How you can be smarter about The Great Depression than the average rube

Debunking three myths

Photo by Sonder Quest on Unsplash

Most people believe three myths about the Great Depression…

1. President Herbert Hoover cut government spending during the early years of the depression.
2. Hoover’s failure to act vigorously allowed the depression to get worse.
3. FDR then ended the depression by spending massive amounts of money.

But that’s all wrong. Here’s the truth…

President Hoover responded vigorously

And that wasn’t a good thing, as we shall see.

Economist David Friedman looked up the numbers in the 1935 volume of the Statistical Abstract of the United States. Federal spending increased during the relevant Hoover years!

• 1929 — $3,298,859
• 1930 — $3,440,269
• 1931 — $3,779,868
• 1932 — $4,861,696

But the Hoover response was much larger than the numbers suggest. The money Hoover spent had vastly higher purchasing power because prices fell dramatically during this period. If we measure federal spending in terms of the price level then expenditures actually doubled under Hoover, and nearly tripled relative to GDP.

So the popular understanding of the Great Depression flunks on at least three counts.

1. Hoover did not sit idly by and do nothing.
2. Hoover (and Congress) responded vigorously.
3. Responding vigorously didn’t work.

But we’re not done yet.

FDR did not end The Great Depression

The depression went on and on and on after FDR was elected. It never ended while he was still alive. This happened even though FDR spent and meddled even more than Hoover did.

That gives us two data points suggesting that government interventions make things worse rather than better. But we can make the case even stronger. Please notice something…

The Great Depression was the first time the government intervened to make an economic downturn shorter and less severe!

And yet, it was precisely this depression that became the deepest and longest. It was this downturn, unique among all the others, that gained the label Great.

This should suggest, to any rational person, that government intervention makes downturns worse, not better. And yet, the geniuses who control our school system have managed to persuade Americans that Hoover made the Depression worse by doing nothing while FDR fixed it by being a manic busybody.

What a bunch of rubes we are, to be so easily tricked by such an easily debunked lie. So…

How did the depression really end?

Well, how did downturns end before the politicians started intervening in them?

Isn’t it obvious?

A recession or depression is a period with increased business bankruptcies and unemployment, whereas a recovery is a period with increased business start-ups and hiring. Therefore…

• Immediately before the depression too many entrepreneurs were using resources for things people didn’t want.
• The depression was the time when they stopped doing that.
• The recovery was the time when entrepreneurs reallocated those misused resources to new things that hopefully consumers did want.
• None of this requires any politician to do anything

In other words…

Depressions end naturally, quickly, and productively, if the politicians leave them alone.

Alas, this perfectly obvious answer leaves no role for politicians and intellectuals to play, so they quite naturally find it unsatisfying. This is why our state-controlled schools teach a fictional version of history where politicians and intellectuals were the heroes.

But, but, but…

Didn’t World War Two end the Great Depression?

Lots of people think so. After all, military and war production jobs created full employment. Didn’t that end the Depression?

Well, no. Employment rose, but standards of living didn’t. Military jobs were impoverished and life-threatening while people on the home front suffered through severe rationing. The elements of material life were often less available during the war than they had been during even the darkest days of the depression. True prosperity didn’t return until after the war ended. And guess what was also happening then?

Government spending was plummeting. Millions of people were now unemployed as military and war production jobs ended. Where would all those people find jobs? Everyone worried that the depression would return. But it didn’t. Instead…

The opposite happened. The economy boomed! Why?

The economic historian Robert Higgs argues that the absence of FDR had a lot to do with it. The regime uncertainty he created made it hard for entrepreneurs to make plans. They didn’t know what the rules would be from one day to the next. With FDR gone things became more stable. Suddenly entrepreneurs could do what they had done in the past — reallocate resources to new and better uses. Higgs makes a persuasive case that this change — the passing of FDR and the New Deal — was what ended the Great Depression, not World War 2.

There’s one more thing we can do to solidify this case. Let’s look at…

The depression that didn’t happen

U.S. involvement in World War 1 between 1917 and 1918 caused high inflation as the Federal Reserve created vast amounts of new money to fund the war effort. This inflation threatened to devalue people’s life savings, so the Fed decided to contract the money supply after the war ended. This would restore the old price level and the old value of money. The Fed’s governors knew this would cause a depression as the economy adjusted, but they also knew it would be short-lived with vastly better times coming on the other side.

Thanks again to David Friedman for providing the numbers used in this section. Consumer prices fell by 10.8% from 1920 to 1921. This was a sharper drop than occurred at any time during the Great Depression. Then prices fell another 2.3% in 1922, and unemployment rose to roughly what it had been in 1931. The stage was set for the same kind of deep grinding calamity that happened between 1929 and 1945. And yet…

President Harding did the opposite of what Hoover and FDR did during the Great Depression. He cut federal spending dramatically!

• 1920 — $6,141,745
• 1921 — $4,468,713
• 1922 — $3,195,685
• 1923 — $3,244,690
• 1924 — $2,946,401

And guess what? There was no great depression. Instead, the downturn ended in 1923 and the Roaring Twenties began. There’s a great book about this if you want to learn more — The Forgotten Depression — 1921: The Crash that Cured Itself by James Grant.

Conclusion

Most people are rubes. They trust The State’s schools to tell them the truth about The State. Here’s how you can protect yourself from being conned…

If tax-funded politically controlled schools teach a history where politicians or tax-supported intellectuals are the heroes, be skeptical. Look for critical counter-arguments to test the claims being made. In this case…

• Hoover didn’t stand idly by and do nothing — he did lots of something.
• The something Hoover did seemed to make things worse not better.
• FDR did even more something when he got into office and the depression just went on and on and on.
• Things did not get better until after WW2 ended, when federal spending and government employment were both falling dramatically.
• The first economic crisis in which politicians intervened was the worst and lasted the longest, but…
• When the politicians did nothing to counter the economic downturn in 1921, the resulting depression was very short.

Don’t be a rube. Be smart about the Great Depression and government intervention in the economy.

Copyright © Perry Willis 2024

Perry Willis is the co-founder of Downsize DC and the Zero Aggression Project. He co-created, with Jim Babka, the Read the Bills Act, the One Subject at a Time Act, and the Write the Laws Act, all of which have been introduced in Congress. He is a past Executive Director of the national Libertarian Party and was the campaign manager for Harry Browne for President in 2000.