis began in earnest with the ''Boden–Kredit Anstalt'', the most important bank in Austria and Eastern Europe. It had to merge with the [[Wikipedia:Creditanstalt|Oesterreichische–Kredit–Anstalt]] after rescue attempts by its government and other banks. When Austria declared a customs union with Germany in March 1931, the French government feared this development and several French banks suddenly insisted on redemption of their debts from both countries. The bank collapsed. After more rescue attempts has the Austrian Government voted a $150 million guarantee to the bank, but the its credit was by the time worthless, and Austria soon declared national bankruptcy by going off the gold standard. Later, Germany, England, and most other European countries renounced their obligations and went off the gold standard as well. While the impact on United States was not very large due to the lowered international trade, it certainly did not help, neither did the many loans granted to prop up foreign banks.<ref name="Rothbard_Depression_1931_Europe">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 10. 1931—"The Tragic Year", p. 257-284, referenced 2009-11-27.</ref>

==1931, "The Tragic Year"==
The crisis worsened in the US in 1931. Production continued to fall drastically, as did prices and foreign trade, and unemployment ran up to almost 16 percent of the labor force. The Federal Reserve Board (FRB) index of manufacturing production, which had been 110 in 1929 and 90 in 1930, fell to 75 in 1931. Hardest hit, in accordance with Austrian [[ABCT|cycle theory]], were producers’ goods and higher order [[capital]] goods industries, rather than the consumer goods’ industries. Despite attempts to inflate, bank deposits and the aggregate [[money supply]] fell sharply, particularly at the end of the year. The British abandoning of the gold standard, bank failures abroad and the growing number of failures at home, caused a growing loss of confidence by Americans in their banking system. The wages were also beginning to fall, first secretly, then openly by the end of 1931.

The gross national product fell from $91.1 billion in 1930, to $76.3 billion in 1931. Total government receipts fell from $13.5 billion to $12.4 billion, but total government expenditures rose from $13.9 billion to $15.2 billion, in federal, rather than state and local, spending (federal expenditures rose from $4.2 billion in 1930 to $5.5 billion in 1931). In the middle of a great depression when people needed to be relieved of governmental burdens, the dead weight of government rose from 16.4 percent to 21.5 percent of the gross private product. From a modest surplus in 1930, the Federal government so ran up a huge $2.2 billion deficit in 1931.<ref name="Rothbard_Depression_1931_Europe" />

Direct relief was just about the one sphere where President Hoover seemed to prefer voluntary to governmental action. The [[Wikipedia:Red Cross|Red Cross]] opposed a bill, in early 1931, that would grant it $25 million for relief, declaring that it would "to a large extent destroy voluntary giving". Many private charity organizations, philanthropists, and social workers had the same views. Governmental unemployment relief was seen to have a role in creating and perpetuating unemployment in Britain (the "dole"). It was attacked by many business leaders, including [[Wikipedia:Henry Ford|Henry Ford]], the leaders of the [[Wikipedia:National Association of Manufacturers|National Association of Manufacturers]] and the [[Wikipedia:United States Chamber of Commerce|Chamber of Commerce]], and former President [[Wikipedia:Calvin Coolidge|Coolidge]].<ref name="Rothbard_Depression_1931_Europe" />

The [[Davis-Bacon Act]] was signed by President Hoover in 1931. It mandated that prevailing (union) wages be paid by the Federal Government for public works projects. It has been argued that the Davis-Bacon Act was a [[Jim Crow law]], since its intent <ref name=”williams”>Walter Williams, [http://www.jewishworldreview.com/cols/williams031203.asp "Congress' insidious discrimination"], ''Jewish World Review'' (March 12, 2003), accessed 2011-02-01.</ref> and its effect <ref name=”cato”> David Bernstein, [http://www.cato.org/pubs/briefs/bp-017.html "The Davis-Bacon Act: Let's Bring Jim Crow to an End"], ''Cato Institute Briefing Papers'' (January 18, 1993), accessed 2011-02-01.</ref> was to prevent lower-paid, non-unionized black laborers from competing against higher-paid, unionized white laborers. Hoover promoted and supported the legislation, as he believed that "[t]he very essence of great production is high wages...because it depends upon a widening range of consumption only to be obtained from the purchasing power of high real wages...." <ref name="hoover108">Herbert Hoover, ''The Memoirs of Herbert Hoover: Volume 2, The Cabinet and the Presidency, 1920-33'', (New York: Macmillan, 1952) 108.</ref>

==1932, The Hoover New Deal==
In an atmosphere of crisis, President Hoover called for more drastic measures, including more government aid and loans. With a $2 billion deficit during annual year 1931, Hoover felt that he had to do something to combat it and chose to increase the taxes. The [[Wikipedia:Revenue Act of 1932|Revenue Act of 1932]] was one of the greatest increases in taxation ever enacted in the United States in peacetime. Many wartime
excise taxes were revived, sales taxes were imposed on gasoline, tires, autos, electric energy, malt, toiletries, furs, jewelry, and other articles; admission and stock transfer taxes were increased; new taxes were levied on bank checks, bond transfers, telephone, telegraph, and radio messages; and the personal income tax was raised drastically as follows: the normal rate was increased from a range of 1½ percent–5 percent, to 4 percent–8 percent; personal exemptions were sharply reduced, and an earned credit of 25 percent eliminated; and surtaxes were raised enormously, from a maximum of 25 percent to 63 percent on the highest incomes. Furthermore, the corporate income tax was increased from 12 percent to 13: percent, and an exemption for small corporations eliminated; the estate tax was doubled, and the exemption floor halved; and the gift tax, which had been eliminated, was restored, and graduated up to 33⅓ percent. The postal rates were raised as well.

Despite the drastic increase in tax rates, total Federal revenue for 1932 declined because of the deepened depression—itself partly caused by the increase in tax rates. Total Federal receipts, excluding government enterprises, declined from $2.2 billion in 1931 to $1.9 billion in 1932; including government enterprises, Federal receipts fell from $3.4 billion to $3 billion.

Total government receipts fell from $12.4 billion to $11.5 billion. As a result, the huge Federal deficit continued despite a drop in government expenditures in 1932: Federal expenditures falling from $5.5 billion to $4.4 billion, and aggregate government expenditures falling from $15.2 billion to $13.2 billion (all numbers including government enterprises). Of the $1.7 billion in total government deficit, the bulk of it — $1.4 billion — was in the Federal government account. The state and local governments were forced to cut back their expenditures to near the level of their dwindling receipts. One of the most ominous projects for Federal spending during 1932 was a Congressional move for a huge $2 billion veterans bonus, to be financed by an issue of new currency. It was its final defeat in the Senate in June that did most to defeat a general clamor for much larger government spending.

Meanwhile, however, President Hoover himself was beginning to have doubts about one of his favorite policies: public works. In a conference at the end of February, Hoover admitted that his public works program, which had nearly doubled Federal construction since the start of the depression, had failed. It was very expensive, costing over $1200 per family aided, it was unavailable to the needy in remote regions and to those who were unable to perform such labor, which was, after all, unskilled make-work. By May, Hoover had openly reversed his earlier position. As a result, Federal public works only increased by $60 million in 1932, to reach the $333 million mark. Public works was not to come really to the fore again until the Roosevelt administration.

Holding firm to his interventionist belief that the downward pressure on wages must be resisted <ref name ="hoover108" />, Hoover signed the [[Norris-Laguardia Act]] into law on March 23, 1932. It banned "yellow-dog" contracts, removed federal courts’ authority to issue injunctions against labor disputes, and provided greater ease for workers to organize<ref name="enotes">[http://www.enotes.com/major-acts-congress/norris-laguardia-act "Norris-Laguardia Act (1932): Major Acts of Congress"], accessed 2011-02-01.</ref>; a landmark victory for organized labor.

If Hoover eagerly embraced other forms of [[intervention]], he gave ground but grudgingly on one issue where he had championed the voluntary approach: direct relief. Governor [[Wikipedia:Franklin D. Roosevelt|Franklin D. Roosevelt]] of New York led the way for state relief programs in the winter of 1931–1932, and he induced New York to establish the first state relief authority: the Temporary Emergency Relief Administration, equipped with $25 million. Other states followed this lead, and a bill was introduced for a $500 million federal relief program. The bill was defeated, but, with depression deepening and a Presidential election approaching, the administration all but surrendered, passing the [[Wikipedia:Emergency Relief and Construction Act|Emergency Relief and Construction Act]] of July, 1932 — the nation’s first Federal relief legislation. All in all, total public relief in 120 of the nation’s leading urban areas amounted to $33 million in 1929, $173 million in 1931, and $308 million in 1932.

One thing Hoover was not reticent about: inflation. The administration first cleared the path for the program by passing the [[Wikipedia:Glass–Steagall Act|Glass–Steagall Act]] in February, which (a) greatly broadened the assets eligible for rediscounts with the Fed, and (b) permitted the Federal Reserve to use government bonds as collateral for its notes, in addition to commercial paper. At the end of February, 1932, total bank reserves had fallen to $1.85 billion. At that point, the [[Federal Reserve System|FRS]] launched a gigantic program of purchasing U.S. government securities. By the end of 1932, total reserves had been raised to $2.51 billion. This enormous increase of $660 million in reserves in less than a year is unprecedented in the previous history of the System. If the banks had kept loaned-up, the money supply of the nation would have increased by approximately $8 billion. Instead, the money supply fell by $3.5 billion during 1932, from $68.25 to $64.72 billion at the end of the year, and with the bank deposit component falling by $3.2 billion. Until the second quarter of 1932, the nation’s banks had always remained loaned up, with only negligible excess reserves. After, the banks accumulated excess reserves, and it is estimated that the proportion of excess to total bank reserves rose from 2.4 percent in the first quarter of 1932, to 10.7 percent in the second quarter. By the fourth quarter of 1932, excess reserves were estimated to a double of 20.3 percent of total bank reserves.

During the 1920s, a typical year might find 700 banks failing, with deposits totaling $170 million. In 1930, 1350 banks failed, with deposits of $837 million; in 1931, 2,293 banks collapsed, with deposits of $1,690 million; and in 1932, 1,453 banks failed, having $706 million in deposits. This enormous increase in bank failures was enough to give any bank pause—particularly when the bankers knew in their hearts that no bank (outside of the nonexisting ideal 100 percent bank) can ever withstand a determined run. Consequently, the banks permitted their commercial loans to run down without increasing their investments. Inflation by the government was turned into deflation by the policies of the public and the banks. The American economy reached the depths of depression during 1932 and 1933, and yet it had begun to turn upward by mid-1932. It is not far-fetched to believe that the considerable deflation of July 1931–July 1932, totaling $7.5 billion of currency and deposits, or 14 percent, was partly responsible for the mid-summer upturn.<ref name="Rothbard_Depression_1932">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 11. The Hoover New Deal of 1932, p. 285-320, referenced 2009-11-27.</ref>

As the Depression got worse and people lost their confidence in the banks, they decided to take custody of their cash. Seeing people in large numbers pulling their money out of banks — money the banks had promised to provide on demand — President Hoover blasted them for their "traitorous hoarding." He organized an antihoarding drive and delivered a radio address ([http://www.bobsuniverse.com/BWAH/31-Hoover/19320306a.pdf transcript], pdf) in which he pleaded with the public to stop hoarding (i.e., to stop converting their bank deposits into cash).<ref name="Smith_hoarding">George F. Smith. [http://mises.org/story/3707 "The Virtue of Hoarding"], Mises Daily, posted on October 09, 2009, referenced 2009-11-18.</ref>

Nominal paychecks fell much more slowly during the early years of the Great Depression than the general [[price]] level (wholesale prices fell by 10 percent in 1930, by 15 percent in 1931)<ref name="Rothbard_Depression_1931_Europe" /> - and those who kept their job experienced a higher increase in real (inflation-adjusted) wages, than during the Roaring 1920s!<ref name="ohanian"> Lee E. Ohanian, "What - or Who - Started the Great Depression?", ''NBER Working Paper No. 15258'' (August 2009). Free copy online [http://www.econ.ucla.edu/people/papers/Ohanian/Ohanian499.pdf "here"]</ref> And so has unemployment reached record highs during Hoover's first and only term. When FDR went back on the US government's promise to redeem dollars for gold, the Federal Reserve could flood the economy with new dollars, the prices began to rise again. Because wage rates were not allowed to fall to their new, market-clearing level, [[Inflation|inflating]] the currency has paradoxically reduced unemployment.<ref name="Murphy_Depression">Robert P. Murphy. [http://mises.org/story/3778 "The Gold Standard and the Great Depression"], Mises Daily, posted on October 30, 2009, referenced 2009-11-18.</ref>

The Fed has expanded bank reserves in the 1930s. Panicking at the inflationary potential, it doubled the minimum reserve requirements to 20 percent in 1938, sending the economy into a tailspin of credit liquidation. The Fed, ever since that period, has been very cautious about the degree of its changes and changed bank reserve requirements fairly often, but in very small steps, by fractions of one percent.<ref name="Rothbard_Fed_requirements">[[Murray N. Rothbard]]. [http://mises.org/books/fed.pdf "The Case Against the Fed"] (pdf), How the Fed Rules and Inflates, p. 144, referenced 2010-03-23.</ref>

After 1933, Federal Reserve Notes and deposits were no longer redeemable in gold coins to Americans, their gold was confiscated and exchanged for Federal Reserve Notes, which became legal tender; and Americans were stuck in a regime of fiat paper issued by the government and the Federal Reserve.<ref name="Rothbard_Fed_gold">[[Murray N. Rothbard]]. [http://mises.org/books/fed.pdf "The Case Against the Fed"] (pdf), The New Deal and the Displacement of the Morgans, p. 131-132, referenced 2010-05-10.</ref>

===Tax revolt in the USA===
There has been a widespread opposition to real estate taxes in cities across America and some Americans were in fact not paying their taxes. The movement declined quickly, some scholars acknowledge certain influence, but ultimately declare it a failure.<ref name="Beito_revolt">David T. Beito. [http://mises.org/books/taxpayersinrevolt.pdf Taxpayers in Revolt - Tax Resistance during the Great Depression] (pdf), referenced 2010-06-15.</ref> Others consider it a resounding success, however.

President Hoover's massive tax increase bill that passed into law as the [[Wikipedia:Revenue Act of 1932|Revenue Act of 1932]], with many new taxes. The most burdensome taxes for many Americans, however, was the property tax. Property taxes required taxpayers to make an explicit tax payment of significant size from which they could not evade without losing what was often their most significant piece of property and wealth. The property taxes have risen in the decade before the Depression; throughout the 1920s, the general property tax accounted for over 90 percent of taxes levied by all cities over 30,000 in population. One reason for this dependence was that alcohol revenue from sales taxes and licenses had "dried up" due to prohibition. The burden of taxes increased significantly, even if tax rates remained the same. Another source of taxpayer ire was that the real wages of public employees rose nearly 12% between 1929 and 1933.

Tax delinquency increased from its normal rate of 10% to more than 30%. Tax protest organization formed quickly and spontaneously in rural regions in response to tax authorities selling the land of farmers. Estimates placed the number of taxpayer organizations at between 3,000 and 4,000 organizations nationwide.

The tax limitation movement was effective in several states in establishing cuts and limitations on property tax rates. The second success, which was both more important and far less obvious, was the passage of the 21st Amendment that repealed alcohol [[Wikipedia:Prohibition in the United States|prohibition]]. The legalization of alcohol sales in most states provided federal, state, and local government with increased tax revenues to offset cuts in property taxes while simultaneously providing a drastic decrease in the price of alcohol and in effect granting the American public a type of tax cut. Income tax revenue fell 60% from 1930 to 1933 placing a severe financial constraint on Congress. The search for an alternative revenue source led to the conversion of F.D.R. from a "dry" to a "wet" and resulted in the 1932 Democratic party platform to call for Repeal in order to provide "a proper and needed revenue." Revenue shortfalls made Repeal possible and the alcohol tax provided 13% of all federal revenue by 1936.<ref name="Thornton_revolt">Mark Thornton and Chetley Weise. [http://mises.org/journals/jls/15_3/15_3_4.pdf The Great Depression Tax Revolts Revisited.] (pdf), Journal of Libertarian Studies, Volume 15, no. 3 (Summer 2001), referenced 2010-06-15.</ref><ref name="Thornton_success_revolt">Mark Thornton and Chetley Weise. [http://mises.org/journals/scholar/Thornton1.PDF The Success of the Great Depression Tax Revolts] (pdf), referenced 2010-06-15.</ref>

==1933, end of Hoover's term==
Seeking reelection, Hoover boasted of his many interventions with the economy. In his acceptance speech for the Presidential renomination he said:
<blockquote>''"We might have done nothing. That would have been utter ruin. Instead, we met the situation with proposals to private business and to the Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic. We put that program in action."''<ref name="Hoover_nomination">Herbert Hoover. [http://americanhistory.about.com/library/docs/blhooverspeech1932.htm "Address Accepting the Republican Presidential Nomination"], August 11, 1932. The address was carried over the National Broadcasting Company and the Columbia Broadcasting System radio networks. This is a transcript taken from a sound recording of the address. Referenced 2010-06-20.</ref></blockquote>

After the election of [[Wikipedia:Franklin D. Roosevelt|Roosevelt]], as the new Presidential term approached, dark rumors circulated about the radicalism of Roosevelt’s advisers, and of their willingness to go off the [[gold standard]]. Consequently, not only did gold "hoarding" by foreigners develop momentum, but even gold hoarding by domestic citizens. For the first time in the depression, American citizens were beginning to lose confidence in the dollar itself. The loss of confidence reached its apogee in February, 1933, the month before the Roosevelt inaugural. In that one month, the monetary gold stock fell by $173 million, and money in circulation increased by the phenomenal amount of $900 million, the reflection of domestic loss of confidence. Money in circulation totaled $5.4 billion at the end of January, and $6.3 billion by the end of February. $700 million of this increase was in Federal Reserve notes, and $140 million in gold coin and gold certificates.

The Federal Reserve did its best to combat this deflationary pull on bank reserves, but its inflationary measures only served to diminish confidence in the dollar still further. Total money supply fell from $64.72 to $61.61 billion over 1933, and all or more of this fall took place in the first half of the year. Bank failures skyrocketed during this period. The number of commercial bank failures increased from 1,453 in 1932 to 4,000 in 1933 (most of which took place in the first quarter).

The reaction to this growing insistence of the people on claiming their rightful, legally-owned property, was a series of attacks on property rights by state after state. One by one, states imposed "bank holidays" by fiat, permitting the banks to stay in business while refusing to pay virtually all of the just claims of their depositors. The bank holiday movement began in earnest with the proclamation of an eight-day holiday on February 14, 1933, by Governor William Comstock of Michigan. This precipitated the bank runs and deflation of the latter part of February and depositors began an intense scramble to take their money out of the banks. Many national banks, which had worked hard to keep themselves in an at least relatively sound position, did not want to use the special privilege of bank holiday, and had to be coerced into doing so.

By March 4, every state in the Union had declared a bank holiday, and the stage was set for President Roosevelt’s dramatic and illegal closing of all the banks. President Roosevelt closed down all the banks throughout the nation for an entire week, from March 6 to 13, with many banks remaining closed even longer. Restrictions against so-called "hoarding" were continued afterward, and much hoarded gold returned to the banks following a Federal Reserve threat to publish a list, for full public scorn, of the leading "gold hoarders."

Mr. Hoover left office in March, 1933, at the very depth of the greatest depression in American history. Production had fallen by more than one-half: industrial production had been at an index of 114 in August, 1929, and then fell to 54 by March, 1933. Unemployment was persisting at nearly 25 percent of the labor force, and gross national product had also fallen almost in half. Hardest hit was investment, especially business construction, the latter falling from about $8.7 billion in 1929 to $1.4 billion in 1933. The index of non-durable manufacturing production fell from 94 to 66 from August, 1929, to March, 1933—a decline of 30 percent; the index of durable manufactures fell from 140 to 32, in the same period, a decline of 77 percent. In durable goods industries (e.g., building, roads, metals, iron and steel, lumber, railroad, etc.) it was estimated that their total employment fell from 10 million in 1929 to 4 million in 1932–1933, while employment in consumer goods industries (e.g., food, farming, textiles, electricity, fuel, etc.) only fell from 15 million to 13 million in the same period. Stock prices (industrials) fell by 76 percent during the depression, wholesale prices fell by 30 percent, and the total money supply declined by one-sixth.

