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Does anyone still deny the causes of the Great Depression...

Mensch

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I'm sure there are many out there who blame the Great Depression on private, capitalistic entities that were so greedy, the Depression was just bound to happen. Given that Milton Friedman and others have successfully proven the theory incorrect, why is it so hard for people to acknowledge the role the government played? Why must individuals constantly defend and champion for bigger, greater government, as if the right candidate with the greatest charm will somehow usher everyone into the greatest utopia? Why follow a leader like a sheep instead of following your own heart and mind, like a rational, thinking individual?
 

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Well it is like this:


1. It is easier to be a sheep. One don't have to think too much and Two you get an automatic group you will belong to.

2. It feels better if one has some sort of scapegoat to blame your troubles on instead of oneself. It is those evil rich people, or the Jews, or K.A.O.S., or whatever.

3. Or if things are going well one may take heart that you know what is causing problems for others i.e. a Great Conspiracy and are a select member in the know.

4. One the point of the Utopia, doesn't just about everyone want to experience " The End of History", or the beginning of a "New Age"? A simple human desire exploited by the Political Class.

5. If these are avoided the irrational belief that fallible human beings suddenly become infallible if they happen to be in a government position of some sort as opposed to private one.
 

justabubba

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I'm sure there are many out there who blame the Great Depression on private, capitalistic entities that were so greedy, the Depression was just bound to happen. Given that Milton Friedman and others have successfully proven the theory incorrect, why is it so hard for people to acknowledge the role the government played? Why must individuals constantly defend and champion for bigger, greater government, as if the right candidate with the greatest charm will somehow usher everyone into the greatest utopia? Why follow a leader like a sheep instead of following your own heart and mind, like a rational, thinking individual?
why don't you start by telling us the causes of the notso great depression ... the ones you are assuming we would not disagree with
 

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why don't you start by telling us the causes of the notso great depression ... the ones you are assuming we would not disagree with
I'm so glad you asked! From my observation, there are two major reasons why a seemingly normal recession was turned into the Great Depression. Both are caused by public entites, not private ones.

1) The Federal Reserve

The Great Depression was largely caused by the Fed continuing to contract the supply of money by 1/3 after the stock market crashed. Mainly, a struggle for dominance over the Fed board between the New York financial sector and the other sectors distracted the leadership for a period of time. This distraction caused the lender of last resort to fail to do its job, and the bank turned useless. The great contraction in the money supply exemplified the power of a monetary forces. Today, the Fed is doing just the opposite; it's raising money like a storm. Churning out trillions of inflated dollars each day. Even Ben Bernanke, former Fed Chairman, admitted that Milton and Anna Freidman were right.

I also agree with Friedman in his suggestion that a monetary policy following the bank runs of 1907 and 1893 would have been a lot more effective in ending the financial crisis quickly, without forcing the liquidation of assets at depressed prices. Sure, the bank runs were not wonderful times in our economy. But the private bankers had a better solutio then. They simply suspended the convertibility of deposits into currency, and many banking organizations were in the business of bailing out, or at least providing an insurance policy, to other banks facing hard times.

2) The Smoot Hawley Act of 1930

This protectionist act reminds us a lot of the contemporary debates we encounter every day. The arguments that Mexicans are taking our jobs, greedy corporations are selling out American workers for foreigners, etc. The argument never dies, despite the horrible consequences of actually limiting free trade. This act raised the tariff rates to record levels on over 20,000 imports. What was the response of other countries? They enacted similar trade restrictions against our exports. It quickly exported the Great Depression to other countries. If people aren't trading with each other, the productivity declines rapidly

Sources available upon request.
 

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I'm so glad you asked! From my observation, there are two major reasons why a seemingly normal recession was turned into the Great Depression. Both are caused by public entites, not private ones.

1) The Federal Reserve

The Great Depression was largely caused by the Fed continuing to contract the supply of money by 1/3 after the stock market crashed. Mainly, a struggle for dominance over the Fed board between the New York financial sector and the other sectors distracted the leadership for a period of time. This distraction caused the lender of last resort to fail to do its job, and the bank turned useless. The great contraction in the money supply exemplified the power of a monetary forces. Today, the Fed is doing just the opposite; it's raising money like a storm. Churning out trillions of inflated dollars each day. Even Ben Bernanke, former Fed Chairman, admitted that Milton and Anna Freidman were right.

