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Main Causes of the Great Depression
Gusmorino World ^ | May 13, 1996 | Paul Alexander Gusmorino 3rd

Posted on 05/14/2008 10:35:28 AM PDT by Born In America

The Great Depression was the worst economic slump ever in U.S. history, and one which spread to virtually all of the industrialized world. The depression began in late 1929 and lasted for about a decade. Many factors played a role in bringing about the depression; however, the main cause for the Great Depression was the combination of the greatly unequal distribution of wealth throughout the 1920's, and the extensive stock market speculation that took place during the latter part that same decade. The maldistribution of wealth in the 1920's existed on many levels. Money was distributed disparately between the rich and the middle-class, between industry and agriculture within the United States, and between the U.S. and Europe. This imbalance of wealth created an unstable economy. The excessive speculation in the late 1920's kept the stock market artificially high, but eventually lead to large market crashes. These market crashes, combined with the maldistribution of wealth, caused the American economy to capsize.

(Excerpt) Read more at ...

KEYWORDS: 1929; greatdepression; hoover; marketcrash; obama
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As heard today on Rush's program. The lefts view of the cause of the depression.
1 posted on 05/14/2008 10:42:11 AM PDT by Born In America
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To: Born In America

To them, the only solution is “fairness” and redistribution.

2 posted on 05/14/2008 10:44:38 AM PDT by RockinRight (Supreme Court Justice Fred Thompson. The next best place for Fred.)
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To: Born In America
Main Causes of the Great Depression

The Democratic presidential candidates.(This title is fertile ground for all sorts of one-liners)
3 posted on 05/14/2008 10:45:13 AM PDT by contemplator (Capitalism gets no Rock Concerts)
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To: Born In America
The lefts view of the cause of the depression.

Left's view? How'd they blame this one on George W. Bush?

4 posted on 05/14/2008 10:45:37 AM PDT by al_c (Avoid the consequences of erudite vernacular utilized irrespective of necessity)
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To: Born In America

Marxists never quit.

5 posted on 05/14/2008 10:45:58 AM PDT by TSchmereL ("Rust but terrify.")
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To: Born In America

Not surprising that the dem-o-tards think that the “unequal distribution of wealth” was the problem.

6 posted on 05/14/2008 10:48:00 AM PDT by dynachrome ("Socialism is the feudalism of the future.")
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To: TSchmereL

They’re also never right...

7 posted on 05/14/2008 10:48:07 AM PDT by Edgerunner (At the heart of every absurdity, lies a liberal lie)
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To: Born In America

Neither the crash nor the depression were due to undistributed wealth.

The crash was caused (as far as I can tell) by buying on massively leveraged debt. The recession that followed was turned into the great Depression by the genius of government intervention. The Smoot-Hawley tariff - a protectionist scheme - prevented natural recovery after the crash.

8 posted on 05/14/2008 10:50:23 AM PDT by agere_contra
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To: Born In America

What nonsense! The Great Depression was caused by the Federal Reserve’s taking precisely the opposite action it should have taken, and has been taking ever since to head off economic downturns. The Fed SHRUNK the money supply by 30% in the few years following the stock market crash. It caused rather than prevented bank failures.

I just heard Rush commenting on this article, but then he drew the wrong conclusion, falling into the Smoot-Hawley sink hole as the main exacerbating factor after the stock market crash. Wrong! That was a minor factor. Here is a great Hoover Institution article on the Great Depression that anyone interested in that era and its causes should read:

And a short excerpt:

“The great depression and its offspring, the New Deal, could both have been avoided if the Federal Reserve had performed the task assigned to it. All the Federal Reserve had to do to avoid the Depression and the subversion of the American constitutional order was to purchase $1 billion in government securities during the 10-month period from December 1929 to October 1930. The result would have been an increase, instead of decrease, in high-powered money, and the banking crisis that began in the autumn of 1930 would not have occurred.”

Don’t argue with me. Read this great article and then comment (though it is moderately long).