Wage rates were kept very high during the first two years of the depression. By 1932, however, with profits wiped out, the pressure became too great, and wage rates fell considerably. Total fall over the 1929–1933 period, however, was only 23 percent - less than the decline in wholesale prices. Therefore, real wage rates, for the workers still remaining employed, actually increased. While real average hourly earnings rose, actual hours worked in industry fell drastically during the depression. Weekly hours averaged over 48 in 1929, and fell to less than 32 by mid-1932. In no previous depression had hours worked fallen by more than 10 percent. This was a form of reduced employment caused by the high-wage policy. As a result, average weekly earnings fell by over 40 percent during the depression, and real weekly earnings fell by over 30 percent. But hardest hit were the unemployed, the percentage of whom rose to 25 percent by 1932–1933, and reached 47 percent in selected manufacturing industries. The fall in man-hours combined with the fall in average hourly earnings caused a truly precipitate drop in total factory payrolls - the base of the very "purchasing power" that the policy was supposed to sustain.<ref name="Rothbard_Hoover_End">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 12. The Close of the Hoover Term, p. 321-337, referenced 2010-06-20.</ref>

==The New Deal==
===Roosevelt's Campaign===
Under the Democratic platform of 1932, which Franklin D. Roosevelt endorsed, contained several subsidies and regulations, but it hardly embraced the enormous expansion in federal power that FDR would achieve. The very first plank called for "an immediate and drastic reduction of governmental expenditures by abolishing useless commissions and offices, consolidating departments and bureaus, and eliminating extravagance to accomplish a saving of not less than twenty-five per cent in the cost of the Federal Government."<ref name="Woolley_Dem_1932">John T. Woolley and Gerhard Peters. [http://www.presidency.ucsb.edu/ws/index.php?pid=29595 "Democratic Party Platform of 1932"], June 27, 1932, from The American Presidency Project [online]. Referenced 2010-06-20.</ref> Subsequent planks demanded a balanced budget, a low tariff, the repeal of Prohibition, "a sound currency to be preserved at all hazards," "no interference in the internal affairs of other nations," and "the removal of government from all fields of private enterprise except where necessary to develop public works and natural resources in the common interest." The document concluded with a quote from Andrew Jackson: "equal rights to all; special privilege to none."

FDR's campaign reflected that platform. He accused Herbert Hoover of "reckless and extravagant spending," and he further denounced the Republican incumbent for believing "we ought to center control of everything in Washington as rapidly as possible." Even when he called for interventions in the economy, he generally couched his words in the old liberals' language of equal treatment rather than the new liberals' vision of enlightened central planning. In his famous Forgotten Man speech of April 1932 (see [http://newdeal.feri.org/speeches/1932c.htm transcript]), the Democratic candidate pointed to the wave of foreclosures sweeping the nation. Noting that Hoover had created a "two billion dollar fund...put at the disposal of the big banks, the railroads and the corporations of the Nation," FDR averred that the government should "provide at least as much assistance to the little fellow as it is now giving to the large banks and corporations." Once in office, the new administration did indeed repeal Prohibition, and it eventually lowered some trade barriers as well. By the time of FDR's death, the federal bureaucracy's power had grown so enormously that Hoover was widely remembered as the last apostle of laissez faire.<ref name="Walker_FDR">Jesse Walker. [http://reason.com/archives/2008/04/10/the-new-franklin-roosevelts "The New Franklin Roosevelts"], April 10, 2008. Referenced 2010-06-20.</ref>

===Policy===
A principal feature of '''[[Wikipedia:New Deal|New Deal]]''' economic policy was government-sponsored industrial [[cartel]]s (the [[Wikipedia:National Industrial Recovery Act|National Recovery Act]]); agricultural cartels (the [[Wikipedia:Agricultural Adjustment Act|Agricultural Adjustment Act]]); and labor cartels (the [[Wikipedia:Norris – La Guardia Act|Norris-LaGuardia]] and [[Wikipedia:National Labor Relations Act|Wagner Acts]]). The purpose of any cartel is to restrict output and raise prices. Lower levels of production leads to higher unemployment, which is exactly what the NRA and AAA did.

The NRA was almost identical to the Italian corporatist system that existed at the time. In Italy each trade or industrial group was organized into a government-controlled "corporative" association that had the power to plan production and pricing. In the U.S. the NRA organized each industry into federally-supervised trade associations called "Code Authorities" which could also limit output and set prices. The antitrust laws were explicitly set aside.

Over 700 industrial codes were created and were rigorously enforced by thousands of government code enforcers who, "could enter a man's factory, send him out, line up his employees, subject them to minute interrogation, take over his books on the instant." A hapless New Jersey tailor named Jack Magid became nationally famous after he was arrested, convicted, and imprisoned by the code police for the "crime" of pressing a suit of clothes for 35 cents when the Tailors' Code fixed the price at 40 cents. The NRA was ruled unconstitutional by the U.S. Supreme Court on May 27, 1935.<ref name="DiLorenzo_New_Deal">Thomas J. DiLorenzo. [http://mises.org/daily/55 "A New, New Deal"], Mises Daily, October 1998, referenced 2010-06-20.</ref> A study of the Act noted that "the licensing provision, giving the president the power of life or death over business enterprises, is the ultimate weapon of enforcement and the capstone of the powers granted to the president ... the most extraordinary extension of presidential power in American history." The Supreme Court's decision has noted, that 'fair competition' is not defined in the law and could be a convenient designation for whatever set of laws that is proposed and the president may approve. It ruled that NIRA was "an unconstitutional delegation of legislative power."

But after [[Wikipedia:Judiciary Reorganization Bill of 1937|Roosevelt's court-packing threat]] of 1937, the justices succumbed to whatever creative definition of fairness that Congress or federal agencies chose to proclaim. For instance, in 1942, Congress passed the Emergency Price Control Act, which created an Office of Price Administration. The OPA had sweeping power to set or strike down prices in any industry or activity that it considered to be "defense-related" — a vague term that could have encompassed practically the entire national economy. The act contained no substantive guidelines for the administrator's decisions but merely required prices that "in his judgment will be generally fair and equitable."<ref name="Bovard_Cuttthroat">James Bovard. [http://www.fff.org/freedom/0499d.asp "Cutthroat Competition and Dead Chickens"], The Future of Freedom Foundation, April 1999. Referenced 2010-06-20.</ref>

===Effects===
The Roosevelt administration also orchestrated various price-fixing schemes in labor markets, principally for the benefit of unions. Payroll taxes to finance Social Security and Unemployment Insurance programs increased employers' wage bills even further, which also reduced the level of employment. According to an econometric estimate, government-mandated payroll cost increases added nearly 1.2 million people to the unemployment rolls by 1938.

The unemployment rate during the 1933-1940 period averaged about 18% and was as high as 28.3% in March of 1933. By the end of 1938, on the eve of World War II, the U.S. unemployment rate still hovered at just over 18 percent and was higher than it was in 1933, President Franklin D. Roosevelt's first year in office. This occurred despite (or rather, because of) six years of unprecedented levels of government intervention into the U.S. economy. The American recovery was slower than in most European nations; by 1937 Great Britain's unemployment rate had declined to 10.3 percent.

Herbert Hoover's [[Wikipedia:Reconstruction Finance Corporation|Reconstruction Finance Corporation]] was greatly expanded by Roosevelt, but its effect was to make capital markets less efficient, thereby prolonging the Depression even further. As explained by RFC director Jesse Jones in his autobiography, ''Fifty Billion Dollars'', "The law specified that we should lend only where the borrower could not get the money from others on reasonable terms." That is, only to uncreditworthy borrowers. Guided by this directive, Jones and the RFC redirected billions of dollars in valuable capital to politically-connected but economically-questionable businesses. "We even loaned money to [the owners of] a drove of reindeer in Alaska," Jones boasted. The RFC was abolished in the 1955 under a cloud of corruption and scandal.

Roosevelt's public works programs may have been an economic failure, but they were a resounding political success as they provided virtually unlimited opportunities for political patronage. In 1939 a special U.S. Senate Committee on Campaign Expenditures investigated the programs and found that in many states workers were required to sign a pledge to vote Democratic and, in some cases, to make campaign contributions, as a condition of employment. Businesses that sold supplies to the government were in some places required to make campaign contributions to the Democratic party in return for the contracts. The New Deal was largely a legalized [[Wikipedia:Extortion|shake-down]] operation.<ref name="DiLorenzo_New_Deal" /><ref name="Anderson_WPA">William L. Anderson. [http://mises.org/daily/3921 "The Curse of Good Government"], Mises Daily, December 2009, refers to the spending of New Deal money. Referenced 2010-06-20.</ref>

Roosevelt's billions, adroitly used, had broken down every political machine in America. The patronage they once lived on and the local money they once had to disburse to help the poor was trivial compared to the vast floods of money Roosevelt controlled. And no political boss could compete with him in any county in America in the distribution of money and jobs.<ref name="Flynn_Roosevelt">John T. Flynn. [http://mises.org/books/rooseveltmyth.pdf "The Roosevelt Myth"] (pdf), p. 65; 1948. Referenced 2010-06-21.</ref>

As Henry Morgenthau, the secretary of the treasury and one of the most powerful men in America, said before the Democrats on the House Ways and Means Committee in 1939<ref name="Folsom_spending">Burton Folsom Jr. [http://search.barnesandnoble.com/New-Deal-or-Raw-Deal/Burton-Folsom-Jr/e/9781416592228#EXC "New Deal or Raw Deal?: How FDR's Economic Legacy Has Damaged America"], an excerpt from the book. Referenced 2010-06-21.</ref>:

<blockquote>''"We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong...somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises....I say after eight years of this Administration we have just as much unemployment as when we started....And an enormous debt to boot!"''</blockquote>

==During World War II==
The recovery from the Great Depression in the United States is usually associated with the advent of World War II, a period when real GDP appeared to increase phenomenally and the rate of unemployment fell almost to zero. A more detailed view produces a different picture, with large government "make-work" programs at first and military employment during the war - but a very slow actual recovery. When using hours worked as measure of employment, only in 1941 total work hours exceed the 1929 value (by 3 percent), with the population vigorously engaged in mobilization for war.<ref name="Higgs_hours">Robert Higgs. [http://www.independent.org/pdf/tir/tir_14_01_8_higgs.pdf "A Revealing Window on the U.S. Economy in Depression and War - Hours Worked, 1929–1950"] (pdf), The Independent Review, v. 14, n.1, Summer 2009. Referenced 2010-06-21.</ref>

Private [[investment]] has fallen significantly. Gross private investment plunged from almost 16 percent of GDP in 1929 to less than 2 percent in 1932; recovered to 13 percent in 1937 before falling again in the recession of 1938; and as late as 1941 stood at only 14 percent. During the war years, private investment ratios ranged from 3 to 6 percent. From 1946 through 1950 they ranged from 14 to 19 percent and averaged 16 percent — the same as in 1929. In 1929, when gross private investment was $16.2 billion, net investment was $8.3 billion. Net investment fell precipitously to $2.3 billion in 1930 and then became negative during each of the following five years. For the eleven-year period of 1930 to 1940, net private investment totaled minus $3.1 billion. Only in 1941 did net private investment ($9.7 billion) exceed the 1929 amount. During the 1930s, private investment remained at depths never plumbed in any other decade for which data exist.

One hypothesis is, that the New Deal prolonged the Great Depression by creating an extraordinarily high degree of '''[[regime uncertainty]]''' for the investors. Given the unparalleled outpouring of business-threatening laws, regulations, and court decisions, the oft-stated hostility of President Roosevelt and his lieutenants toward investors as a class, the political climate could hardly have failed to discourage some investors from making long-term commitments. There also exists a great deal of direct evidence that investors felt extraordinarily uncertain about the future of the property-rights regime between 1935 and 1941. Historians have recorded countless statements by contemporaries to that effect; in the years just before the war most business executives expected substantial weakening of private property rights ranging up to "complete economic dictatorship". The possibility that the United States might undergo an extreme regime shift seemed to many investors in the late 1930s and early 1940s not only possible but likely.<ref name="Higgs_investment">Robert Higgs. [http://www.independent.org/pdf/tir/tir_01_4_higgs.pdf "Regime Uncertainty - Why the Great Depression Lasted So Long and Why Prosperity Resumed after the War"] (pdf), The Independent Review, Vol, I, No. 4, Spring 1997. Referenced 2010-06-21.</ref><ref name="Higgs_China">Robert Higgs. [http://www.independent.org/blog/index.php?p=2620 "Regime Uncertainty in the 1930s: A New Deal Insider’s Account"], ''The Beacon'', blog of the The Independent Institute, Jun 29, 2009. Referenced 2010-08-15.</ref>

==See also==

* [[Austrian Business Cycle Theory]]

==References==
{{Reflist}}

==External links==
* [http://www.lewrockwell.com/gordon/gordon-gd-biblio.html Bibliography on the Great Depression] by David Gordon, 2009
* [http://mises.org/daily/3941 The Myth that Is FDR] by Garet Garrett, January 2010
* [http://mises.org/daily/4350 Did Hoover Really Slash Spending?] by Robert P. Murphy, May 2010
* [http://www.ameshistoricalsociety.org/exhibits/events/rationing.htm World War II Rationing], collected by the Ames Historical Society and the [[Wikipedia:Rationing|Wikipedia]] article on the same
* [http://www.mackinac.org/article.aspx?ID=4028 Free Markets or Free Lunches?] by Lawrence W. Reed, January 1998
* [http://www.mackinac.org/article.aspx?ID=4013 Great Myths of the Great Depression] by Lawrence W. Reed, January 1998
* [http://mises.org/daily/3778 The Gold Standard and the Great Depression] by Robert P. Murphy, October 2009
* [http://mises.org/daily/1623 The New Deal Debunked (again)] by Thomas J. DiLorenzo, September 2004
* [http://www.independent.org/newsroom/article.asp?id=138 Wartime Prosperity? A Reassessment of the U.S. Economy in the 1940s] by Robert Higgs, March 1992
* [http://mises.org/daily/4039 Dangerous Lessons of 1937] by Jonathan M. Finegold Catalan, February 2010
* [http://mises.org/daily/4797 The Real Reason for FDR's Popularity] by Mark Thornton, October 2010
* [[Wikipedia:Great Depression|Great Depression]] on Wikipedia

[[Category:History of the United States]]

Great Depression

2011-02-01T17:06:35Z

Daniel Hewitt: /* 1932, The Hoover New Deal */

{{RightTOC}}
The '''Great Depression''' was the longest and most severe economic depression ever experienced by the Western world.<ref name="Britannica_debt">Encyclopædia Britannica. [http://www.britannica.com/EBchecked/topic/243118/Great-Depression "Great Depression"], Encyclopædia Britannica Online, referenced 2010-06-12.</ref>

==Prelude==
From June 1914 to January 1920, when demand deposits grew by 96.9 percent, time deposits rose by 126.1 percent. In the great boom of the 1920s, that started after the [[Wikipedia:Depression of 1920–21|recession of 1920–21]] (a short recession, thanks to the budget cutting and lowering of taxes by [[Wikipedia:Warren Harding|Warren Harding]]<ref name="Woods_Harding">Thomas E. Woods, Jr. [http://www.firstprinciplesjournal.com/articles.aspx?article=1322&theme=home&loc=b "Warren Harding and the Forgotten Depression of 1920"], First Principles, Fall 2009 issue of The Intercollegiate Review. See also the [http://www.youtube.com/watch?v=czcUmnsprQI video]. Referenced 2009-10-11.</ref>), total demand deposits rose from 1921 to 1929 by 36.5 percent. Time deposits in banks expanded in the same period by 75.9 percent. The great boom of the 1920s (also called "[[Wikipedia:Roaring Twenties|Roaring Twenties]]") was largely fueled by credit expansion going into time deposits. The greatest expansion of time deposits came in Central Reserve Cities (New York and Chicago), where the Fed’s open market operations were all conducted, as opposed to Reserve Cities and Country Banks. As acknowledged by Federal Reserve officials, time or savings deposits were then, for all practical purposes, equivalent to demand deposits and should be paid on demand in case of a run on a bank.

With the passage of the Federal Reserve Act, [[Wikipedia:Woodrow Wilson|President Wilson]] appointed [[Wikipedia:Benjamin Strong, Jr.|Benjamin Strong]] to the most powerful post in the Federal Reserve System, Governor of the [[Wikipedia:Reserve Bank of New York|Federal Reserve Bank of New York]]. He made quickly this position dominant in the System and decided on Fed policy without consulting or even against the wishes of the Federal Reserve Board in Washington. Strong was the dominant leader of the Fed from 1914 until his death in 1928. He pursued an inflationary policy, to finance the war effort for WWI, connected to the interests of the [[Wikipedia:J.P. Morgan & Co.|House of Morgan]]. Another motivation was the attempt to prop up the [[Bank of England]] in the 1920s, when it returned to the [[gold standard]] with an overvalued pound. To prevent the loss of gold to the States, its governor [[Wikipedia:Montagu Norman, 1st Baron Norman|Montagu Norman]] secretly convinced Strong to inflate in order to help England. The expansion ended only after Strong's death and the '''Great Depression''' followed soon after. In 1928 Strong admitted that "very few people indeed realized that we were now paying the penalty for the decision which was reached early in 1924 to help the rest of the world back to a sound financial and monetary basis" - that is, to help Britain maintain a phony and inflationary form of gold standard.<ref name="Rothbard_Federal_Reserve">[[Murray N. Rothbard]]. [http://mises.org/books/mysteryofbanking.pdf "The Mystery of Banking"] (pdf), Chapter XVI: Central banking in the United States IV: The Federal Reserve System, p.235-246, referenced 2009-10-03.</ref>

The inflation was also motivated by a desire to help American exporters (particularly farmers), by stimulation of foreign lending. At the same time the U.S. turned to a sharp protectionist policy with the [[Wikipedia:Fordney–McCumber Tariff|Fordney–McCumber Tariff]] of 1922. In the foreign lending boom, other countries were hampered in trying to sell their goods to the United States, but were encouraged to borrow dollars. The government did not have any peacetime authority to interfere with loans, but did so illegally. In 1921, President [[Wikipedia:Warren G. Harding|Harding]] and his cabinet conferred with several American investment bankers, at the instigation of Secretary of Commerce [[Wikipedia:Herbert Hoover|Hoover]], to be informed in advance of foreign loans, so that the government "might express itself regarding them". The bankers agreed. Hoover commented that even bad loans helped American exports and provided a cheap form of relief and employment. Later Hoover demanded from bankers, that foreign loans would be inspected by agents of the Department of Commerce. Both requests were mostly ignored. While admitted to be legally unenforceable, it was all in the name of "national interests".<ref name="Rothbard_pre_Depression">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 5. The Development of the Inflation, p. 137-167, referenced 2009-11-17.</ref>

{{See also|Federal Reserve System}}

==The Crash==
The great boom of the 1920s began around July, 1921, after a year or more of sharp recession, and ended about July, 1929, when the production and business activity began to decline, although the [[Wikipedia:Wall Street Crash of 1929|famous stock market crash]] came in October of that year. [[Wikipedia:Herbert Hoover|Herber Hoover]], an avid proponent of interventionism became President. Characteristic for him were "voluntary" measures that the government desired, with the implicit threat that if business did not "volunteer" properly, compulsory controls would soon follow.<ref name="Rothbard_1920s_boom">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 5. The Development of Hoover's Interventionism: Unemployment, p. 188-189, referenced 2009-11-20.</ref>

After the stock-market crash, Hoover began a series of conferences with big business and labor leaders, telling them that cutting wage rates (the standard response in previous depressions) would be disastrous, because then the workers wouldn't make enough to buy the products. This "liquidation" of labor would only deepen the depression by reducing their "purchasing power". Leading industrialists have pledged to maintain wage rates, expand construction, and share any reduced work. At the same time, the Federal Reserve expanded rapidly and lowered its interest rates. Its member banks expanded their deposits in the last week of October 1929 alone by 10%, mostly in New York. Hoover praised the Fed for the saving of shaky banks and restoring confidence. The depression should be over in a few months. A large public works program was also initiated.<ref name="Rothbard_public_works">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 8. The Depression Begins: President Hoover Takes Command, p. 209-217, referenced 2009-11-21.</ref>

Hoover promised the farm bloc to support farm cooperatives and prices and established the [[Wikipedia:Federal Farm Board|Federal Farm Board]] (FFB). It would make all-purpose loans to farm cooperatives at low interest rates and establish "stabilization corporations" to control farm surpluses and bolster farm prices. Its board was dominated by representatives of these farm cooperatives. To combat falling prices, it made loans to farmers to keep wheat and cotton off the market and later started to buy the surpluses. For a while, prices were held up and farmers increased production, only to find that prices would fall even more. As America held wheat off the market, it lost its former share of the world’s wheat trade. The farmers were urged to decrease their acreage, while the government still promoted reclamation projects to increase farm production. The surpluses of wheat accumulated and prices fell to such a degree, that the FFB decided to dump wheat stocks abroad, resulting in a drastic fall in market prices. The attempts to keep up the price of cotton, wool, livestock, etc. failed as well. A "[[Wikipedia:Farmers' Holiday Association|Farm Holiday]]" was declared to stop production, The movement soon turned to violence and failed to stop the falling farm prices. but succeeded to avoid some foreclosures of its members.<ref name="Rothbard_Agriculture">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), The New Deal Farm Program, p. 217-237, referenced 2009-11-21.</ref>

In 1930, the [[Wikipedia:Smoot–Hawley Tariff Act|Smoot–Hawley Tariff]] was passed, despite objections of many economists and industrial leaders. Hoover originated a higher tariff on agricultural products to help farmers, but it was raised on many other products. Many other countries have retaliated with their own tariffs and foreign trade declined significantly. (From 1929 to 1932, U.S. imports from Europe decreased from $1,334 million to just $390 million, while U.S. exports to Europe decreased from $2,341 million to $784 million. Overall, world trade decreased by some 66% between 1929 and 1934.<ref>U.S. Department of State. [http://future.state.gov/when/timeline/1921_timeline/smoot_tariff.html Smoot-Hawley Tariff], referenced 2009-11-22.</ref>) Also, to relieve the unemployment problem, and to help keep wage rates up, the President effectively banned further immigration into the United States.<ref name="Rothbard_Depression_1930">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 9. 1930, p. 239-256, referenced 2009-11-22.</ref>

===In Europe===
In Europe, the crisis began in earnest with the ''Boden–Kredit Anstalt'', the most important bank in Austria and Eastern Europe. It had to merge with the [[Wikipedia:Creditanstalt|Oesterreichische–Kredit–Anstalt]] after rescue attempts by its government and other banks. When Austria declared a customs union with Germany in March 1931, the French government feared this development and several French banks suddenly insisted on redemption of their debts from both countries. The bank collapsed. After more rescue attempts has the Austrian Government voted a $150 million guarantee to the bank, but the its credit was by the time worthless, and Austria soon declared national bankruptcy by going off the gold standard. Later, Germany, England, and most other European countries renounced their obligations and went off the gold standard as well. While the impact on United States was not very large due to the lowered international trade, it certainly did not help, neither did the many loans granted to prop up foreign banks.<ref name="Rothbard_Depression_1931_Europe">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 10. 1931—"The Tragic Year", p. 257-284, referenced 2009-11-27.</ref>

==1931, "The Tragic Year"==
The crisis worsened in the US in 1931. Production continued to fall drastically, as did prices and foreign trade, and unemployment ran up to almost 16 percent of the labor force. The Federal Reserve Board (FRB) index of manufacturing production, which had been 110 in 1929 and 90 in 1930, fell to 75 in 1931. Hardest hit, in accordance with Austrian [[ABCT|cycle theory]], were producers’ goods and higher order [[capital]] goods industries, rather than the consumer goods’ industries. Despite attempts to inflate, bank deposits and the aggregate [[money supply]] fell sharply, particularly at the end of the year. The British abandoning of the gold standard, bank failures abroad and the growing number of failures at home, caused a growing loss of confidence by Americans in their banking system. The wages were also beginning to fall, first secretly, then openly by the end of 1931.

