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Showing posts from May, 2014

Did gold cause the Great Depression?

The culprit responsible for the Crash and the Great Depression can be easily identified: government.To protect fractional reserve banking and (later) provide a buyer for its debt, government in 1913 created the Fed, putting it in charge of the money supply.From about July, 1921 to July, 1929 the Fed inflated the money supply by 62%, with the result being the Crash in late October, 1929.Government, following an aggressive “do something” program for the first time in U.S. history, intervened in numerous ways throughout the 1930s, first under Hoover then much heavier under Roosevelt. The result was not an easing of pain or an acceleration of recovery, but a deepening of the Depression, as Robert Higgs explains in detail.
The preceding is not, of course, the generally accepted explanation.  In conventional discourse, one of the main culprits for causing or at least exacerbating the Depression was the international community’s adherence to the gold standard.  Economist Barry Eichengreen pop…

The Great Enabler

Commentaries about World War I frequently talk about causes and consequences but almost never mention the enablers.At best, they might mention them approvingly, as if we were fortunate to have had the Fed and the income tax, along with the ingenuity of the Liberty Bond programs, to finance our glorious role in that bloodbath.


Economist Benjamin Anderson, whose Economics and the Public Welfare has contributed greatly to our understanding of the period 1914-1946, and is a book I highly recommend, nevertheless takes as a given that the Fed and income tax had a job to do, and that job was supporting U.S. entry into World War I.  After citing figures purporting to show how relatively restrained bank credit expansion was during the war, he writes:   We had to finance the Government with its four great Liberty Loans and its short-term borrowing as well. We had to transform our industries from a peace basis to a war basis. We had to raise an army of four million men and send half of them to Fra…