9 posted on 05/14/2008 10:57:15 AM PDT by Will88
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To: Born In America

This story from 2006 - but today is a good time to read again.

The New Deal Debunked

Most modern economists have not yet realized what Henry Hazlitt already knew in the 1930s that FDR’s New Deal made the Great Depression last longer and deeper. It is a myth that Franklin D. Roosevelt “got us out of the Depression” and “saved capitalism from itself.” However recently a few modern macroeconomists have finally come to this conclusion as witnessed by an article in the August 2004 Journal of Political Economy entitled “New Deal Policies and the Persistence of the Great Depression: This is a big deal, since the JPE is arguably the top academic economics journal in the world.
“Real gross domestic product per adult, which was 39 percent below trend at the trough of the Depression in 1933, remained 27 percent below trend in 1939,” and “ private hours worked were 27 % below trend in 1933 and remained 21 % below trend in 1939.”
This should come as no surprise to anyone who has studied the reality of the Great Depression without a preconceived political agenda. The U.S. Census Bureau of statistics shows that the official unemployment rate was still 17.2 % in 1939 despite seven years of “economic salvation” at the hands of the Roosevelt administration (the normal, pre-Depression unemployment rate was about 3 percent). GDP was lower 10 years later, in 1939 than in 1929 ($847Billion vs. $857Billion), as were personal consumption expenditures ($67.6 billion in 1939 vs. $78.9 billion in 1929), and Net private investment was minus a total $3.1 billion from 1930-40.
Most people including most economists are surprised-even shocked-to discover these facts, primarily because are brain washed to accept the Ivy League Socialist leftist propaganda at face value. They can’t seem to understand the fact that the recovery from the Great Depression was “very weak”: simply because this data contrasted sharply with neoclassical theory and popular beliefs; that state that there should have been a booming robust economy. The weak recovery is puzzling to the Socialist Neoclassical economists because the large negative shocks that they believe caused the 1929-33 downturn, including monetary shocks, productivity shocks, and banking shocks-become positive after 1933.” Thus, according to neoclassical theory, the economy during a depression is somewhat dead but is then “shocked” back into becoming a living breathing dynamic economy by the sharply lowered interest rates, the dramatic money supply increases and the massive demand augmentation by government spending.. The monetary base increased more than 100 percent between 1933 and 1939,” making the case that such a “monetary shock” should have returned the economy to normalcy, according to some well-known macroeconomists who once proclaimed that “positive monetary shocks should have produced a strong recovery, with employment returning to its normal levels by 1936.” However, it was just those very same, easy money policies of the mid to late 1920s that created all the Over-investment, that inevitably resulted (as it always has and will) in the great Bubble followed by the Great Depression in the first place. The only wise thing that should have been done was to allow the liquidation of unprofitable and overcapitalized businesses to occur., as was done in 1919-1920 (President Harding stopped Hoover, then secretary of commerce, from implementing, those very same policies that he eventually implemented as President in 1930) that held that even sharper recession of 1919-1920 too less than two years. Instead, the Fed beginning after the 1929 crash drastically increased the monetary base by 100 percent in less than five years, causing more of the same overcapitalization problems that were the main source of the depressions problems in the first place.
On top of that, virtually every single one of FDR’s “New Deal” policies (most of which were started by Hoover) were completely contrary to basic economic theory, making unemployment even worse, further prolonging the Depression. Austrian economists have known this for decades, but now at least a few of the socialist Keynesians and socialists neoclassical model builders are finally catching on. They have been building models for a long enough period of time to discover that the so-called First New Deal (1933-34) was one giant cartel scheme, whereby the government attempted to enforce cartel price fixing through output reductions in hundreds of industries as well as in agriculture, drastically reducing employment. This of course was well documented in John T. Flynn’s book, The Roosevelt Myth, first published in 1948. Henry Hazlitt also wrote about it some fifteen years earlier. “New Deal cartelization policies were a key factor behind the weak recovery, accounting for about 60 percent of the difference between actual output and trend output,” . The fact that it has taken so long to recognize this fact is truly astounding. For generations Princeton’s and the other Ivy league universities own neoclassical textbooks have taught Keynesian nonsense; neglecting completely to notice that if you restrict output you need fewer workers. It has also been no secret that the heart and soul of the First New Deal was to use the coercive powers of government to prop up wages (similar to minimum Wage Law) and prices by cartelizing the entire economy.