I also agree with Friedman in his suggestion that a monetary policy following the bank runs of 1907 and 1893 would have been a lot more effective in ending the financial crisis quickly, without forcing the liquidation of assets at depressed prices. Sure, the bank runs were not wonderful times in our economy. But the private bankers had a better solutio then. They simply suspended the convertibility of deposits into currency, and many banking organizations were in the business of bailing out, or at least providing an insurance policy, to other banks facing hard times.

2) The Smoot Hawley Act of 1930

This protectionist act reminds us a lot of the contemporary debates we encounter every day. The arguments that Mexicans are taking our jobs, greedy corporations are selling out American workers for foreigners, etc. The argument never dies, despite the horrible consequences of actually limiting free trade. This act raised the tariff rates to record levels on over 20,000 imports. What was the response of other countries? They enacted similar trade restrictions against our exports. It quickly exported the Great Depression to other countries. If people aren't trading with each other, the productivity declines rapidly

Sources available upon request.
Does Keynes address both in his General Theory work?
 

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Does Keynes address both in his General Theory work?
I have not yet read the book, but it's on my list. I've read many excerpts of the book and descriptions of Keynesian theory, in general. There's a lot to say about Keynes.

Would you like to fill me in on what Keynes said about the Fed's contraction of the money supply and the Smoot-Hawley Act? I know that Keynes generally did not agree with Say's Law, though he distorted the caricature of classical thinking to a great extent. A lot of what Keynesian theory asserts has lost credibility, especially inflation.
 

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I'm so glad you asked! From my observation, there are two major reasons why a seemingly normal recession was turned into the Great Depression. Both are caused by public entites, not private ones.

1) The Federal Reserve

The Great Depression was largely caused by the Fed continuing to contract the supply of money by 1/3 after the stock market crashed. Mainly, a struggle for dominance over the Fed board between the New York financial sector and the other sectors distracted the leadership for a period of time. This distraction caused the lender of last resort to fail to do its job, and the bank turned useless. The great contraction in the money supply exemplified the power of a monetary forces. Today, the Fed is doing just the opposite; it's raising money like a storm. Churning out trillions of inflated dollars each day. Even Ben Bernanke, former Fed Chairman, admitted that Milton and Anna Freidman were right.

I also agree with Friedman in his suggestion that a monetary policy following the bank runs of 1907 and 1893 would have been a lot more effective in ending the financial crisis quickly, without forcing the liquidation of assets at depressed prices. Sure, the bank runs were not wonderful times in our economy. But the private bankers had a better solutio then. They simply suspended the convertibility of deposits into currency, and many banking organizations were in the business of bailing out, or at least providing an insurance policy, to other banks facing hard times.

2) The Smoot Hawley Act of 1930

This protectionist act reminds us a lot of the contemporary debates we encounter every day. The arguments that Mexicans are taking our jobs, greedy corporations are selling out American workers for foreigners, etc. The argument never dies, despite the horrible consequences of actually limiting free trade. This act raised the tariff rates to record levels on over 20,000 imports. What was the response of other countries? They enacted similar trade restrictions against our exports. It quickly exported the Great Depression to other countries. If people aren't trading with each other, the productivity declines rapidly

Sources available upon request.
Hmm, let me get this straight, the fed reducing our money supply and protectionism caused the Great Depression. So if the fed rapidly expanded our money supply, and if we imported a lot of goods from other countries and allowed open borders our economy should be great? From what I understand, the fed has greatly expanded our money supply, and we have been buying a crapload of stuff from China and imported a crapload of immigrant workers.

During the 1920's our overall wealth increased quite significantly, but the common man did not do so well. The same thing happened for the years approaching our current "Great Recession" where incomes of the rich skyrocketed while the middle class incomes slightly declined when adjusted for inflation. How can anyone PROVE that wealth distribution had nothing to do with the Great Depression or the Great Recession? It seems to me that wealth distribution is a common thread between the Great Depression and the Great Recession.
 
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Would you like to fill me in on what Keynes said about the Fed's contraction of the money supply and the Smoot-Hawley Act? I know that Keynes generally did not agree with Say's Law, though he distorted the caricature of classical thinking to a great extent. A lot of what Keynesian theory asserts has lost credibility, especially inflation.
Its a rather tough read, so i'd recomend Krugmans book, "Introduction to General Theory" as a precurser.

