If there was ever an area in which public-school indoctrination has been effective, it’s with respect to the Great Depression and Franklin Roosevelt’s New Deal. It is impossible for any student to escape public school without having his mind molded to accept the officially approved version of events: The Great Depression was the result of the failure of America’s free-enterprise system; after the Depression hit, President Herbert Hoover did nothing, placing his total faith in free enterprise; and Franklin Roosevelt saved America’s free-enterprise system with his New Deal programs.
As libertarians have discovered, the indoctrination is entirely false. The truth is that the Great Depression was caused by the Federal Reserve, a federal agency. The Hoover administration enacted several government interventions that made the Depression worse than it would have been. Roosevelt’s New Deal socialist and fascist programs not only ensured that the Depression would get worse but also guaranteed that it would last much longer than ordinary.
The details behind these truths were provided last Monday night in a great talk by Larry Reed, president of The Foundation for Economic Foundation, as part of our Economic Liberty Lecture Series that we run in conjunction with the George Mason University Econ society, a student-run group of libertarians who have a passion for Austrian economics. The title of Larry’s talk was “Lessons from the Great Depression.”
Larry explained the role of the Federal Reserve in causing the Depression. He first pointed out that it would be difficult to find a better example of where a government agency has failed so dismally to achieve its goals. The purported reason the Fed was established in 1913 was to stabilize the economy and maintain the strength of the dollar. Since then, there have been one Great Depression and several recessions. And the value of the dollar is worth 5 cents compared to what it was worth when the Fed was created, thanks to the Fed’s printing presses. As Larry pointed out, even current Fed Chairman Ben Bernanke has acknowledged that the Fed, not free enterprise, caused the Great Depression with its erratic expansion and contraction of the money supply.
Larry then pointed out that contrary to popular opinion, the Hoover administration didn’t just sit back and do nothing. Among the most notorious and destructive interventions that Hoover enacted was the Smoot-Hawley Tariff, which contributed to the crunching of the economy.
In fact, the irony, as Larry pointed out, is during his presidential campaign, FDR came out in favor of lower taxes, reduced federal spending, free enterprise, and limited government. It all turned out to be false. Instead, FDR embarked on a massive socialist-fascist array of programs, such as the National Industrial Recovery Act (NIRA), the Agricultural Adjustment Act (AAA), Social Security, undistributed profits taxes, and much, much more. Those interventions succeeded in paralyzing business activity for more than a decade.
After the Supreme Court declared the NIRA and the AAA unconstitutional, Roosevelt was outraged. Larry pointed out that after his reelection in 1936, he proposed his infamous court-packing scheme designed to pack the Supreme Court with his lawyer cronies who he could count on to uphold his alien schemes. The plan went down to defeat, but in the long run FDR succeeded, especially as justices began retiring.
Larry’s talk was eloquent and easy to follow and understand. It’s a perfect presentation for anyone who is still operating under the misconceptions that are commonly held about the Great Depression and the New Deal. The talk is also a fantastic refresher for those who already know the truth about this part of our nation’s economic history.