FDR and his Keynesian advisors mistakenly believed that the Depression was caused by low prices, therefore, high prices-enforced by threats of violence, coercion and intimidation by the state-would be the “solution.” to demand deficiencies. Overlooking the fact that if less production takes place, fewer workers will be needed by employers and unemployment will subsequently be higher and demand greatly LOWER. It is also common sense that the higher you raise prices the less you will sell and the fewer employees you will need. Thus, the First New Deal could not possibly have been anything but a gigantic unemployment-producing scheme according to common sense and basic economic theory.
FDR’s tripling of taxes, his regulation of business, and his relentless anti-business propaganda also contributed to a worsening of the Great Depression, but his labor policies were probably the most harmful to the employment prospects of American workers. The NIRA codes established minimum (higher) wages for less-skilled and higher-skilled workers alike; employers were told that they must bargain collectively with unions, which were given a myriad of legislated advantages in the bargaining process, all enforced by the newly-created National Labor Relations Board. All of these policies made labor more expensive. Consequently, as the economic law of supply and demand tells us, the inevitable result must be less employment.(can you see any similarities to today? (GM and Ford)
Strike activity doubled from 14 million strike days in 1936 to 28 million a year later, and wages rose by about 15 percent in 1937 alone. The union - nonunion wage differential increased from 5 percent in 1933 to 23 percent by 1940. Newly-enacted Social Security payroll and unemployment insurance taxes made labor even more expensive. What all of this means is that during a period of weak or declining demand for labor, government policy pushed up the price of labor causing employers to naturally require less and less workers. Any decent econometric evaluation of these labor cost-increasing policies would have concluded that most of the abnormal unemployment of the 1930s would have been avoided were it not for these policies. It’s estimated that by 1940 the unemployment rate was eight percentage points higher than it would have been without the legislation-induced growth of unionism and government-mandated employment costs. The conclusion is that “The Great Depression was very significantly prolonged in both its duration and its magnitude by the impact of New Deal programs.
Recently a few Ivy league economists have also finally come to the conclusion that New Deal labor and industrial policies did not lift the economy out of the Depression . . . . Instead, the joint policies of increasing labor’s bargaining power and legalizing collusion prevented a normal recovery by creating rents (monopolies) and an inefficient insider-outsider friction that raised some wages significantly and restricted employment . . . . the eventual abandonment of these policies coincided with the strong economic recovery of the mid 1940s. In more recent analysis as to why the Depression Lasted So Long and Why Prosperity Resumed only after the War rather that as most might expect during the war, showed that it was the relative neutering of New Deal policies, along with a reduction (in absolute dollars) of the federal budget from $98.4 billion in 1945 to $33 billion in 1948, that brought forth the economic recovery. Private-Sector production increased by almost one-third in 1946 alone, as private capital investment increased for the first time in eighteen years. In short, it was capitalism that finally ended the Great Depression, not FDR’s…cartel, wage-increasing, unionizing, and welfare state expansion policies. It’s good to see that the Journal of Political Economy, the University of Chicago, and UCLA are finally beginning to catch up with the Austrian School, concerning the New Deal at least.
Modern Day Economic Policy
However when it comes to modern day economics everyone from both sides of the isle, all seem to be Keynesians. Even though in their Ivory towers they all know that Keynesianism doesn’t work most still seem to be focusing on increasing demand, expanding credit and the money supply while keeping interest rates low as a solution to all their problems. For some reason they can’t grasp the fact that it has always been, easy money in the form of below market interest rates, easy credit, a rapidly expanding money supply all backed up by massive Government spending that causes the problems in the first place.
The definition of Insanity: Is doing the exact same actions over and over again and yet always expecting a Different outcome.
Perhaps expecting economists and politicians to study the past, going back 78 years is too much to ask since none of them were alive then. But what about studying Japan? Is looking back 20 years too much to ask? Do they really believe that instituting the exact same monetary and fiscal policies that Japan has implemented over the last 20 years, will produce a different result here in the USA than they have in Japan.
At the rate things are going, due to the wide spread anti-Bush campaign by both the left wing media and the democrats; primarily against the war and the economy it looks like that there is a strong possibility that the democrats will regain at least one of the houses of congress in 2006, setting the stage for a lame-duck final two years of the Bush Presidency, resulting in the beginning of a recession. The stage would then be set Clinton victory in 2008. So what is so bad about that you may ask?
History Repeats, The Road to Hell Is Paved with Good Intentions: as HiLlary becomes the new FDR of the 21st Century, the first thing that gets done is a roll back of the most effective of the Bush tax cuts followed by massive government spending, government take-over of health care and payroll tax increases to SAVE Social Security: Almost a complete replay of the New Deal policies which will bring about a replay of the 1930’s for exactly the same reasons.