The Unofficial Paul Krugman Web Page

Some key exerts from the site:
The real classical model, as Keynes described it, was something much harder to fix. It was, essentially, a model of a barter economy, in which money and nominal prices don’t matter, with a monetary theory of the price level appended in a non-essential way, like a veneer on a tabletop. It was a model in which Say’s Law applied: supply automatically creates its own demand, because income must be spent. And it was a model in which the interest rate was purely a matter of the supply and demand for funds, with no possible role for money or monetary policy. It was, as I said, a model in which ideas we now take for granted were literally unthinkable.
The impression that The General Theory failed to give monetary policy its due may have been reinforced by John Hicks, whose 1937 review essay “Mr. Keynes and the classics” is probably more read by economists these days than The General Theory itself. In that essay Hicks interpreted The General Theory in terms of two curves, the IS curve, which can be shifted by changes in taxes and spending, and the LM curve, which can be shifted by changes in the money supply. And Hicks seemed to imply that Keynesian economics applies only when the LM curve is flat, so that changes in the money supply don’t affect interest rates, while classical macroeconomics applies when the LM curve is upward-sloping.

But in this implication Hicks was both excessively kind to the classics and unfair to Keynes. I’ve already pointed out that the macroeconomic doctrine from which Keynes had to escape was much cruder and more confused than the doctrine we now call the “classical model.” Let me add that The General Theory doesn’t dismiss or ignore monetary policy. Keynes discusses at some length how changes in the quantity of money can affect the rate of interest, and through the rate of interest affect aggregate demand. In fact, the modern theory of how monetary policy works is essentially that laid out in The General Theory.
Modern macroeconomists don’t have to theorize about what happens to monetary policy in such an environment, or even plumb the depths of economic history, because we have a striking recent example to contemplate. There are hopes as I write this that the Japanese economy may finally be staging a sustained recovery, but from the early 1990s at least through 2004 Japan was in much the same monetary state that the U.S. and U.K. economies were in during the 1930s. Short-term interest rates were close to zero, long-term rates were at historical lows, yet private investment spending remained insufficient to bring the economy out of deflation. In that environment, monetary policy was just as ineffective as Keynes described. Attempts by the Bank of Japan to increase the money supply simply added to already ample bank reserves and public holdings of cash while doing nothing to stimulate the economy. (A Japanese joke from the late 90s said that safes were the only product consumers were buying.) And when the Bank of Japan found itself impotent, the government of Japan turned to large public works projects to prop up demand.
 
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From all the many debates and discussions I've been in/read on this issue I see that it's not that people 100% *deny* that the gov, etc, had something to do with it - what people don't agree on is *how much* fault is to be placed *with* all the various components.
 

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Just like now the cause of the great depression was to much debt that could not be repaid.

Actions by the government may have made it worse or better, but the cause was to much debt built up in the 1920's just like the cause now is too much debt built up for the last 30 years or so
 

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I'm so glad you asked! From my observation, there are two major reasons why a seemingly normal recession was turned into the Great Depression. Both are caused by public entites, not private ones.

1) The Federal Reserve

The Great Depression was largely caused by the Fed continuing to contract the supply of money by 1/3 after the stock market crashed. Mainly, a struggle for dominance over the Fed board between the New York financial sector and the other sectors distracted the leadership for a period of time. This distraction caused the lender of last resort to fail to do its job, and the bank turned useless. The great contraction in the money supply exemplified the power of a monetary forces. Today, the Fed is doing just the opposite; it's raising money like a storm. Churning out trillions of inflated dollars each day. Even Ben Bernanke, former Fed Chairman, admitted that Milton and Anna Freidman were right.
You should remember that for the majority of the time of the great depresion (up until 32 i think), the fed was constrainded by the international gold standard. After the devaluation, the fed could more freely increase the money supply. However, the 1937 double dip definetly can be attributed to poor fed policy.
 

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The real cause was the monetary inflation that was introduced into the economy of the 1920s in order to reach a stable price level.

Btw, Friedman's theory falls flat in explaining why the Long Depression was actually a period of growth.

