Great Depression Warning: You are not logged in. Your IP address will be publicly visible if you make any edits. If you log in or create an account, your edits will be attributed to your username, along with other benefits.Anti-spam check. Do not fill this in! ===Heterodox theories=== ====Austrian School==== Two prominent theorists in the [[Austrian School]] on the Great Depression include Austrian economist [[Friedrich Hayek]] and American economist [[Murray Rothbard]], who wrote ''[[America's Great Depression]]'' (1963). In their view, much like the monetarists, the [[Federal Reserve System|Federal Reserve]] (created in 1913) shoulders much of the blame; however, unlike the [[Monetarism|Monetarists]], they argue that the key cause of the Depression was the expansion of the [[money supply]] in the 1920s which led to an unsustainable credit-driven boom.<ref name="America's Great Depression, pp. 159-163">Murray Rothbard, ''America's Great Depression'' (Ludwig von Mises Institute, 2000), pp. 159β163.</ref> In the Austrian view, it was this inflation of the money supply that led to an unsustainable boom in both asset prices (stocks and bonds) and [[capital goods]]. Therefore, by the time the Federal Reserve tightened in 1928 it was far too late to prevent an economic contraction.<ref name="America's Great Depression, pp. 159-163" /> In February 1929 [[Friedrich Hayek|Hayek]] published a paper predicting the Federal Reserve's actions would lead to a crisis starting in the [[Stock market|stock]] and [[Credit market|credit]] markets.<ref>Steele, G. R. (2001). ''Keynes and Hayek''. Routledge. p. 9. {{ISBN|978-0-415-25138-9}}.</ref> According to Rothbard, the government support for failed enterprises and efforts to keep wages above their market values actually prolonged the Depression.<ref>Rothbard, ''America's Great Depression'', pp. 19β21.</ref> Unlike [[Murray Rothbard|Rothbard]], after 1970 [[Friedrich Hayek|Hayek]] believed that the Federal Reserve had further contributed to the problems of the Depression by permitting the money supply to shrink during the earliest years of the Depression.<ref> For Hayek's view, see: * Diego Pizano, ''Conversations with Great Economists: Friedrich A. Hayek, John Hicks, Nicholas Kaldor, Leonid V. Kantorovich, Joan Robinson, Paul A.Samuelson, Jan Tinbergen'' (Jorge Pinto Books, 2009). For Rothbard's view, see: * Murray Rothbard, ''A History of Money and Banking in the United States'' (Ludwig von Mises Institute), pp. 293β294.</ref> However, during the Depression (in 1932<ref name=":1" /> and in 1934)<ref name=":1" /> Hayek had criticized both the [[Federal Reserve System|Federal Reserve]] and the [[Bank of England]] for not taking a more contractionary stance.<ref name=":1">[[John Cunningham Wood]], Robert D. Wood, ''Friedrich A. Hayek'', Taylor & Francis, 2004, {{ISBN|978-0-415-31057-4}}, p. 115</ref> [[Hans Sennholz]] argued that most [[Austrian business cycle theory|boom and busts]] that plagued the American economy, such as those in [[Panic of 1819|1819β20]], [[Depression of 1837|1839β1843]], [[Panic of 1857|1857β1860]], [[Long Depression|1873β1878]], [[Depression of 1893|1893β1897]], and [[Depression of 1920β21|1920β21]], were generated by government creating a boom through easy money and credit, which was soon followed by the inevitable bust.<ref>{{cite web|url=https://fee.org/articles/the-great-depression/|title=The Great Depression|access-date=October 23, 2016|work=[[Foundation for Economic Education]]|first=Hans|last=Sennholz|date=October 1, 1969|archive-date=December 24, 2021|archive-url=https://web.archive.org/web/20211224092014/https://fee.org/articles/the-great-depression/|url-status=live}}</ref> [[Ludwig von Mises]] wrote in the 1930s: "Credit expansion cannot increase the supply of real goods. It merely brings about a rearrangement. It diverts capital investment away from the course prescribed by the state of economic wealth and market conditions. It causes production to pursue paths which it would not follow unless the economy were to acquire an increase in material goods. As a result, the upswing lacks a solid base. It is not real prosperity. It is illusory prosperity. It did not develop from an increase in economic wealth, i.e. the accumulation of savings made available for productive investment. Rather, it arose because the credit expansion created the illusion of such an increase. Sooner or later, it must become apparent that this economic situation is built on sand."<ref>{{cite web|url=https://mises.org/library/causes-economic-crisis-and-other-essays-and-after-great-depression|title=The Causes of the Economic Crisis, and Other Essays Before and After the Great Depression|access-date=October 24, 2016|work=[[Ludwig von Mises Institute]]|first=Ludwig|last=Mises|date=August 18, 2014|archive-date=December 5, 2021|archive-url=https://web.archive.org/web/20211205164755/https://mises.org/library/causes-economic-crisis-and-other-essays-and-after-great-depression|url-status=live}}</ref><ref>{{cite web|url=https://www.businessinsider.com/buying-bad-debt-to-return-bank-solvency-2011-2?op=1|title=Buying Bad Debt to Return Bank Solvency|access-date=October 24, 2016|work=[[Business Insider]]|first=Bill|last=Bonner|date=February 25, 2011|archive-date=October 24, 2016|archive-url=https://web.archive.org/web/20161024214604/http://www.businessinsider.com/buying-bad-debt-to-return-bank-solvency-2011-2?op=1|url-status=live}}</ref> ==== Marxist ==== [[Marxism|Marxists]] generally argue that the Great Depression was the result of the inherent instability of the [[Capitalist mode of production (Marxist theory)|capitalist mode of production]].