The gross national product fell from $91.1 billion in 1930, to $76.3 billion in 1931. Total government receipts fell from $13.5 billion to $12.4 billion, but total government expenditures rose from $13.9 billion to $15.2 billion, in federal, rather than state and local, spending (federal expenditures rose from $4.2 billion in 1930 to $5.5 billion in 1931). In the middle of a great depression when people needed to be relieved of governmental burdens, the dead weight of government rose from 16.4 percent to 21.5 percent of the gross private product. From a modest surplus in 1930, the Federal government so ran up a huge $2.2 billion deficit in 1931.<ref name="Rothbard_Depression_1931_Europe" />

Direct relief was just about the one sphere where President Hoover seemed to prefer voluntary to governmental action. The [[Wikipedia:Red Cross|Red Cross]] opposed a bill, in early 1931, that would grant it $25 million for relief, declaring that it would "to a large extent destroy voluntary giving". Many private charity organizations, philanthropists, and social workers had the same views. Governmental unemployment relief was seen to have a role in creating and perpetuating unemployment in Britain (the "dole"). It was attacked by many business leaders, including [[Wikipedia:Henry Ford|Henry Ford]], the leaders of the [[Wikipedia:National Association of Manufacturers|National Association of Manufacturers]] and the [[Wikipedia:United States Chamber of Commerce|Chamber of Commerce]], and former President [[Wikipedia:Calvin Coolidge|Coolidge]].<ref name="Rothbard_Depression_1931_Europe" />

The [[Davis-Bacon Act]] was signed by President Hoover in 1931. It mandated that prevailing (union) wages be paid by the Federal Government for public works projects. It has been argued that the Davis-Bacon Act was a [[Jim Crow law]], since its intent <ref name=”williams”>Walter Williams, [http://www.jewishworldreview.com/cols/williams031203.asp "Congress' insidious discrimination"], ''Jewish World Review'' (March 12, 2003), accessed 2011-02-01.</ref> and its effect <ref name=”cato”> David Bernstein, [http://www.cato.org/pubs/briefs/bp-017.html "The Davis-Bacon Act: Let's Bring Jim Crow to an End"], ''Cato Institute Briefing Papers'' (January 18, 1993), accessed 2011-02-01.</ref> was to prevent lower-paid, non-unionized black laborers from competing against higher-paid, unionized white laborers. Hoover promoted and supported the legislation, as he believed that "[t]he very essence of great production is high wages...because it depends upon a widening range of consumption only to be obtained from the purchasing power of high real wages...." <ref name="hoover108">Herbert Hoover, ''The Memoirs of Herbert Hoover: Volume 2, The Cabinet and the Presidency, 1920-33'', (New York: Macmillan, 1952) 108.</ref>

==1932, The Hoover New Deal==
In an atmosphere of crisis, President Hoover called for more drastic measures, including more government aid and loans. With a $2 billion deficit during annual year 1931, Hoover felt that he had to do something to combat it and chose to increase the taxes. The [[Wikipedia:Revenue Act of 1932|Revenue Act of 1932]] was one of the greatest increases in taxation ever enacted in the United States in peacetime. Many wartime
excise taxes were revived, sales taxes were imposed on gasoline, tires, autos, electric energy, malt, toiletries, furs, jewelry, and other articles; admission and stock transfer taxes were increased; new taxes were levied on bank checks, bond transfers, telephone, telegraph, and radio messages; and the personal income tax was raised drastically as follows: the normal rate was increased from a range of 1½ percent–5 percent, to 4 percent–8 percent; personal exemptions were sharply reduced, and an earned credit of 25 percent eliminated; and surtaxes were raised enormously, from a maximum of 25 percent to 63 percent on the highest incomes. Furthermore, the corporate income tax was increased from 12 percent to 13: percent, and an exemption for small corporations eliminated; the estate tax was doubled, and the exemption floor halved; and the gift tax, which had been eliminated, was restored, and graduated up to 33⅓ percent. The postal rates were raised as well.

Despite the drastic increase in tax rates, total Federal revenue for 1932 declined because of the deepened depression—itself partly caused by the increase in tax rates. Total Federal receipts, excluding government enterprises, declined from $2.2 billion in 1931 to $1.9 billion in 1932; including government enterprises, Federal receipts fell from $3.4 billion to $3 billion.

Total government receipts fell from $12.4 billion to $11.5 billion. As a result, the huge Federal deficit continued despite a drop in government expenditures in 1932: Federal expenditures falling from $5.5 billion to $4.4 billion, and aggregate government expenditures falling from $15.2 billion to $13.2 billion (all numbers including government enterprises). Of the $1.7 billion in total government deficit, the bulk of it — $1.4 billion — was in the Federal government account. The state and local governments were forced to cut back their expenditures to near the level of their dwindling receipts. One of the most ominous projects for Federal spending during 1932 was a Congressional move for a huge $2 billion veterans bonus, to be financed by an issue of new currency. It was its final defeat in the Senate in June that did most to defeat a general clamor for much larger government spending.

Meanwhile, however, President Hoover himself was beginning to have doubts about one of his favorite policies: public works. In a conference at the end of February, Hoover admitted that his public works program, which had nearly doubled Federal construction since the start of the depression, had failed. It was very expensive, costing over $1200 per family aided, it was unavailable to the needy in remote regions and to those who were unable to perform such labor, which was, after all, unskilled make-work. By May, Hoover had openly reversed his earlier position. As a result, Federal public works only increased by $60 million in 1932, to reach the $333 million mark. Public works was not to come really to the fore again until the Roosevelt administration.

If Hoover eagerly embraced other forms of [[intervention]], he gave ground but grudgingly on one issue where he had championed the voluntary approach: direct relief. Governor [[Wikipedia:Franklin D. Roosevelt|Franklin D. Roosevelt]] of New York led the way for state relief programs in the winter of 1931–1932, and he induced New York to establish the first state relief authority: the Temporary Emergency Relief Administration, equipped with $25 million. Other states followed this lead, and a bill was introduced for a $500 million federal relief program. The bill was defeated, but, with depression deepening and a Presidential election approaching, the administration all but surrendered, passing the [[Wikipedia:Emergency Relief and Construction Act|Emergency Relief and Construction Act]] of July, 1932 — the nation’s first Federal relief legislation. All in all, total public relief in 120 of the nation’s leading urban areas amounted to $33 million in 1929, $173 million in 1931, and $308 million in 1932.

One thing Hoover was not reticent about: inflation. The administration first cleared the path for the program by passing the [[Wikipedia:Glass–Steagall Act|Glass–Steagall Act]] in February, which (a) greatly broadened the assets eligible for rediscounts with the Fed, and (b) permitted the Federal Reserve to use government bonds as collateral for its notes, in addition to commercial paper. At the end of February, 1932, total bank reserves had fallen to $1.85 billion. At that point, the [[Federal Reserve System|FRS]] launched a gigantic program of purchasing U.S. government securities. By the end of 1932, total reserves had been raised to $2.51 billion. This enormous increase of $660 million in reserves in less than a year is unprecedented in the previous history of the System. If the banks had kept loaned-up, the money supply of the nation would have increased by approximately $8 billion. Instead, the money supply fell by $3.5 billion during 1932, from $68.25 to $64.72 billion at the end of the year, and with the bank deposit component falling by $3.2 billion. Until the second quarter of 1932, the nation’s banks had always remained loaned up, with only negligible excess reserves. After, the banks accumulated excess reserves, and it is estimated that the proportion of excess to total bank reserves rose from 2.4 percent in the first quarter of 1932, to 10.7 percent in the second quarter. By the fourth quarter of 1932, excess reserves were estimated to a double of 20.3 percent of total bank reserves.

During the 1920s, a typical year might find 700 banks failing, with deposits totaling $170 million. In 1930, 1350 banks failed, with deposits of $837 million; in 1931, 2,293 banks collapsed, with deposits of $1,690 million; and in 1932, 1,453 banks failed, having $706 million in deposits. This enormous increase in bank failures was enough to give any bank pause—particularly when the bankers knew in their hearts that no bank (outside of the nonexisting ideal 100 percent bank) can ever withstand a determined run. Consequently, the banks permitted their commercial loans to run down without increasing their investments. Inflation by the government was turned into deflation by the policies of the public and the banks. The American economy reached the depths of depression during 1932 and 1933, and yet it had begun to turn upward by mid-1932. It is not far-fetched to believe that the considerable deflation of July 1931–July 1932, totaling $7.5 billion of currency and deposits, or 14 percent, was partly responsible for the mid-summer upturn.<ref name="Rothbard_Depression_1932">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 11. The Hoover New Deal of 1932, p. 285-320, referenced 2009-11-27.</ref>

As the Depression got worse and people lost their confidence in the banks, they decided to take custody of their cash. Seeing people in large numbers pulling their money out of banks — money the banks had promised to provide on demand — President Hoover blasted them for their "traitorous hoarding." He organized an antihoarding drive and delivered a radio address ([http://www.bobsuniverse.com/BWAH/31-Hoover/19320306a.pdf transcript], pdf) in which he pleaded with the public to stop hoarding (i.e., to stop converting their bank deposits into cash).<ref name="Smith_hoarding">George F. Smith. [http://mises.org/story/3707 "The Virtue of Hoarding"], Mises Daily, posted on October 09, 2009, referenced 2009-11-18.</ref>

Nominal paychecks fell much more slowly during the early years of the Great Depression than the general [[price]] level (wholesale prices fell by 10 percent in 1930, by 15 percent in 1931)<ref name="Rothbard_Depression_1931_Europe" /> - and those who kept their job experienced a higher increase in real (inflation-adjusted) wages, than during the Roaring 1920s!<ref name="ohanian"> Lee E. Ohanian, "What - or Who - Started the Great Depression?", ''NBER Working Paper No. 15258'' (August 2009). Free copy online [http://www.econ.ucla.edu/people/papers/Ohanian/Ohanian499.pdf "here"]</ref> And so has unemployment reached record highs during Hoover's first and only term. When FDR went back on the US government's promise to redeem dollars for gold, the Federal Reserve could flood the economy with new dollars, the prices began to rise again. Because wage rates were not allowed to fall to their new, market-clearing level, [[Inflation|inflating]] the currency has paradoxically reduced unemployment.<ref name="Murphy_Depression">Robert P. Murphy. [http://mises.org/story/3778 "The Gold Standard and the Great Depression"], Mises Daily, posted on October 30, 2009, referenced 2009-11-18.</ref>

The Fed has expanded bank reserves in the 1930s. Panicking at the inflationary potential, it doubled the minimum reserve requirements to 20 percent in 1938, sending the economy into a tailspin of credit liquidation. The Fed, ever since that period, has been very cautious about the degree of its changes and changed bank reserve requirements fairly often, but in very small steps, by fractions of one percent.<ref name="Rothbard_Fed_requirements">[[Murray N. Rothbard]]. [http://mises.org/books/fed.pdf "The Case Against the Fed"] (pdf), How the Fed Rules and Inflates, p. 144, referenced 2010-03-23.</ref>

After 1933, Federal Reserve Notes and deposits were no longer redeemable in gold coins to Americans, their gold was confiscated and exchanged for Federal Reserve Notes, which became legal tender; and Americans were stuck in a regime of fiat paper issued by the government and the Federal Reserve.<ref name="Rothbard_Fed_gold">[[Murray N. Rothbard]]. [http://mises.org/books/fed.pdf "The Case Against the Fed"] (pdf), The New Deal and the Displacement of the Morgans, p. 131-132, referenced 2010-05-10.</ref>

===Tax revolt in the USA===
There has been a widespread opposition to real estate taxes in cities across America and some Americans were in fact not paying their taxes. The movement declined quickly, some scholars acknowledge certain influence, but ultimately declare it a failure.<ref name="Beito_revolt">David T. Beito. [http://mises.org/books/taxpayersinrevolt.pdf Taxpayers in Revolt - Tax Resistance during the Great Depression] (pdf), referenced 2010-06-15.</ref> Others consider it a resounding success, however.

President Hoover's massive tax increase bill that passed into law as the [[Wikipedia:Revenue Act of 1932|Revenue Act of 1932]], with many new taxes. The most burdensome taxes for many Americans, however, was the property tax. Property taxes required taxpayers to make an explicit tax payment of significant size from which they could not evade without losing what was often their most significant piece of property and wealth. The property taxes have risen in the decade before the Depression; throughout the 1920s, the general property tax accounted for over 90 percent of taxes levied by all cities over 30,000 in population. One reason for this dependence was that alcohol revenue from sales taxes and licenses had "dried up" due to prohibition. The burden of taxes increased significantly, even if tax rates remained the same. Another source of taxpayer ire was that the real wages of public employees rose nearly 12% between 1929 and 1933.

Tax delinquency increased from its normal rate of 10% to more than 30%. Tax protest organization formed quickly and spontaneously in rural regions in response to tax authorities selling the land of farmers. Estimates placed the number of taxpayer organizations at between 3,000 and 4,000 organizations nationwide.

The tax limitation movement was effective in several states in establishing cuts and limitations on property tax rates. The second success, which was both more important and far less obvious, was the passage of the 21st Amendment that repealed alcohol [[Wikipedia:Prohibition in the United States|prohibition]]. The legalization of alcohol sales in most states provided federal, state, and local government with increased tax revenues to offset cuts in property taxes while simultaneously providing a drastic decrease in the price of alcohol and in effect granting the American public a type of tax cut. Income tax revenue fell 60% from 1930 to 1933 placing a severe financial constraint on Congress. The search for an alternative revenue source led to the conversion of F.D.R. from a "dry" to a "wet" and resulted in the 1932 Democratic party platform to call for Repeal in order to provide "a proper and needed revenue." Revenue shortfalls made Repeal possible and the alcohol tax provided 13% of all federal revenue by 1936.<ref name="Thornton_revolt">Mark Thornton and Chetley Weise. [http://mises.org/journals/jls/15_3/15_3_4.pdf The Great Depression Tax Revolts Revisited.] (pdf), Journal of Libertarian Studies, Volume 15, no. 3 (Summer 2001), referenced 2010-06-15.</ref><ref name="Thornton_success_revolt">Mark Thornton and Chetley Weise. [http://mises.org/journals/scholar/Thornton1.PDF The Success of the Great Depression Tax Revolts] (pdf), referenced 2010-06-15.</ref>

==1933, end of Hoover's term==
Seeking reelection, Hoover boasted of his many interventions with the economy. In his acceptance speech for the Presidential renomination he said:
<blockquote>''"We might have done nothing. That would have been utter ruin. Instead, we met the situation with proposals to private business and to the Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic. We put that program in action."''<ref name="Hoover_nomination">Herbert Hoover. [http://americanhistory.about.com/library/docs/blhooverspeech1932.htm "Address Accepting the Republican Presidential Nomination"], August 11, 1932. The address was carried over the National Broadcasting Company and the Columbia Broadcasting System radio networks. This is a transcript taken from a sound recording of the address. Referenced 2010-06-20.</ref></blockquote>

After the election of [[Wikipedia:Franklin D. Roosevelt|Roosevelt]], as the new Presidential term approached, dark rumors circulated about the radicalism of Roosevelt’s advisers, and of their willingness to go off the [[gold standard]]. Consequently, not only did gold "hoarding" by foreigners develop momentum, but even gold hoarding by domestic citizens. For the first time in the depression, American citizens were beginning to lose confidence in the dollar itself. The loss of confidence reached its apogee in February, 1933, the month before the Roosevelt inaugural. In that one month, the monetary gold stock fell by $173 million, and money in circulation increased by the phenomenal amount of $900 million, the reflection of domestic loss of confidence. Money in circulation totaled $5.4 billion at the end of January, and $6.3 billion by the end of February. $700 million of this increase was in Federal Reserve notes, and $140 million in gold coin and gold certificates.

The Federal Reserve did its best to combat this deflationary pull on bank reserves, but its inflationary measures only served to diminish confidence in the dollar still further. Total money supply fell from $64.72 to $61.61 billion over 1933, and all or more of this fall took place in the first half of the year. Bank failures skyrocketed during this period. The number of commercial bank failures increased from 1,453 in 1932 to 4,000 in 1933 (most of which took place in the first quarter).

The reaction to this growing insistence of the people on claiming their rightful, legally-owned property, was a series of attacks on property rights by state after state. One by one, states imposed "bank holidays" by fiat, permitting the banks to stay in business while refusing to pay virtually all of the just claims of their depositors. The bank holiday movement began in earnest with the proclamation of an eight-day holiday on February 14, 1933, by Governor William Comstock of Michigan. This precipitated the bank runs and deflation of the latter part of February and depositors began an intense scramble to take their money out of the banks. Many national banks, which had worked hard to keep themselves in an at least relatively sound position, did not want to use the special privilege of bank holiday, and had to be coerced into doing so.

By March 4, every state in the Union had declared a bank holiday, and the stage was set for President Roosevelt’s dramatic and illegal closing of all the banks. President Roosevelt closed down all the banks throughout the nation for an entire week, from March 6 to 13, with many banks remaining closed even longer. Restrictions against so-called "hoarding" were continued afterward, and much hoarded gold returned to the banks following a Federal Reserve threat to publish a list, for full public scorn, of the leading "gold hoarders."

Mr. Hoover left office in March, 1933, at the very depth of the greatest depression in American history. Production had fallen by more than one-half: industrial production had been at an index of 114 in August, 1929, and then fell to 54 by March, 1933. Unemployment was persisting at nearly 25 percent of the labor force, and gross national product had also fallen almost in half. Hardest hit was investment, especially business construction, the latter falling from about $8.7 billion in 1929 to $1.4 billion in 1933. The index of non-durable manufacturing production fell from 94 to 66 from August, 1929, to March, 1933—a decline of 30 percent; the index of durable manufactures fell from 140 to 32, in the same period, a decline of 77 percent. In durable goods industries (e.g., building, roads, metals, iron and steel, lumber, railroad, etc.) it was estimated that their total employment fell from 10 million in 1929 to 4 million in 1932–1933, while employment in consumer goods industries (e.g., food, farming, textiles, electricity, fuel, etc.) only fell from 15 million to 13 million in the same period. Stock prices (industrials) fell by 76 percent during the depression, wholesale prices fell by 30 percent, and the total money supply declined by one-sixth.