And if you're going to read anything about Keynesian economics, you might want to read this as well:
Failure of the New Economics
 

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You should remember that for the majority of the time of the great depresion (up until 32 i think), the fed was constrainded by the international gold standard. After the devaluation, the fed could more freely increase the money supply. However, the 1937 double dip definetly can be attributed to poor fed policy.
It was not a true gold standard before the Great Depression.
 

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The real cause was the monetary inflation that was introduced into the economy of the 1920s in order to reach a stable price level.
Banks create money, not the Fed (which can only increase the monetary base and induce lending). In the end, heavily unregulated financial instutions were responsible for your "monetary inflation".

Btw, Friedman's theory falls flat in explaining why the Long Depression was actually a period of growth.
How much growth?
 

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Banks create money, not the Fed (which can only increase the monetary base and induce lending). In the end, heavily unregulated financial instutions were responsible for your "monetary inflation".
You're going to try to tell me that the Fed has absolutely no influence on monetary inflation? None at all?

How much growth?
I didn't realize that you had statistics on anything before 1900. Kind of a ridiculous request, isn't it? We've gone over this before and you never responded to the growth that I pointed out in the period.
 

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You're going to try to tell me that the Fed has absolutely no influence on monetary inflation? None at all?
Those are your words, not mine. Money is created in banks :prof

I didn't realize that you had statistics on anything before 1900. Kind of a ridiculous request, isn't it? We've gone over this before and you never responded to the growth that I pointed out in the period.
You never identify actual growth. A growth rate of .1% is growth, yet does not address the steady state (an obvious factor in your LD growth).
 

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Those are your words, not mine. Money is created in banks :prof
So then the Fed could pursue a policy of a stable price level, could it not?

You never identify actual growth. A growth rate of .1% is growth, yet does not address the steady state (an obvious factor in your LD growth).
Can you identify that there wasn't growth? There are no good stats for the period as there are now. We can only use descriptions, and the descriptions imply growth.
 

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So then the Fed could pursue a policy of a stable price level, could it not?
Yep. But what are the underling risks for employment?

Can you identify that there wasn't growth? There are no good stats for the period as there are now. We can only use descriptions, and the descriptions imply growth.
I have no doubt there were periods that encapsulated growth, however i have already addressed that with my comment on the steady state (of which you did not reply).
 

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Yep. But what are the underling risks for employment?
It's not what we're talking about. I just wanted to show that the Fed could pursue a policy of a stable price level and that this could mean a monetary inflation.

I have no doubt there were periods that encapsulated growth, however i have already addressed that with my comment on the steady state (of which you did not reply).
A Depression would be a period of lower than average growth. Yet that's not exactly what we see with the Long Depression.

Murray Rothbard said:
Orthodox economic historians have long complained about the “great depression” that is supposed to have struck the United States in the panic of 1873 and lasted for an unprecedented six years, until 1879. Much of this stagnation is supposed to have been caused by a monetary contraction leading to the resumption of specie payments in 1879. Yet what sort of “depression” is it which saw an extraordinarily large expansion of industry, of railroads, of physical output, of net national product, or real per capita income? As Friedman and Schwartz admit, the decade from 1869 to 1879 saw a 3-percent-perannum increase in money national product, an outstanding real national product growth of 6.8 percent per year in this period, and a phenomenal rise of 4.5 percent per year in real product per capita. Even the alleged “monetary contraction” never took place, the money supply increasing by 2.7 percent per year in this period. From 1873 through 1878, before another spurt of monetary expansion, the total supply of bank money rose from $1.964 billion to $2.221 billion—a rise of 13.1 percent or 2.6 percent per year. In short, a modest but definite rise, and scarcely a contraction. It should be clear, then, that the “great depression” of the 1870s is merely a myth—a myth brought about by misinterpretation of the fact that prices in general fell sharply during the entire period. Indeed they fell from the end of the Civil War until 1879. Friedman and Schwartz estimated that prices in general fell from 1869 to 1879 by 3.8 percent per annum. Unfortunately, most historians and economists are conditioned to believe that steadily and sharply falling prices must result in depression: hence their amazement at the obvious prosperity and economic growth during this era. For they have overlooked the fact that in the natural course of events, when government and the banking system do not increase the money supply very rapidly, freemarket capitalism will result in an increase of production and economic growth so great as to swamp the increase of money supply. Prices will fall, and the consequences will be not depression or stagnation, but prosperity (since costs are falling, too) economic growth, and the spread of the increased living standard to all the consumers.
http://mises.org/books/historyofmoney.pdf
 

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It was not a true gold standard before the Great Depression.
Did it hurt the ability of central banks to pursue expansionary monetary policy?