10 posted on 05/14/2008 10:59:53 AM PDT by NavyCanDo
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To: Will88

The Feds institute the Income Tax and 16 years later the economy collapses. Hmmmmmmmm

11 posted on 05/14/2008 11:00:19 AM PDT by massgopguy (I owe everything to George Bailey)
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To: Will88

Another excerpt from the article referenced in #9:

“The Federal Reserve is the most powerful institution of a new order that believed in the efficacy of government and its ability to do good. The same Federal Reserve caused the Great Depression when its wise men made a series of cumulative mistakes that contracted the money supply by one-third and wiped out purchasing power in an unprecedented fashion.”

12 posted on 05/14/2008 11:05:58 AM PDT by Will88
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To: RockinRight; All
I'm glad that somebody brought up the Great Depression.

Consider that Obama (and Clinton) are unthinkingly promising the same bag of unconstitutional solutions that the Democrats used to fix the Great Depression to buy votes today. So why don't we seize the opportunity provided by the MSM's cramming of Obama down our throats to permanently de-claw the IRS?

This post (<-click), while addressing taxes, helps to explain why government "leaders" like Senator Obama are in contempt of the Constitution that they have sworn to defend, foolishly following in the footsteps of FDR's dirty federal spending politics. In fact, the article referenced below shows that Obama is the #1 federal spending proposer in the Senate for '08; Clinton is #2.

Obama, a big-shot federal spender
The people need to reconnect with the Founder's division of federal and state government powers. The people then need to wise up to the major problem that the federal government is not operating within the restraints of the federal Constitution, particularly where constitutionally unauthorized federal spending is concerned.

The bottom line is that the people need to send big-shot, Constitution-ignoring federal spenders like Obama home as opposed to trying to send people like him to the Oval Office. The people need to get in the faces of the feds, demanding a stop to constitutionally unauthorized federal spending while appropriately lowering federal taxes - or get out of DC.

13 posted on 05/14/2008 11:10:13 AM PDT by Amendment10
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To: Will88

“The Fed SHRUNK the money supply by 30% in the few years following the stock market crash. It caused rather than prevented bank failures.”

As Milton Friedman pointed out, the Fed did this to correct an earlier mistake. From 1913 to 1926 or so, the Fed increased the money supply by a factor of 3 — they thought they were being careful, but their calculations did not take into account that people were starting to use checking accounts (which were not in their calculations). The only reason that prices didn’t rise was that productivity increased by the same amount due to the implementation of the factory system.