Wage rates were kept very high during the first two years of the depression. By 1932, however, with profits wiped out, the pressure became too great, and wage rates fell considerably. Total fall over the 1929–1933 period, however, was only 23 percent - less than the decline in wholesale prices. Therefore, real wage rates, for the workers still remaining employed, actually increased. While real average hourly earnings rose, actual hours worked in industry fell drastically during the depression. Weekly hours averaged over 48 in 1929, and fell to less than 32 by mid-1932. In no previous depression had hours worked fallen by more than 10 percent. This was a form of reduced employment caused by the high-wage policy. As a result, average weekly earnings fell by over 40 percent during the depression, and real weekly earnings fell by over 30 percent. But hardest hit were the unemployed, the percentage of whom rose to 25 percent by 1932–1933, and reached 47 percent in selected manufacturing industries. The fall in man-hours combined with the fall in average hourly earnings caused a truly precipitate drop in total factory payrolls - the base of the very "purchasing power" that the policy was supposed to sustain.<ref name="Rothbard_Hoover_End">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 12. The Close of the Hoover Term, p. 321-337, referenced 2010-06-20.</ref>

==The New Deal==
===Roosevelt's Campaign===
Under the Democratic platform of 1932, which Franklin D. Roosevelt endorsed, contained several subsidies and regulations, but it hardly embraced the enormous expansion in federal power that FDR would achieve. The very first plank called for "an immediate and drastic reduction of governmental expenditures by abolishing useless commissions and offices, consolidating departments and bureaus, and eliminating extravagance to accomplish a saving of not less than twenty-five per cent in the cost of the Federal Government."<ref name="Woolley_Dem_1932">John T. Woolley and Gerhard Peters. [http://www.presidency.ucsb.edu/ws/index.php?pid=29595 "Democratic Party Platform of 1932"], June 27, 1932, from The American Presidency Project [online]. Referenced 2010-06-20.</ref> Subsequent planks demanded a balanced budget, a low tariff, the repeal of Prohibition, "a sound currency to be preserved at all hazards," "no interference in the internal affairs of other nations," and "the removal of government from all fields of private enterprise except where necessary to develop public works and natural resources in the common interest." The document concluded with a quote from Andrew Jackson: "equal rights to all; special privilege to none."

FDR's campaign reflected that platform. He accused Herbert Hoover of "reckless and extravagant spending," and he further denounced the Republican incumbent for believing "we ought to center control of everything in Washington as rapidly as possible." Even when he called for interventions in the economy, he generally couched his words in the old liberals' language of equal treatment rather than the new liberals' vision of enlightened central planning. In his famous Forgotten Man speech of April 1932 (see [http://newdeal.feri.org/speeches/1932c.htm transcript]), the Democratic candidate pointed to the wave of foreclosures sweeping the nation. Noting that Hoover had created a "two billion dollar fund...put at the disposal of the big banks, the railroads and the corporations of the Nation," FDR averred that the government should "provide at least as much assistance to the little fellow as it is now giving to the large banks and corporations." Once in office, the new administration did indeed repeal Prohibition, and it eventually lowered some trade barriers as well. By the time of FDR's death, the federal bureaucracy's power had grown so enormously that Hoover was widely remembered as the last apostle of laissez faire.<ref name="Walker_FDR">Jesse Walker. [http://reason.com/archives/2008/04/10/the-new-franklin-roosevelts "The New Franklin Roosevelts"], April 10, 2008. Referenced 2010-06-20.</ref>

===Policy===
A principal feature of '''[[Wikipedia:New Deal|New Deal]]''' economic policy was government-sponsored industrial [[cartel]]s (the [[Wikipedia:National Industrial Recovery Act|National Recovery Act]]); agricultural cartels (the [[Wikipedia:Agricultural Adjustment Act|Agricultural Adjustment Act]]); and labor cartels (the [[Wikipedia:Norris – La Guardia Act|Norris-LaGuardia]] and [[Wikipedia:National Labor Relations Act|Wagner Acts]]). The purpose of any cartel is to restrict output and raise prices. Lower levels of production leads to higher unemployment, which is exactly what the NRA and AAA did.

The NRA was almost identical to the Italian corporatist system that existed at the time. In Italy each trade or industrial group was organized into a government-controlled "corporative" association that had the power to plan production and pricing. In the U.S. the NRA organized each industry into federally-supervised trade associations called "Code Authorities" which could also limit output and set prices. The antitrust laws were explicitly set aside.

Over 700 industrial codes were created and were rigorously enforced by thousands of government code enforcers who, "could enter a man's factory, send him out, line up his employees, subject them to minute interrogation, take over his books on the instant." A hapless New Jersey tailor named Jack Magid became nationally famous after he was arrested, convicted, and imprisoned by the code police for the "crime" of pressing a suit of clothes for 35 cents when the Tailors' Code fixed the price at 40 cents. The NRA was ruled unconstitutional by the U.S. Supreme Court on May 27, 1935.<ref name="DiLorenzo_New_Deal">Thomas J. DiLorenzo. [http://mises.org/daily/55 "A New, New Deal"], Mises Daily, October 1998, referenced 2010-06-20.</ref> A study of the Act noted that "the licensing provision, giving the president the power of life or death over business enterprises, is the ultimate weapon of enforcement and the capstone of the powers granted to the president ... the most extraordinary extension of presidential power in American history." The Supreme Court's decision has noted, that 'fair competition' is not defined in the law and could be a convenient designation for whatever set of laws that is proposed and the president may approve. It ruled that NIRA was "an unconstitutional delegation of legislative power."

But after [[Wikipedia:Judiciary Reorganization Bill of 1937|Roosevelt's court-packing threat]] of 1937, the justices succumbed to whatever creative definition of fairness that Congress or federal agencies chose to proclaim. For instance, in 1942, Congress passed the Emergency Price Control Act, which created an Office of Price Administration. The OPA had sweeping power to set or strike down prices in any industry or activity that it considered to be "defense-related" — a vague term that could have encompassed practically the entire national economy. The act contained no substantive guidelines for the administrator's decisions but merely required prices that "in his judgment will be generally fair and equitable."<ref name="Bovard_Cuttthroat">James Bovard. [http://www.fff.org/freedom/0499d.asp "Cutthroat Competition and Dead Chickens"], The Future of Freedom Foundation, April 1999. Referenced 2010-06-20.</ref>

===Effects===
The Roosevelt administration also orchestrated various price-fixing schemes in labor markets, principally for the benefit of unions. Payroll taxes to finance Social Security and Unemployment Insurance programs increased employers' wage bills even further, which also reduced the level of employment. According to an econometric estimate, government-mandated payroll cost increases added nearly 1.2 million people to the unemployment rolls by 1938.

The unemployment rate during the 1933-1940 period averaged about 18% and was as high as 28.3% in March of 1933. By the end of 1938, on the eve of World War II, the U.S. unemployment rate still hovered at just over 18 percent and was higher than it was in 1933, President Franklin D. Roosevelt's first year in office. This occurred despite (or rather, because of) six years of unprecedented levels of government intervention into the U.S. economy. The American recovery was slower than in most European nations; by 1937 Great Britain's unemployment rate had declined to 10.3 percent.

Herbert Hoover's [[Wikipedia:Reconstruction Finance Corporation|Reconstruction Finance Corporation]] was greatly expanded by Roosevelt, but its effect was to make capital markets less efficient, thereby prolonging the Depression even further. As explained by RFC director Jesse Jones in his autobiography, ''Fifty Billion Dollars'', "The law specified that we should lend only where the borrower could not get the money from others on reasonable terms." That is, only to uncreditworthy borrowers. Guided by this directive, Jones and the RFC redirected billions of dollars in valuable capital to politically-connected but economically-questionable businesses. "We even loaned money to [the owners of] a drove of reindeer in Alaska," Jones boasted. The RFC was abolished in the 1955 under a cloud of corruption and scandal.

Roosevelt's public works programs may have been an economic failure, but they were a resounding political success as they provided virtually unlimited opportunities for political patronage. In 1939 a special U.S. Senate Committee on Campaign Expenditures investigated the programs and found that in many states workers were required to sign a pledge to vote Democratic and, in some cases, to make campaign contributions, as a condition of employment. Businesses that sold supplies to the government were in some places required to make campaign contributions to the Democratic party in return for the contracts. The New Deal was largely a legalized [[Wikipedia:Extortion|shake-down]] operation.<ref name="DiLorenzo_New_Deal" /><ref name="Anderson_WPA">William L. Anderson. [http://mises.org/daily/3921 "The Curse of Good Government"], Mises Daily, December 2009, refers to the spending of New Deal money. Referenced 2010-06-20.</ref>

Roosevelt's billions, adroitly used, had broken down every political machine in America. The patronage they once lived on and the local money they once had to disburse to help the poor was trivial compared to the vast floods of money Roosevelt controlled. And no political boss could compete with him in any county in America in the distribution of money and jobs.<ref name="Flynn_Roosevelt">John T. Flynn. [http://mises.org/books/rooseveltmyth.pdf "The Roosevelt Myth"] (pdf), p. 65; 1948. Referenced 2010-06-21.</ref>

As Henry Morgenthau, the secretary of the treasury and one of the most powerful men in America, said before the Democrats on the House Ways and Means Committee in 1939<ref name="Folsom_spending">Burton Folsom Jr. [http://search.barnesandnoble.com/New-Deal-or-Raw-Deal/Burton-Folsom-Jr/e/9781416592228#EXC "New Deal or Raw Deal?: How FDR's Economic Legacy Has Damaged America"], an excerpt from the book. Referenced 2010-06-21.</ref>:

<blockquote>''"We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong...somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises....I say after eight years of this Administration we have just as much unemployment as when we started....And an enormous debt to boot!"''</blockquote>

==During World War II==
The recovery from the Great Depression in the United States is usually associated with the advent of World War II, a period when real GDP appeared to increase phenomenally and the rate of unemployment fell almost to zero. A more detailed view produces a different picture, with large government "make-work" programs at first and military employment during the war - but a very slow actual recovery. When using hours worked as measure of employment, only in 1941 total work hours exceed the 1929 value (by 3 percent), with the population vigorously engaged in mobilization for war.<ref name="Higgs_hours">Robert Higgs. [http://www.independent.org/pdf/tir/tir_14_01_8_higgs.pdf "A Revealing Window on the U.S. Economy in Depression and War - Hours Worked, 1929–1950"] (pdf), The Independent Review, v. 14, n.1, Summer 2009. Referenced 2010-06-21.</ref>

Private [[investment]] has fallen significantly. Gross private investment plunged from almost 16 percent of GDP in 1929 to less than 2 percent in 1932; recovered to 13 percent in 1937 before falling again in the recession of 1938; and as late as 1941 stood at only 14 percent. During the war years, private investment ratios ranged from 3 to 6 percent. From 1946 through 1950 they ranged from 14 to 19 percent and averaged 16 percent — the same as in 1929. In 1929, when gross private investment was $16.2 billion, net investment was $8.3 billion. Net investment fell precipitously to $2.3 billion in 1930 and then became negative during each of the following five years. For the eleven-year period of 1930 to 1940, net private investment totaled minus $3.1 billion. Only in 1941 did net private investment ($9.7 billion) exceed the 1929 amount. During the 1930s, private investment remained at depths never plumbed in any other decade for which data exist.

One hypothesis is, that the New Deal prolonged the Great Depression by creating an extraordinarily high degree of '''[[regime uncertainty]]''' for the investors. Given the unparalleled outpouring of business-threatening laws, regulations, and court decisions, the oft-stated hostility of President Roosevelt and his lieutenants toward investors as a class, the political climate could hardly have failed to discourage some investors from making long-term commitments. There also exists a great deal of direct evidence that investors felt extraordinarily uncertain about the future of the property-rights regime between 1935 and 1941. Historians have recorded countless statements by contemporaries to that effect; in the years just before the war most business executives expected substantial weakening of private property rights ranging up to "complete economic dictatorship". The possibility that the United States might undergo an extreme regime shift seemed to many investors in the late 1930s and early 1940s not only possible but likely.<ref name="Higgs_investment">Robert Higgs. [http://www.independent.org/pdf/tir/tir_01_4_higgs.pdf "Regime Uncertainty - Why the Great Depression Lasted So Long and Why Prosperity Resumed after the War"] (pdf), The Independent Review, Vol, I, No. 4, Spring 1997. Referenced 2010-06-21.</ref><ref name="Higgs_China">Robert Higgs. [http://www.independent.org/blog/index.php?p=2620 "Regime Uncertainty in the 1930s: A New Deal Insider’s Account"], ''The Beacon'', blog of the The Independent Institute, Jun 29, 2009. Referenced 2010-08-15.</ref>

==See also==

* [[Austrian Business Cycle Theory]]

==References==
{{Reflist}}

==External links==
* [http://www.lewrockwell.com/gordon/gordon-gd-biblio.html Bibliography on the Great Depression] by David Gordon, 2009
* [http://mises.org/daily/3941 The Myth that Is FDR] by Garet Garrett, January 2010
* [http://mises.org/daily/4350 Did Hoover Really Slash Spending?] by Robert P. Murphy, May 2010
* [http://www.ameshistoricalsociety.org/exhibits/events/rationing.htm World War II Rationing], collected by the Ames Historical Society and the [[Wikipedia:Rationing|Wikipedia]] article on the same
* [http://www.mackinac.org/article.aspx?ID=4028 Free Markets or Free Lunches?] by Lawrence W. Reed, January 1998
* [http://www.mackinac.org/article.aspx?ID=4013 Great Myths of the Great Depression] by Lawrence W. Reed, January 1998
* [http://mises.org/daily/3778 The Gold Standard and the Great Depression] by Robert P. Murphy, October 2009
* [http://mises.org/daily/1623 The New Deal Debunked (again)] by Thomas J. DiLorenzo, September 2004
* [http://www.independent.org/newsroom/article.asp?id=138 Wartime Prosperity? A Reassessment of the U.S. Economy in the 1940s] by Robert Higgs, March 1992
* [http://mises.org/daily/4039 Dangerous Lessons of 1937] by Jonathan M. Finegold Catalan, February 2010
* [http://mises.org/daily/4797 The Real Reason for FDR's Popularity] by Mark Thornton, October 2010
* [[Wikipedia:Great Depression|Great Depression]] on Wikipedia

[[Category:History of the United States]]

Great Depression

2011-02-01T16:33:32Z

Daniel Hewitt: /* 1931, "The Tragic Year" */

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The '''Great Depression''' was the longest and most severe economic depression ever experienced by the Western world.<ref name="Britannica_debt">Encyclopædia Britannica. [http://www.britannica.com/EBchecked/topic/243118/Great-Depression "Great Depression"], Encyclopædia Britannica Online, referenced 2010-06-12.</ref>

==Prelude==
From June 1914 to January 1920, when demand deposits grew by 96.9 percent, time deposits rose by 126.1 percent. In the great boom of the 1920s, that started after the [[Wikipedia:Depression of 1920–21|recession of 1920–21]] (a short recession, thanks to the budget cutting and lowering of taxes by [[Wikipedia:Warren Harding|Warren Harding]]<ref name="Woods_Harding">Thomas E. Woods, Jr. [http://www.firstprinciplesjournal.com/articles.aspx?article=1322&theme=home&loc=b "Warren Harding and the Forgotten Depression of 1920"], First Principles, Fall 2009 issue of The Intercollegiate Review. See also the [http://www.youtube.com/watch?v=czcUmnsprQI video]. Referenced 2009-10-11.</ref>), total demand deposits rose from 1921 to 1929 by 36.5 percent. Time deposits in banks expanded in the same period by 75.9 percent. The great boom of the 1920s (also called "[[Wikipedia:Roaring Twenties|Roaring Twenties]]") was largely fueled by credit expansion going into time deposits. The greatest expansion of time deposits came in Central Reserve Cities (New York and Chicago), where the Fed’s open market operations were all conducted, as opposed to Reserve Cities and Country Banks. As acknowledged by Federal Reserve officials, time or savings deposits were then, for all practical purposes, equivalent to demand deposits and should be paid on demand in case of a run on a bank.

With the passage of the Federal Reserve Act, [[Wikipedia:Woodrow Wilson|President Wilson]] appointed [[Wikipedia:Benjamin Strong, Jr.|Benjamin Strong]] to the most powerful post in the Federal Reserve System, Governor of the [[Wikipedia:Reserve Bank of New York|Federal Reserve Bank of New York]]. He made quickly this position dominant in the System and decided on Fed policy without consulting or even against the wishes of the Federal Reserve Board in Washington. Strong was the dominant leader of the Fed from 1914 until his death in 1928. He pursued an inflationary policy, to finance the war effort for WWI, connected to the interests of the [[Wikipedia:J.P. Morgan & Co.|House of Morgan]]. Another motivation was the attempt to prop up the [[Bank of England]] in the 1920s, when it returned to the [[gold standard]] with an overvalued pound. To prevent the loss of gold to the States, its governor [[Wikipedia:Montagu Norman, 1st Baron Norman|Montagu Norman]] secretly convinced Strong to inflate in order to help England. The expansion ended only after Strong's death and the '''Great Depression''' followed soon after. In 1928 Strong admitted that "very few people indeed realized that we were now paying the penalty for the decision which was reached early in 1924 to help the rest of the world back to a sound financial and monetary basis" - that is, to help Britain maintain a phony and inflationary form of gold standard.<ref name="Rothbard_Federal_Reserve">[[Murray N. Rothbard]]. [http://mises.org/books/mysteryofbanking.pdf "The Mystery of Banking"] (pdf), Chapter XVI: Central banking in the United States IV: The Federal Reserve System, p.235-246, referenced 2009-10-03.</ref>

The inflation was also motivated by a desire to help American exporters (particularly farmers), by stimulation of foreign lending. At the same time the U.S. turned to a sharp protectionist policy with the [[Wikipedia:Fordney–McCumber Tariff|Fordney–McCumber Tariff]] of 1922. In the foreign lending boom, other countries were hampered in trying to sell their goods to the United States, but were encouraged to borrow dollars. The government did not have any peacetime authority to interfere with loans, but did so illegally. In 1921, President [[Wikipedia:Warren G. Harding|Harding]] and his cabinet conferred with several American investment bankers, at the instigation of Secretary of Commerce [[Wikipedia:Herbert Hoover|Hoover]], to be informed in advance of foreign loans, so that the government "might express itself regarding them". The bankers agreed. Hoover commented that even bad loans helped American exports and provided a cheap form of relief and employment. Later Hoover demanded from bankers, that foreign loans would be inspected by agents of the Department of Commerce. Both requests were mostly ignored. While admitted to be legally unenforceable, it was all in the name of "national interests".<ref name="Rothbard_pre_Depression">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 5. The Development of the Inflation, p. 137-167, referenced 2009-11-17.</ref>

{{See also|Federal Reserve System}}

==The Crash==
The great boom of the 1920s began around July, 1921, after a year or more of sharp recession, and ended about July, 1929, when the production and business activity began to decline, although the [[Wikipedia:Wall Street Crash of 1929|famous stock market crash]] came in October of that year. [[Wikipedia:Herbert Hoover|Herber Hoover]], an avid proponent of interventionism became President. Characteristic for him were "voluntary" measures that the government desired, with the implicit threat that if business did not "volunteer" properly, compulsory controls would soon follow.<ref name="Rothbard_1920s_boom">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 5. The Development of Hoover's Interventionism: Unemployment, p. 188-189, referenced 2009-11-20.</ref>

After the stock-market crash, Hoover began a series of conferences with big business and labor leaders, telling them that cutting wage rates (the standard response in previous depressions) would be disastrous, because then the workers wouldn't make enough to buy the products. This "liquidation" of labor would only deepen the depression by reducing their "purchasing power". Leading industrialists have pledged to maintain wage rates, expand construction, and share any reduced work. At the same time, the Federal Reserve expanded rapidly and lowered its interest rates. Its member banks expanded their deposits in the last week of October 1929 alone by 10%, mostly in New York. Hoover praised the Fed for the saving of shaky banks and restoring confidence. The depression should be over in a few months. A large public works program was also initiated.<ref name="Rothbard_public_works">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 8. The Depression Begins: President Hoover Takes Command, p. 209-217, referenced 2009-11-21.</ref>

Hoover promised the farm bloc to support farm cooperatives and prices and established the [[Wikipedia:Federal Farm Board|Federal Farm Board]] (FFB). It would make all-purpose loans to farm cooperatives at low interest rates and establish "stabilization corporations" to control farm surpluses and bolster farm prices. Its board was dominated by representatives of these farm cooperatives. To combat falling prices, it made loans to farmers to keep wheat and cotton off the market and later started to buy the surpluses. For a while, prices were held up and farmers increased production, only to find that prices would fall even more. As America held wheat off the market, it lost its former share of the world’s wheat trade. The farmers were urged to decrease their acreage, while the government still promoted reclamation projects to increase farm production. The surpluses of wheat accumulated and prices fell to such a degree, that the FFB decided to dump wheat stocks abroad, resulting in a drastic fall in market prices. The attempts to keep up the price of cotton, wool, livestock, etc. failed as well. A "[[Wikipedia:Farmers' Holiday Association|Farm Holiday]]" was declared to stop production, The movement soon turned to violence and failed to stop the falling farm prices. but succeeded to avoid some foreclosures of its members.<ref name="Rothbard_Agriculture">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), The New Deal Farm Program, p. 217-237, referenced 2009-11-21.</ref>

In 1930, the [[Wikipedia:Smoot–Hawley Tariff Act|Smoot–Hawley Tariff]] was passed, despite objections of many economists and industrial leaders. Hoover originated a higher tariff on agricultural products to help farmers, but it was raised on many other products. Many other countries have retaliated with their own tariffs and foreign trade declined significantly. (From 1929 to 1932, U.S. imports from Europe decreased from $1,334 million to just $390 million, while U.S. exports to Europe decreased from $2,341 million to $784 million. Overall, world trade decreased by some 66% between 1929 and 1934.<ref>U.S. Department of State. [http://future.state.gov/when/timeline/1921_timeline/smoot_tariff.html Smoot-Hawley Tariff], referenced 2009-11-22.</ref>) Also, to relieve the unemployment problem, and to help keep wage rates up, the President effectively banned further immigration into the United States.<ref name="Rothbard_Depression_1930">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 9. 1930, p. 239-256, referenced 2009-11-22.</ref>

===In Europe===
In Europe, the crisis began in earnest with the ''Boden–Kredit Anstalt'', the most important bank in Austria and Eastern Europe. It had to merge with the [[Wikipedia:Creditanstalt|Oesterreichische–Kredit–Anstalt]] after rescue attempts by its government and other banks. When Austria declared a customs union with Germany in March 1931, the French government feared this development and several French banks suddenly insisted on redemption of their debts from both countries. The bank collapsed. After more rescue attempts has the Austrian Government voted a $150 million guarantee to the bank, but the its credit was by the time worthless, and Austria soon declared national bankruptcy by going off the gold standard. Later, Germany, England, and most other European countries renounced their obligations and went off the gold standard as well. While the impact on United States was not very large due to the lowered international trade, it certainly did not help, neither did the many loans granted to prop up foreign banks.<ref name="Rothbard_Depression_1931_Europe">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 10. 1931—"The Tragic Year", p. 257-284, referenced 2009-11-27.</ref>

==1931, "The Tragic Year"==
The crisis worsened in the US in 1931. Production continued to fall drastically, as did prices and foreign trade, and unemployment ran up to almost 16 percent of the labor force. The Federal Reserve Board (FRB) index of manufacturing production, which had been 110 in 1929 and 90 in 1930, fell to 75 in 1931. Hardest hit, in accordance with Austrian [[ABCT|cycle theory]], were producers’ goods and higher order [[capital]] goods industries, rather than the consumer goods’ industries. Despite attempts to inflate, bank deposits and the aggregate [[money supply]] fell sharply, particularly at the end of the year. The British abandoning of the gold standard, bank failures abroad and the growing number of failures at home, caused a growing loss of confidence by Americans in their banking system. The wages were also beginning to fall, first secretly, then openly by the end of 1931.