The gold standard was also very flawed during the time period because countries that retained gold standard were subject to gold outflows, most likely since people thought they could not retain the gold standard. This created its own self-fulfilling quality. Countries that left the gold standard (such as by devaluation) early were subject to large gold inflows, most likely because people felt that the "inevitible" was not going to happen there. Maintaining the gold standard therefore was responsible for a large portion of the prolonged great depression.
 

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It's not what we're talking about. I just wanted to show that the Fed could pursue a policy of a stable price level and that this could mean a monetary inflation.
Monetary inflation does not matter so long as prices remain stable.

A Depression would be a period of lower than average growth. Yet that's not exactly what we see with the Long Depression.
What was the growth rate prior to the "long depression"? Care to address the steady state?
 
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Monetary inflation does not matter so long as prices remain stable.
Apparently that's not the case because a crash occurred despite a stable price level.

What was the growth rate prior to the "long depression"? Care to address the steady state?
I don't know where to get those stats, do you? Either way, the percentages that I see there aren't bad.
 

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Banks create money, not the Fed (which can only increase the monetary base and induce lending). In the end, heavily unregulated financial instutions were responsible for your "monetary inflation".



How much growth?
How do banks create money? I've never been into a bank that had a printing press. Isn't the Fed the only organization allowed to produce money?
 
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Just like now the cause of the great depression was to much debt that could not be repaid.

Actions by the government may have made it worse or better, but the cause was to much debt built up in the 1920's just like the cause now is too much debt built up for the last 30 years or so
So who owed the money? Was it the gov, or was it the non-wealthy? If it was the gov, then where did they borrow the money from - China, or rich Americans. If it was the non wealthy that owed too much, then who did they borrow it from? And why were they having to borrow money during the booming '20s?

Is it possible that the wealthy had acquired a share of the wealth that was so disproportionate to the non-wealthy that they essentially had all of the money and the non-wealthy had no other way of obtaining money than to borrow it from the wealthy? If so, is it possible that the same thing has happened during the past 30 years? Could the Reagan and Bush tax cuts on the rich have contributed to all the money migrating to the wealthy?

So if too much debt (either by the general population or by the gov) is a major factor in creating economic downturns, then isn't there a possibility that disproportionate wealth distribution is a major factor in causing debt issues, thus disproportionate wealth distribution harms our economy?
 

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So who owed the money? Was it the gov, or was it the non-wealthy? If it was the gov, then where did they borrow the money from - China, or rich Americans. If it was the non wealthy that owed too much, then who did they borrow it from? And why were they having to borrow money during the booming '20s?
This graph will show the break down of total US debt, and who owes what at what time based on sectors



In the 30's corporate debt was the biggest single biggest debtor in the US. Consumer debt was not that big as mortgages were hard to get and required massive downpayments if I recall correctly. Now it is consumer debt that is the biggest issue, although all sectors have high debt loads. Overall the US debt load as % of GDP is higher today then it has been since the beginning of the 1900's

Is it possible that the wealthy had acquired a share of the wealth that was so disproportionate to the non-wealthy that they essentially had all of the money and the non-wealthy had no other way of obtaining money than to borrow it from the wealthy? If so, is it possible that the same thing has happened during the past 30 years? Could the Reagan and Bush tax cuts on the rich have contributed to all the money migrating to the wealthy?

So if too much debt (either by the general population or by the gov) is a major factor in creating economic downturns, then isn't there a possibility that disproportionate wealth distribution is a major factor in causing debt issues, thus disproportionate wealth distribution harms our economy?
The main issue during the 80-2000's has been US consumers using debt to support lifestyles. The low interest rates, and easy access to credit made it an easy choice for the short term, of course having the government encourage such behaviour to support economic growth was not helpfull.


I do agree that excessive wealth concentration is not healthy economically or socially, but it is in part due to the behaviour of the middle class who have wanted instant gratification, rather then to wait and save before purchasing items
 
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