# *America's Great Depression* (1963) Back to [[Murray Rothbard]] · [[Bibliography]] · [[Theories and Influence]] **Thesis:** the 1929 crash and the Depression were not a failure of laissez-faire capitalism. They were the necessary correction of a **Federal Reserve–driven credit boom** in the 1920s, and Hoover's interventions (propping up wages, public works, credit expansion, tariffs) made it deeper and longer. It applies the **Austrian business cycle theory** of [[Ludwig von Mises]] and Hayek to US history. Published by D. Van Nostrand in 1963; 5th ed. Mises Institute 2000. ## Outline **Part I: Business Cycle Theory** 1. *The Positive Theory of the Cycle.* Business cycles versus fluctuations; "the cluster of error"; credit expansion lowers interest rates below the time-preference rate, which leads to malinvestment in higher-order capital goods and then a bust. Recommended policy: **laissez-faire** in the depression (let wages and prices fall, liquidate malinvestment). Preventing depressions means stopping credit expansion. 2. *Keynesian Criticisms of the Theory.* The liquidity trap; wage rates and unemployment. 3. *Some Alternative Explanations of Depression: A Critique.* General overproduction, underconsumption, the accelerator, lack of investment opportunities, Schumpeter, qualitative credit doctrines, over- and under-optimism. **Part II: The Inflationary Boom, 1921–1929** 4. *The Inflationary Factors.* Defines the money supply broadly, including savings deposits and life-insurance reserves. Finds the money supply rose **$28.0 billion, "a 61.8 percent increase over the eight-year period… an average annual increase of 7.7 percent"** (p. 93). The causes he names are reserve requirements, Fed discounting, bills bought (acceptances), and open-market purchases. 5. *The Development of the Inflation.* Foreign lending; Fed easing to "help Britain" (the Strong–Norman relationship); the approaching crisis. 6. *Theory and Inflation: Economists and the Lure of a Stable Price Level.* A stable wholesale price level masked credit inflation. Critique of Irving Fisher and the "stable money" economists. **Part III: The Great Depression, 1929–1933** 7. *Prelude to Depression: Mr. Hoover and Laissez-Faire.* Hoover's prior interventionism on unemployment and labour relations. 8. *The Depression Begins: President Hoover Takes Command.* White House conferences to hold up wage rates; credit inflation; public works; the Farm Board. 9. *1930.* More inflation; the Smoot–Hawley Tariff; public-works agitation; fiscal burdens. 10. *1931: "The Tragic Year."* Wage maintenance; immigration restriction; voluntary relief; monetary picture. 11. *The Hoover New Deal of 1932.* RFC; tax increases; Glass–Steagall 1932; public works. 12. *The Close of the Hoover Term.* **Appendix:** Government and the National Product. He argues that government spending should be *subtracted* from GNP to measure private product. ## Significance - **"Hoover revisionism."** Gordon credits Rothbard as a pioneer of the view that Hoover was an interventionist whose policies "prefigured the New Deal," and claims "Rothbard's view of Hoover is now widely accepted" ([Gordon](https://mises.org/profile/murray-n-rothbard)). This is Gordon's claim. Later mainstream historians and economists have also described Hoover as activist, but I did not survey that literature here. - **Its monetary account differs from Friedman & Schwartz (1963)**, published the same year, who blamed the Fed for *allowing* the money supply to contract after 1929. Rothbard blamed the *1920s expansion*. On his broad definition of money he argued the 1920s were inflationary despite stable prices. - **Critiques:** Paul Krugman's "The Hangover Theory" (*Slate*, Dec 1998) rejects the Austrian cycle story and its liquidationist prescription ([Slate](https://slate.com/business/1998/12/the-hangover-theory.html)). Ron Paul's *End the Fed* (2009) praises the book (see [[Theories and Influence]]). ## Sources - Full text: https://cdn.mises.org/Americas%20Great%20Depression_3.pdf - Gordon biography: https://mises.org/profile/murray-n-rothbard - Wikipedia, "America's Great Depression": https://en.wikipedia.org/wiki/America%27s_Great_Depression - Krugman, "The Hangover Theory," *Slate*, Dec 4, 1998: https://slate.com/business/1998/12/the-hangover-theory.html