The gross national product fell from $91.1 billion in 1930, to $76.3 billion in 1931. Total government receipts fell from $13.5 billion to $12.4 billion, but total government expenditures rose from $13.9 billion to $15.2 billion, in federal, rather than state and local, spending (federal expenditures rose from $4.2 billion in 1930 to $5.5 billion in 1931). In the middle of a great depression when people needed to be relieved of governmental burdens, the dead weight of government rose from 16.4 percent to 21.5 percent of the gross private product. From a modest surplus in 1930, the Federal government so ran up a huge $2.2 billion deficit in 1931.<ref name="Rothbard_Depression_1931_Europe" />

Direct relief was just about the one sphere where President Hoover seemed to prefer voluntary to governmental action. The [[Wikipedia:Red Cross|Red Cross]] opposed a bill, in early 1931, that would grant it $25 million for relief, declaring that it would "to a large extent destroy voluntary giving". Many private charity organizations, philanthropists, and social workers had the same views. Governmental unemployment relief was seen to have a role in creating and perpetuating unemployment in Britain (the "dole"). It was attacked by many business leaders, including [[Wikipedia:Henry Ford|Henry Ford]], the leaders of the [[Wikipedia:National Association of Manufacturers|National Association of Manufacturers]] and the [[Wikipedia:United States Chamber of Commerce|Chamber of Commerce]], and former President [[Wikipedia:Calvin Coolidge|Coolidge]].<ref name="Rothbard_Depression_1931_Europe" />

The [[Davis-Bacon Act]] was signed by President Hoover in 1931. It mandated that prevailing (union) wages be paid by the Federal Government for public works projects. It has been argued that the Davis-Bacon Act was a [[Jim Crow law]], since its intent <ref name=”williams”>Walter Williams, [http://www.jewishworldreview.com/cols/williams031203.asp "Congress' insidious discrimination"], ''Jewish World Review'' (March 12, 2003), accessed 2011-02-01.</ref> and its effect <ref name=”cato”> David Bernstein, [http://www.cato.org/pubs/briefs/bp-017.html "The Davis-Bacon Act: Let's Bring Jim Crow to an End"], ''Cato Institute Briefing Papers'' (January 18, 1993), accessed 2011-02-01.</ref> was to prevent lower-paid, non-unionized black laborers from competing against higher-paid, unionized white laborers. Hoover promoted and supported the legislation, as he believed that "[t]he very essence of great production is high wages...because it depends upon a widening range of consumption only to be obtained from the purchasing power of high real wages...." <ref name="hoover108">Herbert Hoover, ''The Memoirs of Herbert Hoover: Volume 2, The Cabinet and the Presidency, 1920-33'', (New York: Macmillan, 1952) 108.</ref>

==1932, The Hoover New Deal==
In an atmosphere of crisis, President Hoover called for more drastic measures, including more government aid and loans. With a $2 billion deficit during annual year 1931, Hoover felt that he had to do something to combat it and chose to increase the taxes. The [[Wikipedia:Revenue Act of 1932|Revenue Act of 1932]] was one of the greatest increases in taxation ever enacted in the United States in peacetime. Many wartime
excise taxes were revived, sales taxes were imposed on gasoline, tires, autos, electric energy, malt, toiletries, furs, jewelry, and other articles; admission and stock transfer taxes were increased; new taxes were levied on bank checks, bond transfers, telephone, telegraph, and radio messages; and the personal income tax was raised drastically as follows: the normal rate was increased from a range of 1½ percent–5 percent, to 4 percent–8 percent; personal exemptions were sharply reduced, and an earned credit of 25 percent eliminated; and surtaxes were raised enormously, from a maximum of 25 percent to 63 percent on the highest incomes. Furthermore, the corporate income tax was increased from 12 percent to 13: percent, and an exemption for small corporations eliminated; the estate tax was doubled, and the exemption floor halved; and the gift tax, which had been eliminated, was restored, and graduated up to 33⅓ percent. The postal rates were raised as well.

Despite the drastic increase in tax rates, total Federal revenue for 1932 declined because of the deepened depression—itself partly caused by the increase in tax rates. Total Federal receipts, excluding government enterprises, declined from $2.2 billion in 1931 to $1.9 billion in 1932; including government enterprises, Federal receipts fell from $3.4 billion to $3 billion.

Total government receipts fell from $12.4 billion to $11.5 billion. As a result, the huge Federal deficit continued despite a drop in government expenditures in 1932: Federal expenditures falling from $5.5 billion to $4.4 billion, and aggregate government expenditures falling from $15.2 billion to $13.2 billion (all numbers including government enterprises). Of the $1.7 billion in total government deficit, the bulk of it — $1.4 billion — was in the Federal government account. The state and local governments were forced to cut back their expenditures to near the level of their dwindling receipts. One of the most ominous projects for Federal spending during 1932 was a Congressional move for a huge $2 billion veterans bonus, to be financed by an issue of new currency. It was its final defeat in the Senate in June that did most to defeat a general clamor for much larger government spending.

Meanwhile, however, President Hoover himself was beginning to have doubts about one of his favorite policies: public works. In a conference at the end of February, Hoover admitted that his public works program, which had nearly doubled Federal construction since the start of the depression, had failed. It was very expensive, costing over $1200 per family aided, it was unavailable to the needy in remote regions and to those who were unable to perform such labor, which was, after all, unskilled make-work. By May, Hoover had openly reversed his earlier position. As a result, Federal public works only increased by $60 million in 1932, to reach the $333 million mark. Public works was not to come really to the fore again until the Roosevelt administration.

If Hoover eagerly embraced other forms of [[intervention]], he gave ground but grudgingly on one issue where he had championed the voluntary approach: direct relief. Governor [[Wikipedia:Franklin D. Roosevelt|Franklin D. Roosevelt]] of New York led the way for state relief programs in the winter of 1931–1932, and he induced New York to establish the first state relief authority: the Temporary Emergency Relief Administration, equipped with $25 million. Other states followed this lead, and a bill was introduced for a $500 million federal relief program. The bill was defeated, but, with depression deepening and a Presidential election approaching, the administration all but surrendered, passing the [[Wikipedia:Emergency Relief and Construction Act|Emergency Relief and Construction Act]] of July, 1932 — the nation’s first Federal relief legislation. All in all, total public relief in 120 of the nation’s leading urban areas amounted to $33 million in 1929, $173 million in 1931, and $308 million in 1932.

One thing Hoover was not reticent about: inflation. The administration first cleared the path for the program by passing the [[Wikipedia:Glass–Steagall Act|Glass–Steagall Act]] in February, which (a) greatly broadened the assets eligible for rediscounts with the Fed, and (b) permitted the Federal Reserve to use government bonds as collateral for its notes, in addition to commercial paper. At the end of February, 1932, total bank reserves had fallen to $1.85 billion. At that point, the [[Federal Reserve System|FRS]] launched a gigantic program of purchasing U.S. government securities. By the end of 1932, total reserves had been raised to $2.51 billion. This enormous increase of $660 million in reserves in less than a year is unprecedented in the previous history of the System. If the banks had kept loaned-up, the money supply of the nation would have increased by approximately $8 billion. Instead, the money supply fell by $3.5 billion during 1932, from $68.25 to $64.72 billion at the end of the year, and with the bank deposit component falling by $3.2 billion. Until the second quarter of 1932, the nation’s banks had always remained loaned up, with only negligible excess reserves. After, the banks accumulated excess reserves, and it is estimated that the proportion of excess to total bank reserves rose from 2.4 percent in the first quarter of 1932, to 10.7 percent in the second quarter. By the fourth quarter of 1932, excess reserves were estimated to a double of 20.3 percent of total bank reserves.

During the 1920s, a typical year might find 700 banks failing, with deposits totaling $170 million. In 1930, 1350 banks failed, with deposits of $837 million; in 1931, 2,293 banks collapsed, with deposits of $1,690 million; and in 1932, 1,453 banks failed, having $706 million in deposits. This enormous increase in bank failures was enough to give any bank pause—particularly when the bankers knew in their hearts that no bank (outside of the nonexisting ideal 100 percent bank) can ever withstand a determined run. Consequently, the banks permitted their commercial loans to run down without increasing their investments. Inflation by the government was turned into deflation by the policies of the public and the banks. The American economy reached the depths of depression during 1932 and 1933, and yet it had begun to turn upward by mid-1932. It is not far-fetched to believe that the considerable deflation of July 1931–July 1932, totaling $7.5 billion of currency and deposits, or 14 percent, was partly responsible for the mid-summer upturn.<ref name="Rothbard_Depression_1932">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 11. The Hoover New Deal of 1932, p. 285-320, referenced 2009-11-27.</ref>

As the Depression got worse and people lost their confidence in the banks, they decided to take custody of their cash. Seeing people in large numbers pulling their money out of banks — money the banks had promised to provide on demand — President Hoover blasted them for their "traitorous hoarding." He organized an antihoarding drive and delivered a radio address ([http://www.bobsuniverse.com/BWAH/31-Hoover/19320306a.pdf transcript], pdf) in which he pleaded with the public to stop hoarding (i.e., to stop converting their bank deposits into cash).<ref name="Smith_hoarding">George F. Smith. [http://mises.org/story/3707 "The Virtue of Hoarding"], Mises Daily, posted on October 09, 2009, referenced 2009-11-18.</ref>

Nominal paychecks fell much more slowly during the early years of the Great Depression than the general [[price]] level (wholesale prices fell by 10 percent in 1930, by 15 percent in 1931)<ref name="Rothbard_Depression_1931_Europe" /> - and those who kept their job experienced a higher increase in real (inflation-adjusted) wages, than during the Roaring 1920s! And so has unemployment reached record highs during Hoover's first and only term. When FDR went back on the US government's promise to redeem dollars for gold, the Federal Reserve could flood the economy with new dollars, the prices began to rise again. Because wage rates were not allowed to fall to their new, market-clearing level, [[Inflation|inflating]] the currency has paradoxically reduced unemployment.<ref name="Murphy_Depression">Robert P. Murphy. [http://mises.org/story/3778 "The Gold Standard and the Great Depression"], Mises Daily, posted on October 30, 2009, referenced 2009-11-18.</ref>

The Fed has expanded bank reserves in the 1930s. Panicking at the inflationary potential, it doubled the minimum reserve requirements to 20 percent in 1938, sending the economy into a tailspin of credit liquidation. The Fed, ever since that period, has been very cautious about the degree of its changes and changed bank reserve requirements fairly often, but in very small steps, by fractions of one percent.<ref name="Rothbard_Fed_requirements">[[Murray N. Rothbard]]. [http://mises.org/books/fed.pdf "The Case Against the Fed"] (pdf), How the Fed Rules and Inflates, p. 144, referenced 2010-03-23.</ref>

After 1933, Federal Reserve Notes and deposits were no longer redeemable in gold coins to Americans, their gold was confiscated and exchanged for Federal Reserve Notes, which became legal tender; and Americans were stuck in a regime of fiat paper issued by the government and the Federal Reserve.<ref name="Rothbard_Fed_gold">[[Murray N. Rothbard]]. [http://mises.org/books/fed.pdf "The Case Against the Fed"] (pdf), The New Deal and the Displacement of the Morgans, p. 131-132, referenced 2010-05-10.</ref>

===Tax revolt in the USA===
There has been a widespread opposition to real estate taxes in cities across America and some Americans were in fact not paying their taxes. The movement declined quickly, some scholars acknowledge certain influence, but ultimately declare it a failure.<ref name="Beito_revolt">David T. Beito. [http://mises.org/books/taxpayersinrevolt.pdf Taxpayers in Revolt - Tax Resistance during the Great Depression] (pdf), referenced 2010-06-15.</ref> Others consider it a resounding success, however.

President Hoover's massive tax increase bill that passed into law as the [[Wikipedia:Revenue Act of 1932|Revenue Act of 1932]], with many new taxes. The most burdensome taxes for many Americans, however, was the property tax. Property taxes required taxpayers to make an explicit tax payment of significant size from which they could not evade without losing what was often their most significant piece of property and wealth. The property taxes have risen in the decade before the Depression; throughout the 1920s, the general property tax accounted for over 90 percent of taxes levied by all cities over 30,000 in population. One reason for this dependence was that alcohol revenue from sales taxes and licenses had "dried up" due to prohibition. The burden of taxes increased significantly, even if tax rates remained the same. Another source of taxpayer ire was that the real wages of public employees rose nearly 12% between 1929 and 1933.

Tax delinquency increased from its normal rate of 10% to more than 30%. Tax protest organization formed quickly and spontaneously in rural regions in response to tax authorities selling the land of farmers. Estimates placed the number of taxpayer organizations at between 3,000 and 4,000 organizations nationwide.

The tax limitation movement was effective in several states in establishing cuts and limitations on property tax rates. The second success, which was both more important and far less obvious, was the passage of the 21st Amendment that repealed alcohol [[Wikipedia:Prohibition in the United States|prohibition]]. The legalization of alcohol sales in most states provided federal, state, and local government with increased tax revenues to offset cuts in property taxes while simultaneously providing a drastic decrease in the price of alcohol and in effect granting the American public a type of tax cut. Income tax revenue fell 60% from 1930 to 1933 placing a severe financial constraint on Congress. The search for an alternative revenue source led to the conversion of F.D.R. from a "dry" to a "wet" and resulted in the 1932 Democratic party platform to call for Repeal in order to provide "a proper and needed revenue." Revenue shortfalls made Repeal possible and the alcohol tax provided 13% of all federal revenue by 1936.<ref name="Thornton_revolt">Mark Thornton and Chetley Weise. [http://mises.org/journals/jls/15_3/15_3_4.pdf The Great Depression Tax Revolts Revisited.] (pdf), Journal of Libertarian Studies, Volume 15, no. 3 (Summer 2001), referenced 2010-06-15.</ref><ref name="Thornton_success_revolt">Mark Thornton and Chetley Weise. [http://mises.org/journals/scholar/Thornton1.PDF The Success of the Great Depression Tax Revolts] (pdf), referenced 2010-06-15.</ref>

==1933, end of Hoover's term==
Seeking reelection, Hoover boasted of his many interventions with the economy. In his acceptance speech for the Presidential renomination he said:
<blockquote>''"We might have done nothing. That would have been utter ruin. Instead, we met the situation with proposals to private business and to the Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic. We put that program in action."''<ref name="Hoover_nomination">Herbert Hoover. [http://americanhistory.about.com/library/docs/blhooverspeech1932.htm "Address Accepting the Republican Presidential Nomination"], August 11, 1932. The address was carried over the National Broadcasting Company and the Columbia Broadcasting System radio networks. This is a transcript taken from a sound recording of the address. Referenced 2010-06-20.</ref></blockquote>

After the election of [[Wikipedia:Franklin D. Roosevelt|Roosevelt]], as the new Presidential term approached, dark rumors circulated about the radicalism of Roosevelt’s advisers, and of their willingness to go off the [[gold standard]]. Consequently, not only did gold "hoarding" by foreigners develop momentum, but even gold hoarding by domestic citizens. For the first time in the depression, American citizens were beginning to lose confidence in the dollar itself. The loss of confidence reached its apogee in February, 1933, the month before the Roosevelt inaugural. In that one month, the monetary gold stock fell by $173 million, and money in circulation increased by the phenomenal amount of $900 million, the reflection of domestic loss of confidence. Money in circulation totaled $5.4 billion at the end of January, and $6.3 billion by the end of February. $700 million of this increase was in Federal Reserve notes, and $140 million in gold coin and gold certificates.

The Federal Reserve did its best to combat this deflationary pull on bank reserves, but its inflationary measures only served to diminish confidence in the dollar still further. Total money supply fell from $64.72 to $61.61 billion over 1933, and all or more of this fall took place in the first half of the year. Bank failures skyrocketed during this period. The number of commercial bank failures increased from 1,453 in 1932 to 4,000 in 1933 (most of which took place in the first quarter).

The reaction to this growing insistence of the people on claiming their rightful, legally-owned property, was a series of attacks on property rights by state after state. One by one, states imposed "bank holidays" by fiat, permitting the banks to stay in business while refusing to pay virtually all of the just claims of their depositors. The bank holiday movement began in earnest with the proclamation of an eight-day holiday on February 14, 1933, by Governor William Comstock of Michigan. This precipitated the bank runs and deflation of the latter part of February and depositors began an intense scramble to take their money out of the banks. Many national banks, which had worked hard to keep themselves in an at least relatively sound position, did not want to use the special privilege of bank holiday, and had to be coerced into doing so.

By March 4, every state in the Union had declared a bank holiday, and the stage was set for President Roosevelt’s dramatic and illegal closing of all the banks. President Roosevelt closed down all the banks throughout the nation for an entire week, from March 6 to 13, with many banks remaining closed even longer. Restrictions against so-called "hoarding" were continued afterward, and much hoarded gold returned to the banks following a Federal Reserve threat to publish a list, for full public scorn, of the leading "gold hoarders."

Mr. Hoover left office in March, 1933, at the very depth of the greatest depression in American history. Production had fallen by more than one-half: industrial production had been at an index of 114 in August, 1929, and then fell to 54 by March, 1933. Unemployment was persisting at nearly 25 percent of the labor force, and gross national product had also fallen almost in half. Hardest hit was investment, especially business construction, the latter falling from about $8.7 billion in 1929 to $1.4 billion in 1933. The index of non-durable manufacturing production fell from 94 to 66 from August, 1929, to March, 1933—a decline of 30 percent; the index of durable manufactures fell from 140 to 32, in the same period, a decline of 77 percent. In durable goods industries (e.g., building, roads, metals, iron and steel, lumber, railroad, etc.) it was estimated that their total employment fell from 10 million in 1929 to 4 million in 1932–1933, while employment in consumer goods industries (e.g., food, farming, textiles, electricity, fuel, etc.) only fell from 15 million to 13 million in the same period. Stock prices (industrials) fell by 76 percent during the depression, wholesale prices fell by 30 percent, and the total money supply declined by one-sixth.

