tudents today are oten given a skewed account o the Great Depression o 1929-1941 thatcondemns ree-market capitalism as the cause o, and promotes government intervention as thesolution to, the economic hardships o the era. In this essay based on a popular lecture, MackinacCenter or Public Policy President Lawrence W. Reed debunks the conventional view and traces thecentral role that poor government policy played in ostering this legendary catastrophe.
our workers was out o a job atthe Depression’s nadir, and ugly rumors o revolt simmered or therst time since the Civil War.“Te terror o the Great Crashhas been the ailure to explain it,”writes economist Alan Reynolds.“People were let with theeeling that massive economiccontractions could occur atany moment, without warning,without cause. hat ear hasbeen exploited ever since as themajor justication or virtually unlimited ederal interventionin economic aairs.”
Old myths never die; they justkeep showing up in economicsand political science textbooks.With only an occasionalexception, it is there you will ndwhat may be the 20th century’sgreatest myth:
Capitalismand the free-market economywere responsible for the Great Depression, and only government intervention brought about America’s economic recovery.
A Modern FAiry TAle
According to this simplisticperspective, an important pillaro capitalism, the stock market,crashed and dragged Americainto depression. PresidentHerbert Hoover, an advocateo “hands-o,” or
,economic policy, reused to usethe power o government andconditions worsened as a result.It was up to Hoover’s successor,Franklin Delano Roosevelt,to ride in on the white horseo government interventionand steer the nation towardrecovery. he apparent lessonto be drawn is that capitalismcannot be trusted; governmentneeds to take an active role inthe economy to save us rominevitable decline.But those who propagate this version o history might justas well top o their remarksby saying, “And Goldilocksound her way out o the orest,
THE GREAT DEPRESSION deastated eerpart of Aeria, een its saest tons.
Many volumes have been writtenabout the Great Depression o 1929-1941 and its impact on thelives o millions o Americans.Historians, economists andpoliticians have all combed thewreckage searching or the “blackbox” that will reveal the cause o the calamity. Sadly, all too many o them decide to abandon theirsearch, nding it easier perhapsto circulate a host o alse andharmul conclusions about theevents o seven decades ago.Consequently, many peopletoday continue to accept critiqueso ree-market capitalism thatare unjustiied and supportgovernment policies that areeconomically destructive.How bad was the GreatDepression? Over the our yearsrom 1929 to 1933, production atthe nation’s actories, mines andutilities ell by more than hal.People’s real disposable incomesdropped 28 percent. Stock pricescollapsed to one-tenth o theirpre-crash height. he numbero unemployed Americans roserom 1.6 million in 1929 to 12.8million in 1933. One o every