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Contrasting Views of the
Great Depression
Robert P. Murphy
Mises University 2014
Bad Teacher’s Account
 Stock market crash caused by unregulated margin
trading.
 Depression started because Herbert Hoover did
nothing.
 Depression ended because of FDR’s New Deal (and
WW2).
Paul Krugman’s Account
 Hoover tried to shrink deficit in 1932, FDR in 1937.
 Conventional monetary policy hindered by liquidity trap
and gold standard.
 Private debt-overhang depressed Aggregate Demand.
 Depression ended because of WW2 deficit spending.
Milton Friedman & Anna
Schwartz’s Account
 Fed didn’t create enough monetary base to offset the
increased public demand to hold currency.
 Low interest rates not synonymous with “easy money.”
Murray Rothbard’s
Account
 Fed created artificial stock market boom, inevitably
ending in 1929 crash.
 Hoover engaged in unprecedented interventions to turn
the necessary depression into the Great Depression.
 “Overproduction” argument nonsensical.
Robert P. Murphy’s
Account
 Monetary and fiscal policies far “worse” in 1920-1921,
so Keynesians and Friedmanites wrong.
 What would historical record look like, if FDR had not
“gotten us out of the Depression”?
Bob Higgs’s Account
 “Regime uncertainty” crippled private investment under
New Deal.
 World War II spending did not end the Depression.
Versus
Propped Up Wages, Propped Up Wages,
Farm Prices
Farm Prices
Tax Hikes / Deficits
“Public Works”
Tax Hikes / Deficits
“Public Works”
A Famous “Public Work”
Labor Unions
Herbert Hoover
“The President’s conference has given
industrial leaders a new sense of their
responsibilities…Never before have they
been called upon to act together.”
—Editorial in American
Federationist, 1/1/1930
Year
Unemployment
1932
1933
1934
1935
1936
1937
1938
1939
1940
1941
23.6%
24.9%
21.7%
20.1%
17.0%
14.3%
19.0%
17.2%
14.6%
9.9%
FDR’s
Jackboots
“In Sidney Hillman’s garment industry the code authority
employed enforcement police. They roamed through the
garment district like storm troopers. They 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. Night work was forbidden. Flying
squadrons of these private coat-and-suit police went
through the district at night, battering down doors with
axes looking for men who were committing the crime of
sewing together a pair of pants at night.”
—John T. Flynn
Did World War II
“Get Us Out of the Depression”?
1950
1949
1948
1947
1946
1945
1944
1943
1942
1941
1940
1939
1938
1937
1936
1935
1934
1933
1932
1931
1930
1929
U.S. Unemployment Rate
30%
25%
20%
15%
10%
5%
0%
War! Good For GDP?
$2,000
$1,800
$1,600
$1,400
$1,200
$1,000
$800
$600
$400
$200
$0
1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 1947 1948 1949 1950
Disaggregating the GDP Data
$2,000
$1,800
$1,600
$1,400
$1,200
$1,000
Govt
Private
$800
$600
$400
$200
$0
Fed Inflation + Price Controls
Further Reading