Wage rates were kept very high during the first two years of the depression. By 1932, however, with profits wiped out, the pressure became too great, and wage rates fell considerably. Total fall over the 1929–1933 period, however, was only 23 percent - less than the decline in wholesale prices. Therefore, real wage rates, for the workers still remaining employed, actually increased. While real average hourly earnings rose, actual hours worked in industry fell drastically during the depression. Weekly hours averaged over 48 in 1929, and fell to less than 32 by mid-1932. In no previous depression had hours worked fallen by more than 10 percent. This was a form of reduced employment caused by the high-wage policy. As a result, average weekly earnings fell by over 40 percent during the depression, and real weekly earnings fell by over 30 percent. But hardest hit were the unemployed, the percentage of whom rose to 25 percent by 1932–1933, and reached 47 percent in selected manufacturing industries. The fall in man-hours combined with the fall in average hourly earnings caused a truly precipitate drop in total factory payrolls - the base of the very "purchasing power" that the policy was supposed to sustain.<ref name="Rothbard_Hoover_End">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 12. The Close of the Hoover Term, p. 321-337, referenced 2010-06-20.</ref>

==The New Deal==
===Roosevelt's Campaign===
Under the Democratic platform of 1932, which Franklin D. Roosevelt endorsed, contained several subsidies and regulations, but it hardly embraced the enormous expansion in federal power that FDR would achieve. The very first plank called for "an immediate and drastic reduction of governmental expenditures by abolishing useless commissions and offices, consolidating departments and bureaus, and eliminating extravagance to accomplish a saving of not less than twenty-five per cent in the cost of the Federal Government."<ref name="Woolley_Dem_1932">John T. Woolley and Gerhard Peters. [http://www.presidency.ucsb.edu/ws/index.php?pid=29595 "Democratic Party Platform of 1932"], June 27, 1932, from The American Presidency Project [online]. Referenced 2010-06-20.</ref> Subsequent planks demanded a balanced budget, a low tariff, the repeal of Prohibition, "a sound currency to be preserved at all hazards," "no interference in the internal affairs of other nations," and "the removal of government from all fields of private enterprise except where necessary to develop public works and natural resources in the common interest." The document concluded with a quote from Andrew Jackson: "equal rights to all; special privilege to none."

FDR's campaign reflected that platform. He accused Herbert Hoover of "reckless and extravagant spending," and he further denounced the Republican incumbent for believing "we ought to center control of everything in Washington as rapidly as possible." Even when he called for interventions in the economy, he generally couched his words in the old liberals' language of equal treatment rather than the new liberals' vision of enlightened central planning. In his famous Forgotten Man speech of April 1932 (see [http://newdeal.feri.org/speeches/1932c.htm transcript]), the Democratic candidate pointed to the wave of foreclosures sweeping the nation. Noting that Hoover had created a "two billion dollar fund...put at the disposal of the big banks, the railroads and the corporations of the Nation," FDR averred that the government should "provide at least as much assistance to the little fellow as it is now giving to the large banks and corporations." Once in office, the new administration did indeed repeal Prohibition, and it eventually lowered some trade barriers as well. By the time of FDR's death, the federal bureaucracy's power had grown so enormously that Hoover was widely remembered as the last apostle of laissez faire.<ref name="Walker_FDR">Jesse Walker. [http://reason.com/archives/2008/04/10/the-new-franklin-roosevelts "The New Franklin Roosevelts"], April 10, 2008. Referenced 2010-06-20.</ref>

===Policy===
A principal feature of '''[[Wikipedia:New Deal|New Deal]]''' economic policy was government-sponsored industrial [[cartel]]s (the [[Wikipedia:National Industrial Recovery Act|National Recovery Act]]); agricultural cartels (the [[Wikipedia:Agricultural Adjustment Act|Agricultural Adjustment Act]]); and labor cartels (the [[Wikipedia:Norris – La Guardia Act|Norris-LaGuardia]] and [[Wikipedia:National Labor Relations Act|Wagner Acts]]). The purpose of any cartel is to restrict output and raise prices. Lower levels of production leads to higher unemployment, which is exactly what the NRA and AAA did.

The NRA was almost identical to the Italian corporatist system that existed at the time. In Italy each trade or industrial group was organized into a government-controlled "corporative" association that had the power to plan production and pricing. In the U.S. the NRA organized each industry into federally-supervised trade associations called "Code Authorities" which could also limit output and set prices. The antitrust laws were explicitly set aside.

Over 700 industrial codes were created and were rigorously enforced by thousands of government code enforcers who, "could enter a man's factory, send him out, line up his employees, subject them to minute interrogation, take over his books on the instant." A hapless New Jersey tailor named Jack Magid became nationally famous after he was arrested, convicted, and imprisoned by the code police for the "crime" of pressing a suit of clothes for 35 cents when the Tailors' Code fixed the price at 40 cents. The NRA was ruled unconstitutional by the U.S. Supreme Court on May 27, 1935.<ref name="DiLorenzo_New_Deal">Thomas J. DiLorenzo. [http://mises.org/daily/55 "A New, New Deal"], Mises Daily, October 1998, referenced 2010-06-20.</ref> A study of the Act noted that "the licensing provision, giving the president the power of life or death over business enterprises, is the ultimate weapon of enforcement and the capstone of the powers granted to the president ... the most extraordinary extension of presidential power in American history." The Supreme Court's decision has noted, that 'fair competition' is not defined in the law and could be a convenient designation for whatever set of laws that is proposed and the president may approve. It ruled that NIRA was "an unconstitutional delegation of legislative power."

But after [[Wikipedia:Judiciary Reorganization Bill of 1937|Roosevelt's court-packing threat]] of 1937, the justices succumbed to whatever creative definition of fairness that Congress or federal agencies chose to proclaim. For instance, in 1942, Congress passed the Emergency Price Control Act, which created an Office of Price Administration. The OPA had sweeping power to set or strike down prices in any industry or activity that it considered to be "defense-related" — a vague term that could have encompassed practically the entire national economy. The act contained no substantive guidelines for the administrator's decisions but merely required prices that "in his judgment will be generally fair and equitable."<ref name="Bovard_Cuttthroat">James Bovard. [http://www.fff.org/freedom/0499d.asp "Cutthroat Competition and Dead Chickens"], The Future of Freedom Foundation, April 1999. Referenced 2010-06-20.</ref>

===Effects===
The Roosevelt administration also orchestrated various price-fixing schemes in labor markets, principally for the benefit of unions. Payroll taxes to finance Social Security and Unemployment Insurance programs increased employers' wage bills even further, which also reduced the level of employment. According to an econometric estimate, government-mandated payroll cost increases added nearly 1.2 million people to the unemployment rolls by 1938.

The unemployment rate during the 1933-1940 period averaged about 18% and was as high as 28.3% in March of 1933. By the end of 1938, on the eve of World War II, the U.S. unemployment rate still hovered at just over 18 percent and was higher than it was in 1933, President Franklin D. Roosevelt's first year in office. This occurred despite (or rather, because of) six years of unprecedented levels of government intervention into the U.S. economy. The American recovery was slower than in most European nations; by 1937 Great Britain's unemployment rate had declined to 10.3 percent.

Herbert Hoover's [[Wikipedia:Reconstruction Finance Corporation|Reconstruction Finance Corporation]] was greatly expanded by Roosevelt, but its effect was to make capital markets less efficient, thereby prolonging the Depression even further. As explained by RFC director Jesse Jones in his autobiography, ''Fifty Billion Dollars'', "The law specified that we should lend only where the borrower could not get the money from others on reasonable terms." That is, only to uncreditworthy borrowers. Guided by this directive, Jones and the RFC redirected billions of dollars in valuable capital to politically-connected but economically-questionable businesses. "We even loaned money to [the owners of] a drove of reindeer in Alaska," Jones boasted. The RFC was abolished in the 1955 under a cloud of corruption and scandal.

Roosevelt's public works programs may have been an economic failure, but they were a resounding political success as they provided virtually unlimited opportunities for political patronage. In 1939 a special U.S. Senate Committee on Campaign Expenditures investigated the programs and found that in many states workers were required to sign a pledge to vote Democratic and, in some cases, to make campaign contributions, as a condition of employment. Businesses that sold supplies to the government were in some places required to make campaign contributions to the Democratic party in return for the contracts. The New Deal was largely a legalized [[Wikipedia:Extortion|shake-down]] operation.<ref name="DiLorenzo_New_Deal" /><ref name="Anderson_WPA">William L. Anderson. [http://mises.org/daily/3921 "The Curse of Good Government"], Mises Daily, December 2009, refers to the spending of New Deal money. Referenced 2010-06-20.</ref>

Roosevelt's billions, adroitly used, had broken down every political machine in America. The patronage they once lived on and the local money they once had to disburse to help the poor was trivial compared to the vast floods of money Roosevelt controlled. And no political boss could compete with him in any county in America in the distribution of money and jobs.<ref name="Flynn_Roosevelt">John T. Flynn. [http://mises.org/books/rooseveltmyth.pdf "The Roosevelt Myth"] (pdf), p. 65; 1948. Referenced 2010-06-21.</ref>

As Henry Morgenthau, the secretary of the treasury and one of the most powerful men in America, said before the Democrats on the House Ways and Means Committee in 1939<ref name="Folsom_spending">Burton Folsom Jr. [http://search.barnesandnoble.com/New-Deal-or-Raw-Deal/Burton-Folsom-Jr/e/9781416592228#EXC "New Deal or Raw Deal?: How FDR's Economic Legacy Has Damaged America"], an excerpt from the book. Referenced 2010-06-21.</ref>:

<blockquote>''"We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong...somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises....I say after eight years of this Administration we have just as much unemployment as when we started....And an enormous debt to boot!"''</blockquote>

==During World War II==
The recovery from the Great Depression in the United States is usually associated with the advent of World War II, a period when real GDP appeared to increase phenomenally and the rate of unemployment fell almost to zero. A more detailed view produces a different picture, with large government "make-work" programs at first and military employment during the war - but a very slow actual recovery. When using hours worked as measure of employment, only in 1941 total work hours exceed the 1929 value (by 3 percent), with the population vigorously engaged in mobilization for war.<ref name="Higgs_hours">Robert Higgs. [http://www.independent.org/pdf/tir/tir_14_01_8_higgs.pdf "A Revealing Window on the U.S. Economy in Depression and War - Hours Worked, 1929–1950"] (pdf), The Independent Review, v. 14, n.1, Summer 2009. Referenced 2010-06-21.</ref>

Private [[investment]] has fallen significantly. Gross private investment plunged from almost 16 percent of GDP in 1929 to less than 2 percent in 1932; recovered to 13 percent in 1937 before falling again in the recession of 1938; and as late as 1941 stood at only 14 percent. During the war years, private investment ratios ranged from 3 to 6 percent. From 1946 through 1950 they ranged from 14 to 19 percent and averaged 16 percent — the same as in 1929. In 1929, when gross private investment was $16.2 billion, net investment was $8.3 billion. Net investment fell precipitously to $2.3 billion in 1930 and then became negative during each of the following five years. For the eleven-year period of 1930 to 1940, net private investment totaled minus $3.1 billion. Only in 1941 did net private investment ($9.7 billion) exceed the 1929 amount. During the 1930s, private investment remained at depths never plumbed in any other decade for which data exist.

One hypothesis is, that the New Deal prolonged the Great Depression by creating an extraordinarily high degree of '''[[regime uncertainty]]''' for the investors. Given the unparalleled outpouring of business-threatening laws, regulations, and court decisions, the oft-stated hostility of President Roosevelt and his lieutenants toward investors as a class, the political climate could hardly have failed to discourage some investors from making long-term commitments. There also exists a great deal of direct evidence that investors felt extraordinarily uncertain about the future of the property-rights regime between 1935 and 1941. Historians have recorded countless statements by contemporaries to that effect; in the years just before the war most business executives expected substantial weakening of private property rights ranging up to "complete economic dictatorship". The possibility that the United States might undergo an extreme regime shift seemed to many investors in the late 1930s and early 1940s not only possible but likely.<ref name="Higgs_investment">Robert Higgs. [http://www.independent.org/pdf/tir/tir_01_4_higgs.pdf "Regime Uncertainty - Why the Great Depression Lasted So Long and Why Prosperity Resumed after the War"] (pdf), The Independent Review, Vol, I, No. 4, Spring 1997. Referenced 2010-06-21.</ref><ref name="Higgs_China">Robert Higgs. [http://www.independent.org/blog/index.php?p=2620 "Regime Uncertainty in the 1930s: A New Deal Insider’s Account"], ''The Beacon'', blog of the The Independent Institute, Jun 29, 2009. Referenced 2010-08-15.</ref>

==See also==

* [[Austrian Business Cycle Theory]]

==References==
{{Reflist}}

==External links==
* [http://www.lewrockwell.com/gordon/gordon-gd-biblio.html Bibliography on the Great Depression] by David Gordon, 2009
* [http://mises.org/daily/3941 The Myth that Is FDR] by Garet Garrett, January 2010
* [http://mises.org/daily/4350 Did Hoover Really Slash Spending?] by Robert P. Murphy, May 2010
* [http://www.ameshistoricalsociety.org/exhibits/events/rationing.htm World War II Rationing], collected by the Ames Historical Society and the [[Wikipedia:Rationing|Wikipedia]] article on the same
* [http://www.mackinac.org/article.aspx?ID=4028 Free Markets or Free Lunches?] by Lawrence W. Reed, January 1998
* [http://www.mackinac.org/article.aspx?ID=4013 Great Myths of the Great Depression] by Lawrence W. Reed, January 1998
* [http://mises.org/daily/3778 The Gold Standard and the Great Depression] by Robert P. Murphy, October 2009
* [http://mises.org/daily/1623 The New Deal Debunked (again)] by Thomas J. DiLorenzo, September 2004
* [http://www.independent.org/newsroom/article.asp?id=138 Wartime Prosperity? A Reassessment of the U.S. Economy in the 1940s] by Robert Higgs, March 1992
* [http://mises.org/daily/4039 Dangerous Lessons of 1937] by Jonathan M. Finegold Catalan, February 2010
* [http://mises.org/daily/4797 The Real Reason for FDR's Popularity] by Mark Thornton, October 2010
* [[Wikipedia:Great Depression|Great Depression]] on Wikipedia

[[Category:History of the United States]]

Great Depression

2011-02-01T14:02:21Z

Daniel Hewitt: /* 1931, "The Tragic Year" */

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The '''Great Depression''' was the longest and most severe economic depression ever experienced by the Western world.<ref name="Britannica_debt">Encyclopædia Britannica. [http://www.britannica.com/EBchecked/topic/243118/Great-Depression "Great Depression"], Encyclopædia Britannica Online, referenced 2010-06-12.</ref>

==Prelude==
From June 1914 to January 1920, when demand deposits grew by 96.9 percent, time deposits rose by 126.1 percent. In the great boom of the 1920s, that started after the [[Wikipedia:Depression of 1920–21|recession of 1920–21]] (a short recession, thanks to the budget cutting and lowering of taxes by [[Wikipedia:Warren Harding|Warren Harding]]<ref name="Woods_Harding">Thomas E. Woods, Jr. [http://www.firstprinciplesjournal.com/articles.aspx?article=1322&theme=home&loc=b "Warren Harding and the Forgotten Depression of 1920"], First Principles, Fall 2009 issue of The Intercollegiate Review. See also the [http://www.youtube.com/watch?v=czcUmnsprQI video]. Referenced 2009-10-11.</ref>), total demand deposits rose from 1921 to 1929 by 36.5 percent. Time deposits in banks expanded in the same period by 75.9 percent. The great boom of the 1920s (also called "[[Wikipedia:Roaring Twenties|Roaring Twenties]]") was largely fueled by credit expansion going into time deposits. The greatest expansion of time deposits came in Central Reserve Cities (New York and Chicago), where the Fed’s open market operations were all conducted, as opposed to Reserve Cities and Country Banks. As acknowledged by Federal Reserve officials, time or savings deposits were then, for all practical purposes, equivalent to demand deposits and should be paid on demand in case of a run on a bank.

With the passage of the Federal Reserve Act, [[Wikipedia:Woodrow Wilson|President Wilson]] appointed [[Wikipedia:Benjamin Strong, Jr.|Benjamin Strong]] to the most powerful post in the Federal Reserve System, Governor of the [[Wikipedia:Reserve Bank of New York|Federal Reserve Bank of New York]]. He made quickly this position dominant in the System and decided on Fed policy without consulting or even against the wishes of the Federal Reserve Board in Washington. Strong was the dominant leader of the Fed from 1914 until his death in 1928. He pursued an inflationary policy, to finance the war effort for WWI, connected to the interests of the [[Wikipedia:J.P. Morgan & Co.|House of Morgan]]. Another motivation was the attempt to prop up the [[Bank of England]] in the 1920s, when it returned to the [[gold standard]] with an overvalued pound. To prevent the loss of gold to the States, its governor [[Wikipedia:Montagu Norman, 1st Baron Norman|Montagu Norman]] secretly convinced Strong to inflate in order to help England. The expansion ended only after Strong's death and the '''Great Depression''' followed soon after. In 1928 Strong admitted that "very few people indeed realized that we were now paying the penalty for the decision which was reached early in 1924 to help the rest of the world back to a sound financial and monetary basis" - that is, to help Britain maintain a phony and inflationary form of gold standard.<ref name="Rothbard_Federal_Reserve">[[Murray N. Rothbard]]. [http://mises.org/books/mysteryofbanking.pdf "The Mystery of Banking"] (pdf), Chapter XVI: Central banking in the United States IV: The Federal Reserve System, p.235-246, referenced 2009-10-03.</ref>

The inflation was also motivated by a desire to help American exporters (particularly farmers), by stimulation of foreign lending. At the same time the U.S. turned to a sharp protectionist policy with the [[Wikipedia:Fordney–McCumber Tariff|Fordney–McCumber Tariff]] of 1922. In the foreign lending boom, other countries were hampered in trying to sell their goods to the United States, but were encouraged to borrow dollars. The government did not have any peacetime authority to interfere with loans, but did so illegally. In 1921, President [[Wikipedia:Warren G. Harding|Harding]] and his cabinet conferred with several American investment bankers, at the instigation of Secretary of Commerce [[Wikipedia:Herbert Hoover|Hoover]], to be informed in advance of foreign loans, so that the government "might express itself regarding them". The bankers agreed. Hoover commented that even bad loans helped American exports and provided a cheap form of relief and employment. Later Hoover demanded from bankers, that foreign loans would be inspected by agents of the Department of Commerce. Both requests were mostly ignored. While admitted to be legally unenforceable, it was all in the name of "national interests".<ref name="Rothbard_pre_Depression">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 5. The Development of the Inflation, p. 137-167, referenced 2009-11-17.</ref>

{{See also|Federal Reserve System}}

==The Crash==
The great boom of the 1920s began around July, 1921, after a year or more of sharp recession, and ended about July, 1929, when the production and business activity began to decline, although the [[Wikipedia:Wall Street Crash of 1929|famous stock market crash]] came in October of that year. [[Wikipedia:Herbert Hoover|Herber Hoover]], an avid proponent of interventionism became President. Characteristic for him were "voluntary" measures that the government desired, with the implicit threat that if business did not "volunteer" properly, compulsory controls would soon follow.<ref name="Rothbard_1920s_boom">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 5. The Development of Hoover's Interventionism: Unemployment, p. 188-189, referenced 2009-11-20.</ref>

After the stock-market crash, Hoover began a series of conferences with big business and labor leaders, telling them that cutting wage rates (the standard response in previous depressions) would be disastrous, because then the workers wouldn't make enough to buy the products. This "liquidation" of labor would only deepen the depression by reducing their "purchasing power". Leading industrialists have pledged to maintain wage rates, expand construction, and share any reduced work. At the same time, the Federal Reserve expanded rapidly and lowered its interest rates. Its member banks expanded their deposits in the last week of October 1929 alone by 10%, mostly in New York. Hoover praised the Fed for the saving of shaky banks and restoring confidence. The depression should be over in a few months. A large public works program was also initiated.<ref name="Rothbard_public_works">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 8. The Depression Begins: President Hoover Takes Command, p. 209-217, referenced 2009-11-21.</ref>

Hoover promised the farm bloc to support farm cooperatives and prices and established the [[Wikipedia:Federal Farm Board|Federal Farm Board]] (FFB). It would make all-purpose loans to farm cooperatives at low interest rates and establish "stabilization corporations" to control farm surpluses and bolster farm prices. Its board was dominated by representatives of these farm cooperatives. To combat falling prices, it made loans to farmers to keep wheat and cotton off the market and later started to buy the surpluses. For a while, prices were held up and farmers increased production, only to find that prices would fall even more. As America held wheat off the market, it lost its former share of the world’s wheat trade. The farmers were urged to decrease their acreage, while the government still promoted reclamation projects to increase farm production. The surpluses of wheat accumulated and prices fell to such a degree, that the FFB decided to dump wheat stocks abroad, resulting in a drastic fall in market prices. The attempts to keep up the price of cotton, wool, livestock, etc. failed as well. A "[[Wikipedia:Farmers' Holiday Association|Farm Holiday]]" was declared to stop production, The movement soon turned to violence and failed to stop the falling farm prices. but succeeded to avoid some foreclosures of its members.<ref name="Rothbard_Agriculture">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), The New Deal Farm Program, p. 217-237, referenced 2009-11-21.</ref>

