trotsky (kapex) ID#377387:
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well, i would agree that FDR's disastrous economic policies played a major part in lengthening and deepening the depression. i for one believe he was one of the worst presidents ever, a consummate liar and thief, as well as a communist sympathizer. note that he actually won the election on a free market platform, and promptly went and implemented socialism on a grand scale after he'd won it.
however, this is one thing, and the charge that the Fed 'took away the punchbowl' as the colloquial expression goes, is quite another. it is in fact a myth, created in an early 60's monetarist theory book by Milton Friedman. he argued back then that 'if only the Fed had goosed he money supply the depression could have been averted'. implicit in this was the charge that the Fed didn't try to goose the money supply, however, in reality it DID do it, and in spades. the data prove it...not only were interest rates slashed to next to nothing in a very short time, they also increased free bank reserves by over 400% within 2 years of the 1929 stock market crash.
in view of these facts, Friedman's assertions, indeed his entire 'theory' would have fallen flat on its face, which is why he studiously avoided to present any actual data from the period. as i always point out, if economic prosperity depended on increasing the money supply, the third world would be a Utopia.
the culpability of the Fed w.r.t. the 30's depression isn't to be found in its actions during the bust ( as wrongheaded as they were... ) , but rather its actions during the preceding boom of the 1920's. it was the willy-nilly expansion of credit in the 20's, and the false boom that was created thereby that laid the groundwork for the depression. Fed officials of the day liked to boast about giving 'coups de whiskey' to the stock market with their open market operations. when they finally decided that they had to rein in the boom because it looked like it was overheating, it was far too late - the damage had been done. |
