The Cause of Economic Ups and Downs

The current economic crises involving Fannie Mae, Freddie Mac, AIG, and the government has caused a host of activity by the federal reserve and the treasury.  Most people are looking to the government to solve the problem.  If only the government would step in to “save” us from the evils of capitalism.  We are led to believe that the government has nothing but good intentions at heart and is also omniscient to solve the problem.  Unfortunately government and those in it are not even able to look back less than 100 years to see that their solutions have been tried before and failed.  Murray Rothbard concludes his book America’s Great Depression with this condemnation of the policies of the Hoover administration:

Mr. Hoover met the challenge of the Great Depression by acting quickly and decisively, indeed almost continuously throughout his term of office, putting into effect “the greatest program of offense and defense” against depression ever attempted in America. Bravely he used every modern economic “tool,” every device of progressive and “enlightened” economics, every facet of government planning, to combat the depression. For the first time, laissez-faire was boldly thrown overboard and every governmental weapon thrown into the breach. America had awakened, and was now ready to use the State to the hilt, unhampered by the supposed shibboleths of laissez-faire. President Hoover was a bold and audacious leader in this awakening. By every “progressive” tenet of our day, he should have ended his term a conquering hero; instead he left America in utter and complete ruin—a ruin unprecedented in length and intensity.

What was the trouble? Economic theory demonstrates that only governmental inflation can generate a boom-and-bust cycle, and that the depression will be prolonged and aggravated by inflationist and other interventionary measures. In contrast to the myth of laissez-faire, we have shown in this book how government intervention generated the unsound boom of the 1920s, and how Hoover’s new departure aggravated the Great Depression by massive measures of interference. The guilt for the Great Depression must, at long last, be lifted from the shoulders of the free-market economy, and placed where it properly belongs: at the doors of politicians, bureaucrats, and the mass of “enlightened” economists. And in any other depression, past or future, the story will be the same.

Unfortunately in the 30s Roosevelt continued to follow and expand upon the policies that Hoover had started.  If government and the fed had left the economy alone the great depression would probably have never happened.  If they decided to not try and “fix” the problem it would have ended quicker.  Too bad most of our current crop of politicians and unelected buerocrats have not learned anything from history.

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