In 1930, the [[Wikipedia:Smoot–Hawley Tariff Act|Smoot–Hawley Tariff]] was passed, despite objections of many economists and industrial leaders. Hoover originated a higher tariff on agricultural products to help farmers, but it was raised on many other products. Many other countries have retaliated with their own tariffs and foreign trade declined significantly. (From 1929 to 1932, U.S. imports from Europe decreased from $1,334 million to just $390 million, while U.S. exports to Europe decreased from $2,341 million to $784 million. Overall, world trade decreased by some 66% between 1929 and 1934.<ref>U.S. Department of State. [http://future.state.gov/when/timeline/1921_timeline/smoot_tariff.html Smoot-Hawley Tariff], referenced 2009-11-22.</ref>) Also, to relieve the unemployment problem, and to help keep wage rates up, the President effectively banned further immigration into the United States.<ref name="Rothbard_Depression_1930">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 9. 1930, p. 239-256, referenced 2009-11-22.</ref>

===In Europe===
In Europe, the crisis began in earnest with the ''Boden–Kredit Anstalt'', the most important bank in Austria and Eastern Europe. It had to merge with the [[Wikipedia:Creditanstalt|Oesterreichische–Kredit–Anstalt]] after rescue attempts by its government and other banks. When Austria declared a customs union with Germany in March 1931, the French government feared this development and several French banks suddenly insisted on redemption of their debts from both countries. The bank collapsed. After more rescue attempts has the Austrian Government voted a $150 million guarantee to the bank, but the its credit was by the time worthless, and Austria soon declared national bankruptcy by going off the gold standard. Later, Germany, England, and most other European countries renounced their obligations and went off the gold standard as well. While the impact on United States was not very large due to the lowered international trade, it certainly did not help, neither did the many loans granted to prop up foreign banks.<ref name="Rothbard_Depression_1931_Europe">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 10. 1931—"The Tragic Year", p. 257-284, referenced 2009-11-27.</ref>

==1931, "The Tragic Year"==
The crisis worsened in the US in 1931. Production continued to fall drastically, as did prices and foreign trade, and unemployment ran up to almost 16 percent of the labor force. The Federal Reserve Board (FRB) index of manufacturing production, which had been 110 in 1929 and 90 in 1930, fell to 75 in 1931. Hardest hit, in accordance with Austrian [[ABCT|cycle theory]], were producers’ goods and higher order [[capital]] goods industries, rather than the consumer goods’ industries. Despite attempts to inflate, bank deposits and the aggregate [[money supply]] fell sharply, particularly at the end of the year. The British abandoning of the gold standard, bank failures abroad and the growing number of failures at home, caused a growing loss of confidence by Americans in their banking system. The wages were also beginning to fall, first secretly, then openly by the end of 1931.

The gross national product fell from $91.1 billion in 1930, to $76.3 billion in 1931. Total government receipts fell from $13.5 billion to $12.4 billion, but total government expenditures rose from $13.9 billion to $15.2 billion, in federal, rather than state and local, spending (federal expenditures rose from $4.2 billion in 1930 to $5.5 billion in 1931). In the middle of a great depression when people needed to be relieved of governmental burdens, the dead weight of government rose from 16.4 percent to 21.5 percent of the gross private product. From a modest surplus in 1930, the Federal government so ran up a huge $2.2 billion deficit in 1931.<ref name="Rothbard_Depression_1931_Europe" />

Direct relief was just about the one sphere where President Hoover seemed to prefer voluntary to governmental action. The [[Wikipedia:Red Cross|Red Cross]] opposed a bill, in early 1931, that would grant it $25 million for relief, declaring that it would "to a large extent destroy voluntary giving". Many private charity organizations, philanthropists, and social workers had the same views. Governmental unemployment relief was seen to have a role in creating and perpetuating unemployment in Britain (the "dole"). It was attacked by many business leaders, including [[Wikipedia:Henry Ford|Henry Ford]], the leaders of the [[Wikipedia:National Association of Manufacturers|National Association of Manufacturers]] and the [[Wikipedia:United States Chamber of Commerce|Chamber of Commerce]], and former President [[Wikipedia:Calvin Coolidge|Coolidge]].<ref name="Rothbard_Depression_1931_Europe" />

The [[Davis-Bacon Act]] was signed by President Hoover in 1931. It mandated that prevailing (union) wages be paid by the Federal Government for public works projects. It has been argued that the Davis-Bacon Act was a [[Jim Crow law]], since its intent <ref name=”williams”>Walter Williams, [http://www.jewishworldreview.com/cols/williams031203.asp "Congress' insidious discrimination"], ''Jewish World Review'' (March 12, 2003), accessed 2011-02-01.</ref> and its effect <ref name=”cato”> David Bernstein, [http://www.cato.org/pubs/briefs/bp-017.html "The Davis-Bacon Act: Let's Bring Jim Crow to an End"], ''Cato Institute Briefing Papers'' (January 18, 1993), accessed 2011-02-01.</ref> was to exclude lower-paid, non-unionized black laborers from competing against higher-paid, unionized white laborers.

==1932, The Hoover New Deal==
In an atmosphere of crisis, President Hoover called for more drastic measures, including more government aid and loans. With a $2 billion deficit during annual year 1931, Hoover felt that he had to do something to combat it and chose to increase the taxes. The [[Wikipedia:Revenue Act of 1932|Revenue Act of 1932]] was one of the greatest increases in taxation ever enacted in the United States in peacetime. Many wartime
excise taxes were revived, sales taxes were imposed on gasoline, tires, autos, electric energy, malt, toiletries, furs, jewelry, and other articles; admission and stock transfer taxes were increased; new taxes were levied on bank checks, bond transfers, telephone, telegraph, and radio messages; and the personal income tax was raised drastically as follows: the normal rate was increased from a range of 1½ percent–5 percent, to 4 percent–8 percent; personal exemptions were sharply reduced, and an earned credit of 25 percent eliminated; and surtaxes were raised enormously, from a maximum of 25 percent to 63 percent on the highest incomes. Furthermore, the corporate income tax was increased from 12 percent to 13: percent, and an exemption for small corporations eliminated; the estate tax was doubled, and the exemption floor halved; and the gift tax, which had been eliminated, was restored, and graduated up to 33⅓ percent. The postal rates were raised as well.

Despite the drastic increase in tax rates, total Federal revenue for 1932 declined because of the deepened depression—itself partly caused by the increase in tax rates. Total Federal receipts, excluding government enterprises, declined from $2.2 billion in 1931 to $1.9 billion in 1932; including government enterprises, Federal receipts fell from $3.4 billion to $3 billion.

Total government receipts fell from $12.4 billion to $11.5 billion. As a result, the huge Federal deficit continued despite a drop in government expenditures in 1932: Federal expenditures falling from $5.5 billion to $4.4 billion, and aggregate government expenditures falling from $15.2 billion to $13.2 billion (all numbers including government enterprises). Of the $1.7 billion in total government deficit, the bulk of it — $1.4 billion — was in the Federal government account. The state and local governments were forced to cut back their expenditures to near the level of their dwindling receipts. One of the most ominous projects for Federal spending during 1932 was a Congressional move for a huge $2 billion veterans bonus, to be financed by an issue of new currency. It was its final defeat in the Senate in June that did most to defeat a general clamor for much larger government spending.

Meanwhile, however, President Hoover himself was beginning to have doubts about one of his favorite policies: public works. In a conference at the end of February, Hoover admitted that his public works program, which had nearly doubled Federal construction since the start of the depression, had failed. It was very expensive, costing over $1200 per family aided, it was unavailable to the needy in remote regions and to those who were unable to perform such labor, which was, after all, unskilled make-work. By May, Hoover had openly reversed his earlier position. As a result, Federal public works only increased by $60 million in 1932, to reach the $333 million mark. Public works was not to come really to the fore again until the Roosevelt administration.

If Hoover eagerly embraced other forms of [[intervention]], he gave ground but grudgingly on one issue where he had championed the voluntary approach: direct relief. Governor [[Wikipedia:Franklin D. Roosevelt|Franklin D. Roosevelt]] of New York led the way for state relief programs in the winter of 1931–1932, and he induced New York to establish the first state relief authority: the Temporary Emergency Relief Administration, equipped with $25 million. Other states followed this lead, and a bill was introduced for a $500 million federal relief program. The bill was defeated, but, with depression deepening and a Presidential election approaching, the administration all but surrendered, passing the [[Wikipedia:Emergency Relief and Construction Act|Emergency Relief and Construction Act]] of July, 1932 — the nation’s first Federal relief legislation. All in all, total public relief in 120 of the nation’s leading urban areas amounted to $33 million in 1929, $173 million in 1931, and $308 million in 1932.

One thing Hoover was not reticent about: inflation. The administration first cleared the path for the program by passing the [[Wikipedia:Glass–Steagall Act|Glass–Steagall Act]] in February, which (a) greatly broadened the assets eligible for rediscounts with the Fed, and (b) permitted the Federal Reserve to use government bonds as collateral for its notes, in addition to commercial paper. At the end of February, 1932, total bank reserves had fallen to $1.85 billion. At that point, the [[Federal Reserve System|FRS]] launched a gigantic program of purchasing U.S. government securities. By the end of 1932, total reserves had been raised to $2.51 billion. This enormous increase of $660 million in reserves in less than a year is unprecedented in the previous history of the System. If the banks had kept loaned-up, the money supply of the nation would have increased by approximately $8 billion. Instead, the money supply fell by $3.5 billion during 1932, from $68.25 to $64.72 billion at the end of the year, and with the bank deposit component falling by $3.2 billion. Until the second quarter of 1932, the nation’s banks had always remained loaned up, with only negligible excess reserves. After, the banks accumulated excess reserves, and it is estimated that the proportion of excess to total bank reserves rose from 2.4 percent in the first quarter of 1932, to 10.7 percent in the second quarter. By the fourth quarter of 1932, excess reserves were estimated to a double of 20.3 percent of total bank reserves.

During the 1920s, a typical year might find 700 banks failing, with deposits totaling $170 million. In 1930, 1350 banks failed, with deposits of $837 million; in 1931, 2,293 banks collapsed, with deposits of $1,690 million; and in 1932, 1,453 banks failed, having $706 million in deposits. This enormous increase in bank failures was enough to give any bank pause—particularly when the bankers knew in their hearts that no bank (outside of the nonexisting ideal 100 percent bank) can ever withstand a determined run. Consequently, the banks permitted their commercial loans to run down without increasing their investments. Inflation by the government was turned into deflation by the policies of the public and the banks. The American economy reached the depths of depression during 1932 and 1933, and yet it had begun to turn upward by mid-1932. It is not far-fetched to believe that the considerable deflation of July 1931–July 1932, totaling $7.5 billion of currency and deposits, or 14 percent, was partly responsible for the mid-summer upturn.<ref name="Rothbard_Depression_1932">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 11. The Hoover New Deal of 1932, p. 285-320, referenced 2009-11-27.</ref>

As the Depression got worse and people lost their confidence in the banks, they decided to take custody of their cash. Seeing people in large numbers pulling their money out of banks — money the banks had promised to provide on demand — President Hoover blasted them for their "traitorous hoarding." He organized an antihoarding drive and delivered a radio address ([http://www.bobsuniverse.com/BWAH/31-Hoover/19320306a.pdf transcript], pdf) in which he pleaded with the public to stop hoarding (i.e., to stop converting their bank deposits into cash).<ref name="Smith_hoarding">George F. Smith. [http://mises.org/story/3707 "The Virtue of Hoarding"], Mises Daily, posted on October 09, 2009, referenced 2009-11-18.</ref>

Nominal paychecks fell much more slowly during the early years of the Great Depression than the general [[price]] level (wholesale prices fell by 10 percent in 1930, by 15 percent in 1931)<ref name="Rothbard_Depression_1931_Europe" /> - and those who kept their job experienced a higher increase in real (inflation-adjusted) wages, than during the Roaring 1920s! And so has unemployment reached record highs during Hoover's first and only term. When FDR went back on the US government's promise to redeem dollars for gold, the Federal Reserve could flood the economy with new dollars, the prices began to rise again. Because wage rates were not allowed to fall to their new, market-clearing level, [[Inflation|inflating]] the currency has paradoxically reduced unemployment.<ref name="Murphy_Depression">Robert P. Murphy. [http://mises.org/story/3778 "The Gold Standard and the Great Depression"], Mises Daily, posted on October 30, 2009, referenced 2009-11-18.</ref>

The Fed has expanded bank reserves in the 1930s. Panicking at the inflationary potential, it doubled the minimum reserve requirements to 20 percent in 1938, sending the economy into a tailspin of credit liquidation. The Fed, ever since that period, has been very cautious about the degree of its changes and changed bank reserve requirements fairly often, but in very small steps, by fractions of one percent.<ref name="Rothbard_Fed_requirements">[[Murray N. Rothbard]]. [http://mises.org/books/fed.pdf "The Case Against the Fed"] (pdf), How the Fed Rules and Inflates, p. 144, referenced 2010-03-23.</ref>

After 1933, Federal Reserve Notes and deposits were no longer redeemable in gold coins to Americans, their gold was confiscated and exchanged for Federal Reserve Notes, which became legal tender; and Americans were stuck in a regime of fiat paper issued by the government and the Federal Reserve.<ref name="Rothbard_Fed_gold">[[Murray N. Rothbard]]. [http://mises.org/books/fed.pdf "The Case Against the Fed"] (pdf), The New Deal and the Displacement of the Morgans, p. 131-132, referenced 2010-05-10.</ref>

===Tax revolt in the USA===
There has been a widespread opposition to real estate taxes in cities across America and some Americans were in fact not paying their taxes. The movement declined quickly, some scholars acknowledge certain influence, but ultimately declare it a failure.<ref name="Beito_revolt">David T. Beito. [http://mises.org/books/taxpayersinrevolt.pdf Taxpayers in Revolt - Tax Resistance during the Great Depression] (pdf), referenced 2010-06-15.</ref> Others consider it a resounding success, however.

President Hoover's massive tax increase bill that passed into law as the [[Wikipedia:Revenue Act of 1932|Revenue Act of 1932]], with many new taxes. The most burdensome taxes for many Americans, however, was the property tax. Property taxes required taxpayers to make an explicit tax payment of significant size from which they could not evade without losing what was often their most significant piece of property and wealth. The property taxes have risen in the decade before the Depression; throughout the 1920s, the general property tax accounted for over 90 percent of taxes levied by all cities over 30,000 in population. One reason for this dependence was that alcohol revenue from sales taxes and licenses had "dried up" due to prohibition. The burden of taxes increased significantly, even if tax rates remained the same. Another source of taxpayer ire was that the real wages of public employees rose nearly 12% between 1929 and 1933.

Tax delinquency increased from its normal rate of 10% to more than 30%. Tax protest organization formed quickly and spontaneously in rural regions in response to tax authorities selling the land of farmers. Estimates placed the number of taxpayer organizations at between 3,000 and 4,000 organizations nationwide.

The tax limitation movement was effective in several states in establishing cuts and limitations on property tax rates. The second success, which was both more important and far less obvious, was the passage of the 21st Amendment that repealed alcohol [[Wikipedia:Prohibition in the United States|prohibition]]. The legalization of alcohol sales in most states provided federal, state, and local government with increased tax revenues to offset cuts in property taxes while simultaneously providing a drastic decrease in the price of alcohol and in effect granting the American public a type of tax cut. Income tax revenue fell 60% from 1930 to 1933 placing a severe financial constraint on Congress. The search for an alternative revenue source led to the conversion of F.D.R. from a "dry" to a "wet" and resulted in the 1932 Democratic party platform to call for Repeal in order to provide "a proper and needed revenue." Revenue shortfalls made Repeal possible and the alcohol tax provided 13% of all federal revenue by 1936.<ref name="Thornton_revolt">Mark Thornton and Chetley Weise. [http://mises.org/journals/jls/15_3/15_3_4.pdf The Great Depression Tax Revolts Revisited.] (pdf), Journal of Libertarian Studies, Volume 15, no. 3 (Summer 2001), referenced 2010-06-15.</ref><ref name="Thornton_success_revolt">Mark Thornton and Chetley Weise. [http://mises.org/journals/scholar/Thornton1.PDF The Success of the Great Depression Tax Revolts] (pdf), referenced 2010-06-15.</ref>

==1933, end of Hoover's term==
Seeking reelection, Hoover boasted of his many interventions with the economy. In his acceptance speech for the Presidential renomination he said:
<blockquote>''"We might have done nothing. That would have been utter ruin. Instead, we met the situation with proposals to private business and to the Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic. We put that program in action."''<ref name="Hoover_nomination">Herbert Hoover. [http://americanhistory.about.com/library/docs/blhooverspeech1932.htm "Address Accepting the Republican Presidential Nomination"], August 11, 1932. The address was carried over the National Broadcasting Company and the Columbia Broadcasting System radio networks. This is a transcript taken from a sound recording of the address. Referenced 2010-06-20.</ref></blockquote>

After the election of [[Wikipedia:Franklin D. Roosevelt|Roosevelt]], as the new Presidential term approached, dark rumors circulated about the radicalism of Roosevelt’s advisers, and of their willingness to go off the [[gold standard]]. Consequently, not only did gold "hoarding" by foreigners develop momentum, but even gold hoarding by domestic citizens. For the first time in the depression, American citizens were beginning to lose confidence in the dollar itself. The loss of confidence reached its apogee in February, 1933, the month before the Roosevelt inaugural. In that one month, the monetary gold stock fell by $173 million, and money in circulation increased by the phenomenal amount of $900 million, the reflection of domestic loss of confidence. Money in circulation totaled $5.4 billion at the end of January, and $6.3 billion by the end of February. $700 million of this increase was in Federal Reserve notes, and $140 million in gold coin and gold certificates.

The Federal Reserve did its best to combat this deflationary pull on bank reserves, but its inflationary measures only served to diminish confidence in the dollar still further. Total money supply fell from $64.72 to $61.61 billion over 1933, and all or more of this fall took place in the first half of the year. Bank failures skyrocketed during this period. The number of commercial bank failures increased from 1,453 in 1932 to 4,000 in 1933 (most of which took place in the first quarter).

The reaction to this growing insistence of the people on claiming their rightful, legally-owned property, was a series of attacks on property rights by state after state. One by one, states imposed "bank holidays" by fiat, permitting the banks to stay in business while refusing to pay virtually all of the just claims of their depositors. The bank holiday movement began in earnest with the proclamation of an eight-day holiday on February 14, 1933, by Governor William Comstock of Michigan. This precipitated the bank runs and deflation of the latter part of February and depositors began an intense scramble to take their money out of the banks. Many national banks, which had worked hard to keep themselves in an at least relatively sound position, did not want to use the special privilege of bank holiday, and had to be coerced into doing so.

By March 4, every state in the Union had declared a bank holiday, and the stage was set for President Roosevelt’s dramatic and illegal closing of all the banks. President Roosevelt closed down all the banks throughout the nation for an entire week, from March 6 to 13, with many banks remaining closed even longer. Restrictions against so-called "hoarding" were continued afterward, and much hoarded gold returned to the banks following a Federal Reserve threat to publish a list, for full public scorn, of the leading "gold hoarders."

Mr. Hoover left office in March, 1933, at the very depth of the greatest depression in American history. Production had fallen by more than one-half: industrial production had been at an index of 114 in August, 1929, and then fell to 54 by March, 1933. Unemployment was persisting at nearly 25 percent of the labor force, and gross national product had also fallen almost in half. Hardest hit was investment, especially business construction, the latter falling from about $8.7 billion in 1929 to $1.4 billion in 1933. The index of non-durable manufacturing production fell from 94 to 66 from August, 1929, to March, 1933—a decline of 30 percent; the index of durable manufactures fell from 140 to 32, in the same period, a decline of 77 percent. In durable goods industries (e.g., building, roads, metals, iron and steel, lumber, railroad, etc.) it was estimated that their total employment fell from 10 million in 1929 to 4 million in 1932–1933, while employment in consumer goods industries (e.g., food, farming, textiles, electricity, fuel, etc.) only fell from 15 million to 13 million in the same period. Stock prices (industrials) fell by 76 percent during the depression, wholesale prices fell by 30 percent, and the total money supply declined by one-sixth.