<ref>{{Cite book |last=Corey |first=Lewis |url=https://books.google.com/books?id=fAW8AAAAIAAJ |title=The Decline of American Capitalism |date=1934 |publisher=Covici Friede Publishers |isbn=978-0-405-04116-7 |language=en}}</ref> According to ''[[Forbes]]'', "The idea that capitalism caused the Great Depression was widely held among intellectuals and the general public for many decades."<ref>{{Cite web |last=Fleisher |first=Larry |date=2009-10-30 |title=The Great Depression And The Great Recession |url=https://www.forbes.com/2009/10/29/depression-recession-gdp-imf-milton-friedman-opinions-columnists-bruce-bartlett.html |access-date= |website=[[Forbes]] |language=en}}</ref> ====Inequality==== [[File:Tenantless farm Texas panhandle 1938.jpg|thumb|[[Mechanised agriculture|Power farming]] displaces tenants from the land in the western dry cotton area. [[Childress County, Texas]], 1938.]] Two economists of the 1920s, [[Waddill Catchings]] and [[William Trufant Foster]], popularized a theory that influenced many policy makers, including [[Herbert Hoover]], [[Henry A. Wallace]], [[Paul Douglas]], and [[Marriner Eccles]]. It held the economy produced more than it consumed, because the consumers did not have enough income. Thus the unequal [[distribution of wealth]] throughout the 1920s caused the Great Depression.<ref>{{Cite book|last=Joseph.|first=Dorfman|url=https://worldcat.org/oclc/71400420|title=The economic mind in American civilization.|date=1959|publisher=The Viking Press|oclc=71400420|access-date=February 18, 2022|archive-date=February 18, 2022|archive-url=https://web.archive.org/web/20220218125334/https://www.worldcat.org/title/economic-mind-in-american-civilization-vol-5-1918-1933/oclc/71400420|url-status=live}}</ref><ref name="Allgoewer">{{cite journal|last=Allgoewer|first=Elisabeth|date=May 2002|title=Underconsumption theories and Keynesian economics. Interpretations of the Great Depression|journal=Discussion Paper No. 2002β14|url=https://www.vwa.unisg.ch/RePEc/usg/dp2002/dp0214allgoewer_ganz.pdf|access-date=February 18, 2022|archive-date=March 4, 2016|archive-url=https://web.archive.org/web/20160304134117/http://www1.vwa.unisg.ch/RePEc/usg/dp2002/dp0214allgoewer_ganz.pdf|url-status=live}}</ref> According to this view, the root cause of the Great Depression was a global over-investment in heavy industry capacity compared to wages and earnings from independent businesses, such as farms. The proposed solution was for the government to pump money into the consumers' pockets. That is, it must redistribute purchasing power, maintaining the industrial base, and re-inflating prices and wages to force as much of the inflationary increase in purchasing power into [[consumer spending]]. The economy was overbuilt, and new factories were not needed. Foster and Catchings recommended<ref>{{Cite book|last1=Foster|first1=William Trufant|url=https://books.google.com/books?id=BDNBAAAAIAAJ|title=The Road to Plenty|last2=Catchings|first2=Waddill|date=1928|publisher=Houghton Mifflin|language=en|access-date=December 28, 2021|archive-date=February 18, 2022|archive-url=https://web.archive.org/web/20220218125332/https://books.google.com/books?id=BDNBAAAAIAAJ|url-status=live}}</ref> federal and state governments to start large construction projects, a program followed by Hoover and Roosevelt. ====Productivity shock==== {{blockquote|It cannot be emphasized too strongly that the [productivity, output, and employment] trends we are describing are long-time trends and were thoroughly evident before 1929. These trends are in nowise the result of the present depression, nor are they the result of the World War. On the contrary, the present depression is a collapse resulting from these long-term trends.|[[M. King Hubbert]]<ref>{{Cite journal |last1 = Hubbert |first1 = M. King |title = Man Hours and Distribution, Derived from ''Man Hours: A Declining Quantity'', Technocracy, Series A, No. 8, August 1936 |year = 1940 |url = https://www.scribd.com/doc/22289589/Man-Hours-and-Distribution-M-King-Hubbert |journal = |access-date = September 9, 2017 |archive-date = April 7, 2020 |archive-url = https://web.archive.org/web/20200407132524/https://www.scribd.com/doc/22289589/Man-Hours-and-Distribution-M-King-Hubbert |url-status = live }}</ref>}} The first three decades of the 20th century saw economic output surge with [[electrification]], [[mass production]], and motorized farm machinery, and because of the rapid growth in productivity there was a lot of excess production capacity and the work week was being reduced. The dramatic rise in [[productivity]] of major industries in the U.S. and the effects of productivity on output, wages and the workweek are discussed by Spurgeon Bell in his book ''Productivity, Wages, and National Income'' (1940).<ref>{{Cite book |last1= Bell |first1=Spurgeon|title= Productivity, Wages and National Income, The Institute of Economics of the Brookings Institution |year= 1940}}</ref> Summary: Please note that all contributions to Christianpedia may be edited, altered, or removed by other contributors. If you do not want your writing to be edited mercilessly, then do not submit it here. You are also promising us that you wrote this yourself, or copied it from a public domain or similar free resource (see Christianpedia:Copyrights for details). Do not submit copyrighted work without permission! Cancel Editing help (opens in new window) Discuss this page