So what? Well, the US was part of the world gold standard, where the amount of money in circulation was dictated by the amount of gold in their vaults. So the Fed began to reduce the money supply to correct their earlier mistake. Unfortunately, it takes a while for inflated money to work its way through the economy, so the stock market kept rising. When Europeans sent money to invest in the ever rising US stock market, eventually they had to send gold to balance the accounts; and thus they had to reduce THEIR money supply, limiting loans, and that caused their businesses to go into recession. By the gold standard rules, the US was supposed to lower interest rates and increase their money supply (then people would send money back to europe, and hence gold), but the Fed didn’t do this because they were secretly correcting their previous mistake. So Europe went into the depression 2 years before the US did, but that too was caused by the Fed.

They kept reducing the money supply through 1936, while Hoover and Roosevelt were doing everything they could think of to restart the economy.

On the other hand, the Fed may have caused things, but it was Hoover and Roosevelt who instituted wage/price controls and other regulations that reduced rather than increasing business activity, thus making things worse.

I think it was Bernanke who recently admitted that the Fed caused the Depression, but then he added that they are smarter now ( ?!?!?!?!).

14 posted on 05/14/2008 11:40:12 AM PDT by Mack the knife
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To: Born In America


Why do they always forget about FDR, one of the main architects of the Great Depression?
They always act like he got us out of it, when in fact, Adolf Hitler got us out of the depression... like it or not.
15 posted on 05/14/2008 11:41:26 AM PDT by Bon mots
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To: Edgerunner
In my study of communist societies, I came to the conclusion that the purpose of communist propaganda was not to persuade or convince, nor to inform, but to humiliate; and therefore, the less it corresponded to reality the better. When people are forced to remain silent when they are being told the most obvious lies, or even worse when they are forced to repeat the lies themselves, they lose once and for all their sense of probity. To assent to obvious lies is to co-operate with evil, and in some small way to become evil oneself. One's standing to resist anything is thus eroded, and even destroyed. A society of emasculated liars is easy to control. I think if you examine political correctness, it has the same effect and is intended to.
-- Dr. Theodore Dalrymple, a contributing editor to City Journal and the author of the collection of essays "Our Culture, What's Left of It: The Mandarins and the Masses" in an interview with Jamie Glazov for published on Wednesday, August 31, 2005.
16 posted on 05/14/2008 11:44:35 AM PDT by TSchmereL ("Rust but terrify.")
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To: Mack the knife
I don't know about Bernanke, but Greenspan did fess up. By accident, I took an economics elective in the early seventies It dealt with the economic analysis of several topics. One was the Great Depression which the instructor lectured was caused by the Fed. Specifically the death of one of members of the Fed board of governors changed the vote split and allowed the Fed to pursue moves that had been forestalled until then.
17 posted on 05/14/2008 11:58:33 AM PDT by meatloaf
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To: Bon mots
They always act like he got us out of it, when in fact, Adolf Hitler got us out of the depression... like it or not.

Was it over when the Germans bombed Pearl Harbor?

18 posted on 05/14/2008 12:05:44 PM PDT by Chunga (Vote Republican)
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To: Born In America

Robert Mundell’s theory holds that because WWI concentrated the gold supply in the US, re-instituting the gold standard after the war was a tricky proposition. And it was botched, leading over time to the Great Depression, the Nazi revolution, and WWII.

19 posted on 05/14/2008 12:31:55 PM PDT by conservatism_IS_compassion (Thomas Sowell for President)
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To: Chunga
Was it over when the Germans bombed Pearl Harbor?

Funny reply.
As you well know, Pearl Harbor was bombed in the last days of 1941...

Hitler actually began his mischief in 1938 with the Anschluss and invasion of the Sudetenland and things got really hot in 1939 with the ultimatum and hotter in September of 1939 with the invasion of Poland.

"Lend-Lease" began in 1940, mostly to our European allies - most of whom needed weapons to fight Hitler & company. This pulled the USA out of the depression - the actions of the madman, Adolf Hitler, and not the actions of the Socialist economic illiterate FDR.

US Military production kicked into full steam a full 2 1/4 years before Pearl Harbor - which was a 'surprise attack'.

Funny answer though.

20 posted on 05/14/2008 12:47:28 PM PDT by Bon mots
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