Wage rates were kept very high during the first two years of the depression. By 1932, however, with profits wiped out, the pressure became too great, and wage rates fell considerably. Total fall over the 1929–1933 period, however, was only 23 percent - less than the decline in wholesale prices. Therefore, real wage rates, for the workers still remaining employed, actually increased. While real average hourly earnings rose, actual hours worked in industry fell drastically during the depression. Weekly hours averaged over 48 in 1929, and fell to less than 32 by mid-1932. In no previous depression had hours worked fallen by more than 10 percent. This was a form of reduced employment caused by the high-wage policy. As a result, average weekly earnings fell by over 40 percent during the depression, and real weekly earnings fell by over 30 percent. But hardest hit were the unemployed, the percentage of whom rose to 25 percent by 1932–1933, and reached 47 percent in selected manufacturing industries. The fall in man-hours combined with the fall in average hourly earnings caused a truly precipitate drop in total factory payrolls - the base of the very "purchasing power" that the policy was supposed to sustain.<ref name="Rothbard_Hoover_End">[[Murray N. Rothbard]]. [http://mises.org/rothbard/agd.pdf "America’s Great Depression"] (pdf), 12. The Close of the Hoover Term, p. 321-337, referenced 2010-06-20.</ref>

==The New Deal==
===Roosevelt's Campaign===
Under the Democratic platform of 1932, which Franklin D. Roosevelt endorsed, contained several subsidies and regulations, but it hardly embraced the enormous expansion in federal power that FDR would achieve. The very first plank called for "an immediate and drastic reduction of governmental expenditures by abolishing useless commissions and offices, consolidating departments and bureaus, and eliminating extravagance to accomplish a saving of not less than twenty-five per cent in the cost of the Federal Government."<ref name="Woolley_Dem_1932">John T. Woolley and Gerhard Peters. [http://www.presidency.ucsb.edu/ws/index.php?pid=29595 "Democratic Party Platform of 1932"], June 27, 1932, from The American Presidency Project [online]. Referenced 2010-06-20.</ref> Subsequent planks demanded a balanced budget, a low tariff, the repeal of Prohibition, "a sound currency to be preserved at all hazards," "no interference in the internal affairs of other nations," and "the removal of government from all fields of private enterprise except where necessary to develop public works and natural resources in the common interest." The document concluded with a quote from Andrew Jackson: "equal rights to all; special privilege to none."

FDR's campaign reflected that platform. He accused Herbert Hoover of "reckless and extravagant spending," and he further denounced the Republican incumbent for believing "we ought to center control of everything in Washington as rapidly as possible." Even when he called for interventions in the economy, he generally couched his words in the old liberals' language of equal treatment rather than the new liberals' vision of enlightened central planning. In his famous Forgotten Man speech of April 1932 (see [http://newdeal.feri.org/speeches/1932c.htm transcript]), the Democratic candidate pointed to the wave of foreclosures sweeping the nation. Noting that Hoover had created a "two billion dollar fund...put at the disposal of the big banks, the railroads and the corporations of the Nation," FDR averred that the government should "provide at least as much assistance to the little fellow as it is now giving to the large banks and corporations." Once in office, the new administration did indeed repeal Prohibition, and it eventually lowered some trade barriers as well. By the time of FDR's death, the federal bureaucracy's power had grown so enormously that Hoover was widely remembered as the last apostle of laissez faire.<ref name="Walker_FDR">Jesse Walker. [http://reason.com/archives/2008/04/10/the-new-franklin-roosevelts "The New Franklin Roosevelts"], April 10, 2008. Referenced 2010-06-20.</ref>

===Policy===
A principal feature of '''[[Wikipedia:New Deal|New Deal]]''' economic policy was government-sponsored industrial [[cartel]]s (the [[Wikipedia:National Industrial Recovery Act|National Recovery Act]]); agricultural cartels (the [[Wikipedia:Agricultural Adjustment Act|Agricultural Adjustment Act]]); and labor cartels (the [[Wikipedia:Norris – La Guardia Act|Norris-LaGuardia]] and [[Wikipedia:National Labor Relations Act|Wagner Acts]]). The purpose of any cartel is to restrict output and raise prices. Lower levels of production leads to higher unemployment, which is exactly what the NRA and AAA did.

The NRA was almost identical to the Italian corporatist system that existed at the time. In Italy each trade or industrial group was organized into a government-controlled "corporative" association that had the power to plan production and pricing. In the U.S. the NRA organized each industry into federally-supervised trade associations called "Code Authorities" which could also limit output and set prices. The antitrust laws were explicitly set aside.

Over 700 industrial codes were created and were rigorously enforced by thousands of government code enforcers who, "could enter a man's factory, send him out, line up his employees, subject them to minute interrogation, take over his books on the instant." A hapless New Jersey tailor named Jack Magid became nationally famous after he was arrested, convicted, and imprisoned by the code police for the "crime" of pressing a suit of clothes for 35 cents when the Tailors' Code fixed the price at 40 cents. The NRA was ruled unconstitutional by the U.S. Supreme Court on May 27, 1935.<ref name="DiLorenzo_New_Deal">Thomas J. DiLorenzo. [http://mises.org/daily/55 "A New, New Deal"], Mises Daily, October 1998, referenced 2010-06-20.</ref> A study of the Act noted that "the licensing provision, giving the president the power of life or death over business enterprises, is the ultimate weapon of enforcement and the capstone of the powers granted to the president ... the most extraordinary extension of presidential power in American history." The Supreme Court's decision has noted, that 'fair competition' is not defined in the law and could be a convenient designation for whatever set of laws that is proposed and the president may approve. It ruled that NIRA was "an unconstitutional delegation of legislative power."

But after [[Wikipedia:Judiciary Reorganization Bill of 1937|Roosevelt's court-packing threat]] of 1937, the justices succumbed to whatever creative definition of fairness that Congress or federal agencies chose to proclaim. For instance, in 1942, Congress passed the Emergency Price Control Act, which created an Office of Price Administration. The OPA had sweeping power to set or strike down prices in any industry or activity that it considered to be "defense-related" — a vague term that could have encompassed practically the entire national economy. The act contained no substantive guidelines for the administrator's decisions but merely required prices that "in his judgment will be generally fair and equitable."<ref name="Bovard_Cuttthroat">James Bovard. [http://www.fff.org/freedom/0499d.asp "Cutthroat Competition and Dead Chickens"], The Future of Freedom Foundation, April 1999. Referenced 2010-06-20.</ref>

===Effects===
The Roosevelt administration also orchestrated various price-fixing schemes in labor markets, principally for the benefit of unions. Payroll taxes to finance Social Security and Unemployment Insurance programs increased employers' wage bills even further, which also reduced the level of employment. According to an econometric estimate, government-mandated payroll cost increases added nearly 1.2 million people to the unemployment rolls by 1938.

The unemployment rate during the 1933-1940 period averaged about 18% and was as high as 28.3% in March of 1933. By the end of 1938, on the eve of World War II, the U.S. unemployment rate still hovered at just over 18 percent and was higher than it was in 1933, President Franklin D. Roosevelt's first year in office. This occurred despite (or rather, because of) six years of unprecedented levels of government intervention into the U.S. economy. The American recovery was slower than in most European nations; by 1937 Great Britain's unemployment rate had declined to 10.3 percent.

Herbert Hoover's [[Wikipedia:Reconstruction Finance Corporation|Reconstruction Finance Corporation]] was greatly expanded by Roosevelt, but its effect was to make capital markets less efficient, thereby prolonging the Depression even further. As explained by RFC director Jesse Jones in his autobiography, ''Fifty Billion Dollars'', "The law specified that we should lend only where the borrower could not get the money from others on reasonable terms." That is, only to uncreditworthy borrowers. Guided by this directive, Jones and the RFC redirected billions of dollars in valuable capital to politically-connected but economically-questionable businesses. "We even loaned money to [the owners of] a drove of reindeer in Alaska," Jones boasted. The RFC was abolished in the 1955 under a cloud of corruption and scandal.

Roosevelt's public works programs may have been an economic failure, but they were a resounding political success as they provided virtually unlimited opportunities for political patronage. In 1939 a special U.S. Senate Committee on Campaign Expenditures investigated the programs and found that in many states workers were required to sign a pledge to vote Democratic and, in some cases, to make campaign contributions, as a condition of employment. Businesses that sold supplies to the government were in some places required to make campaign contributions to the Democratic party in return for the contracts. The New Deal was largely a legalized [[Wikipedia:Extortion|shake-down]] operation.<ref name="DiLorenzo_New_Deal" /><ref name="Anderson_WPA">William L. Anderson. [http://mises.org/daily/3921 "The Curse of Good Government"], Mises Daily, December 2009, refers to the spending of New Deal money. Referenced 2010-06-20.</ref>

Roosevelt's billions, adroitly used, had broken down every political machine in America. The patronage they once lived on and the local money they once had to disburse to help the poor was trivial compared to the vast floods of money Roosevelt controlled. And no political boss could compete with him in any county in America in the distribution of money and jobs.<ref name="Flynn_Roosevelt">John T. Flynn. [http://mises.org/books/rooseveltmyth.pdf "The Roosevelt Myth"] (pdf), p. 65; 1948. Referenced 2010-06-21.</ref>

As Henry Morgenthau, the secretary of the treasury and one of the most powerful men in America, said before the Democrats on the House Ways and Means Committee in 1939<ref name="Folsom_spending">Burton Folsom Jr. [http://search.barnesandnoble.com/New-Deal-or-Raw-Deal/Burton-Folsom-Jr/e/9781416592228#EXC "New Deal or Raw Deal?: How FDR's Economic Legacy Has Damaged America"], an excerpt from the book. Referenced 2010-06-21.</ref>:

<blockquote>''"We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong...somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises....I say after eight years of this Administration we have just as much unemployment as when we started....And an enormous debt to boot!"''</blockquote>

==During World War II==
The recovery from the Great Depression in the United States is usually associated with the advent of World War II, a period when real GDP appeared to increase phenomenally and the rate of unemployment fell almost to zero. A more detailed view produces a different picture, with large government "make-work" programs at first and military employment during the war - but a very slow actual recovery. When using hours worked as measure of employment, only in 1941 total work hours exceed the 1929 value (by 3 percent), with the population vigorously engaged in mobilization for war.<ref name="Higgs_hours">Robert Higgs. [http://www.independent.org/pdf/tir/tir_14_01_8_higgs.pdf "A Revealing Window on the U.S. Economy in Depression and War - Hours Worked, 1929–1950"] (pdf), The Independent Review, v. 14, n.1, Summer 2009. Referenced 2010-06-21.</ref>

Private [[investment]] has fallen significantly. Gross private investment plunged from almost 16 percent of GDP in 1929 to less than 2 percent in 1932; recovered to 13 percent in 1937 before falling again in the recession of 1938; and as late as 1941 stood at only 14 percent. During the war years, private investment ratios ranged from 3 to 6 percent. From 1946 through 1950 they ranged from 14 to 19 percent and averaged 16 percent — the same as in 1929. In 1929, when gross private investment was $16.2 billion, net investment was $8.3 billion. Net investment fell precipitously to $2.3 billion in 1930 and then became negative during each of the following five years. For the eleven-year period of 1930 to 1940, net private investment totaled minus $3.1 billion. Only in 1941 did net private investment ($9.7 billion) exceed the 1929 amount. During the 1930s, private investment remained at depths never plumbed in any other decade for which data exist.

One hypothesis is, that the New Deal prolonged the Great Depression by creating an extraordinarily high degree of '''[[regime uncertainty]]''' for the investors. Given the unparalleled outpouring of business-threatening laws, regulations, and court decisions, the oft-stated hostility of President Roosevelt and his lieutenants toward investors as a class, the political climate could hardly have failed to discourage some investors from making long-term commitments. There also exists a great deal of direct evidence that investors felt extraordinarily uncertain about the future of the property-rights regime between 1935 and 1941. Historians have recorded countless statements by contemporaries to that effect; in the years just before the war most business executives expected substantial weakening of private property rights ranging up to "complete economic dictatorship". The possibility that the United States might undergo an extreme regime shift seemed to many investors in the late 1930s and early 1940s not only possible but likely.<ref name="Higgs_investment">Robert Higgs. [http://www.independent.org/pdf/tir/tir_01_4_higgs.pdf "Regime Uncertainty - Why the Great Depression Lasted So Long and Why Prosperity Resumed after the War"] (pdf), The Independent Review, Vol, I, No. 4, Spring 1997. Referenced 2010-06-21.</ref><ref name="Higgs_China">Robert Higgs. [http://www.independent.org/blog/index.php?p=2620 "Regime Uncertainty in the 1930s: A New Deal Insider’s Account"], ''The Beacon'', blog of the The Independent Institute, Jun 29, 2009. Referenced 2010-08-15.</ref>

==See also==

* [[Austrian Business Cycle Theory]]

==References==
{{Reflist}}

==External links==
* [http://www.lewrockwell.com/gordon/gordon-gd-biblio.html Bibliography on the Great Depression] by David Gordon, 2009
* [http://mises.org/daily/3941 The Myth that Is FDR] by Garet Garrett, January 2010
* [http://mises.org/daily/4350 Did Hoover Really Slash Spending?] by Robert P. Murphy, May 2010
* [http://www.ameshistoricalsociety.org/exhibits/events/rationing.htm World War II Rationing], collected by the Ames Historical Society and the [[Wikipedia:Rationing|Wikipedia]] article on the same
* [http://www.mackinac.org/article.aspx?ID=4028 Free Markets or Free Lunches?] by Lawrence W. Reed, January 1998
* [http://www.mackinac.org/article.aspx?ID=4013 Great Myths of the Great Depression] by Lawrence W. Reed, January 1998
* [http://mises.org/daily/3778 The Gold Standard and the Great Depression] by Robert P. Murphy, October 2009
* [http://mises.org/daily/1623 The New Deal Debunked (again)] by Thomas J. DiLorenzo, September 2004
* [http://www.independent.org/newsroom/article.asp?id=138 Wartime Prosperity? A Reassessment of the U.S. Economy in the 1940s] by Robert Higgs, March 1992
* [http://mises.org/daily/4039 Dangerous Lessons of 1937] by Jonathan M. Finegold Catalan, February 2010
* [http://mises.org/daily/4797 The Real Reason for FDR's Popularity] by Mark Thornton, October 2010
* [[Wikipedia:Great Depression|Great Depression]] on Wikipedia

[[Category:History of the United States]]

User talk:Mark

2011-01-31T13:42:02Z

Daniel Hewitt:

==Welcome==
Hi Mark, welcome to the Mises Wiki! Thanks for your contribution at [[Communist Terrorism]]. So that we can be sure we are crediting the original authors and complying with any copyright restrictions, could you tell us where this text came from? Thanks! --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 13:42, 7 January 2011 (CST)
:The text was written by myself. I am the original author. [[User:Mark|Mark]] 13:50, 7 January 2011 (CST)
::Okay, great. --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 14:19, 7 January 2011 (CST)
==Table of contents template==
*Hey, Mark! Yes, I have been adding the '''<nowiki>{{TOC right}}</nowiki>''' template in a lot of places, as at your entry of [[Communist Terrorism]]. (More on the Table of Contents template [http://en.wikipedia.org/wiki/Wikipedia:TOC#Table_of_contents_.28TOC.29 here].)
* I am certainly enjoying and appreciating your contributions to the wiki. As a matter of fact, after reading the entry of [[Anna Geifman]], I have since corresponded with her and purchased her latest book at her suggestion. Keep it coming!
* (Separately, I tidied your talk page here just a tad. Hope that's ok.) -- [[User:RayBirks|RayBirks]] 18:15, 9 January 2011 (CST)

== Finding categories ==

Hey, Mark! A quick tip: If you're not sure which category to add to a new page (besides {Stub}), click on the word '''Categories:''' (or sometimes just '''Category:''') at the bottom of almost any regular page, and a full list of available categories will appear for your consideration. Hope this helps a bit. Cheers! --[[User:RayBirks|RayBirks]] 13:31, 15 January 2011 (CST)
:Thank you, I had not even noticed that :) [[User:Mark|Mark]] 18:15, 15 January 2011 (CST)

== Felix Dzerzhinsky‎'s occupation ==

Mark, my question is over [[Talk:Felix Dzerzhinsky‎|here]] for your consideration. -- [[User:RayBirks|RayBirks]] 21:50, 28 January 2011 (CST)

== On welcoming ==

Welcome to [[User talk:Ana Vasconcelos|welcoming!]] :)
A tip or two to consider [[User talk:RayBirks#Welcoming newcomers|here]]. Let me know of any questions! -- [[User:RayBirks|RayBirks]] 14:02, 30 January 2011 (CST)

==Citations & page numbers==
Yes Mark, I will take care to include in my future adds. Thanks. [[User:Daniel Hewitt|Daniel Hewitt]] 07:42, 31 January 2011 (CST)

Vladimir Lenin

2011-01-30T01:10:40Z

Daniel Hewitt:

'''Vladimir Lenin''' born on 22 April 1870 as ''Vladimir Il`ich Ulyanov'' was a Russian marxist who lead the [[Bolsheviks]] during the [[Russian Revolution (1917)|October Revolution of 1917]] in [[Russia]].<ref name="Christopher Read">Read page 4, 208</ref> He was born and raised in Simbirsk (now [[Ulyanovsk]]) in the Volga Region of Russia. Lenin's older brother Alexsandr was hanged for his role in an attempt to assassinate the [[Tsar of Russia]]. Most of Lenin's adult life was spent in exile outside of Russia, returning in 1917 only after the end of the [[February Revolution]]. Lenin died at his estate in Gorky in 1924.

==References==
{{reflist|2}}

==Bibliography==
{{refbegin|2}}
*Christopher Read. ''Lenin: a revolutionary life.'' Routledge. 1st edition. 3 May 2005. ISBN 978-0415206488
*Service, Robert. ''Lenin: A Biography'' Belknap Press of Harvard University Press. 2000. ISBN 978-0674008281

{{refend}}
{{stub}}
[[Category:Interventionists]]
[[Category:Politicians]]
[[Category:History of Russia]]
[[Category:History of the Soviet Union]]

The Kingdom Of God Is Within You

2011-01-28T15:00:18Z

Daniel Hewitt: Created page with "{{stub}}'''The Kingdom Of God Is Within You''' is a non-fiction book by Russian novelist and anarcho-communist Leo Tolstoy, which advocates peaceful non-resistance and pacifism, ..."

{{stub}}'''The Kingdom Of God Is Within You''' is a non-fiction book by Russian novelist and anarcho-communist Leo Tolstoy, which advocates peaceful non-resistance and pacifism, as Tolstoy interprets the New Testament (focusing particularly on the Gospels and the Sermon on the Mount).

==External links==
*[http://libertarianchristians.com/2010/07/09/leo-tolstoy-against-the-state/# "Leo Tolstoy Against the State"], book review by Norman Horn at LibertarianChristians.com
*Tolstoy, Leo (1984). "The Kingdom of God is Within You: Christianity Not as a Mystic Religion but as a New Theory of Life" Trans: Constance Garnett. Lincoln, NE: University of Nebraska Press. ISBN 978-1406925098
*[http://www.gutenberg.org/ebooks/4602 "Full Text Online"] at Project Gutenberg

Christianity

2011-01-28T14:20:23Z

Daniel Hewitt:

{{stub}}
'''Christianity''' is a religion based upon the teachings of Jesus Christ, and the Hebrew Bible and the New Testament. It developed from Judiasm in modern-day Palestine-Israel, and has approximately 2.1 billion adherents worldwide. <ref name="Patheos - Christianity"> Patheos [http://www.patheos.com/Library/Christianity "Christianity Origins, Christianity History, Christianity Beliefs"], referenced 2011-01-27</ref> Its three main divisions are Eastern Orthodox - which emerged from the Byzantine Empire, Roman Catholic - which emerged from the Western Roman Empire, and Protestant – which emerged from the Protestant Reformation in Europe.

===Notable Christian Libertarians===
*William L. Anderson - Austrian School economist
*Jacques Ellul – philosopher, author
*William Grigg – author, blogger, radio host
*[[Robert Murphy]] - Austrian School economist, author
*[[Ron Paul]] – physician, author, Republican Congressman
*[[Lew Rockwell]] - political commentator, activist, chairman of the Ludwig von Mises Institute
*Michael Joseph Sobran, Jr. – journalist, columnist
*Leo Tolstoy – author
*Jeffrey Tucker – author, editor of Mises.org
*Laurence Vance - author
*[[Thomas Woods]] - American historian, author

==References==
{{Reflist}}

==External links==
* [http://www.patheos.com/ "Patheos"]
* [http://www.beliefnet.com/Faiths/Christianity/index.aspx “Beliefnet – Christianity”]
* [http://www.christianity.com/ “Christianity.com”]
* [http://libertarianchristians.com/ "LibertarianChristians.com"]

Christianity

2011-01-28T02:37:36Z

Daniel Hewitt: Created page with "{{stub}} '''Christianity''' is a religion based upon the teachings of Jesus Christ, and the Hebrew Bible and the New Testament. It developed from Judiasm in modern-day Palestine..."