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America's Great Depression Hardcover – June 15, 2000
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About the Author
Murray N. Rothbard, the author of 25 books and thousands of articles, was a historian, philosopher, and dean of the Austrian School of economics. The S.J. Hall Distinguished Professor of Economics at the University of Nevada, Las Vegas, he was also Academic Vice President of the Ludwig von Mises Institute in Auburn, Ala.
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Top Customer Reviews
Rothbard refutes key misconceptions about the market economy and the Hoover administration's interventionist policies. Was the Great Crash due to capitalism gone wild? Was President Hoover the proponent of laissez-faire that some continue to insist? Did his interventionist actions assuage the depression? _America's Great Depression_ will always be important because of the Great Depression's legacy. Many continue to believe that the free market economy is inevitably inclined to collapse. Also, the interventionist policies of Presidents Hoover and Roosevelt accelerated the growth of the welfare state.
Economists have always observed the relationship between money supplies and business cycles. Rothbard goes a few steps farther, applying the Austrian school's theory of the business cycle to the Federal Reserve's monetary policies during the 1920s. Rothbard spends the first part of the book detailing the credibility of the Austrian theory and dismantling other theories. He shows how artificial increases in the money supply creates harmful imbalances in the economy. With this premise, Rothbard explains that the Federal Reserve's inflationary abuse of the money supply in the "Roaring Twenties" set the economy up for an unsustainable growth spurt that ended in disaster in 1929. (The scary thing is that prices remained fairly stable and hid the effects of inflation with ruinous results.)
After talking money supplies and business cycles for a while, Rothbard turns his attention to President Hoover's actions to correct the problem. Despite good intentions, government involvement aggravated the Depression. The most damaging and glaring mistake of the Hoover administration was the Smoot-Hawley Tariff, which basically smashed the world's economy. But what else was done? How did different policies delay the economy's recovery? There's a lot to be learned here. In the end, the lesson Rothbard hopes to teach is that the best option for government in fixing a depression is "laissez-faire."
Since the book focuses only on the early part of the Depression (up to 1933), it's unfortunate that Rothbard didn't criticize President Roosevelt's interventionist policies, which eviscerated the economy while it struggled to recover. Rothbard would have had a field day examining the effects of the NRA, the AAA, the WPA, the CWA, the Wagner Act, and everything else the New Deal implemented that I can't remember off the top of my head.
Since this book was originally published in the 60s (1963, I think), many people probably sneered at it. After all, in a time when Keynsianism was trendy, who was willing to blame the government for the Great Depression? Praise to Rothbard for this important application of Austrian theory and his exposure of the government's clumsiness.
The majority of the book is dedicated to Rothbard's narrative of the history leading up to the Great Depression and Hoover's response to the crisis. Rothbard takes the opportunity to argue - using ample statistics - that surges in the overall supply of money in the 1920s boom years caused by the Federal Reserve Bank's easy money policies made a painful correction inevitable. Hoover's tariffs and big-government recovery programs only worsened the recession and prevented the economy from cleansing out the bad investments and restoring prices to their pre-boom levels, leading to massive long-term unemployment.
Pros: The book gives a clear outline of the Austrian Business Cycle Theory. It also does a fine job at laying out the Austrian School's narrative of the Great Depression, which is the classic example of the boom-bust cycle. Rothbard brings lots of statistics and generally makes his point cogently. Also, historian Paul Johnson's intro is a welcome addition to this edition.
Cons: Perhaps the biggest weakness of the book is that it fails to clearly define some basic concepts which are used very different by the various schools of economics. Inflation is the clearest example. Typically we think of inflation in the same way Quantity of Money theorists like Milton Friedman or Keynesians do, as a relative change in the quantity of money compared to the size of the economy as a whole. If the quantity of money grows faster than real GDP and prices on average rise, we refer to that as inflation. But Rothbard - like most Austrian School economists - understands inflation to be ANY growth in the quantity of money, whether or not that growth exceeds growth in the economy and causes prices to rise. So it can be confusing at times reading Rothbard distinguish between major and minor inflationists - i.e. Keynes and Friedman - particularly when the latter so famously condemned inflation. Rothbard simply uses the word inflation differently, yet fails to make the distinction. Aside from that, Rothbard's description of the causes of the Depression can seem tediously repetitive at times, though he is simply trying to give a comprehensive analysis.