Nov 9, 2007

Ralph Raico on the cause of the Great Depression

The most complete and satisfactory interpretation we have linking booms and busts is the Austrian theory of the business cycle, originated by Ludwig von Mises and developed by F. A. Hayek, Murray Rothbard, and others. (Mises was the only major economist who actually predicted the Great Depression.) In America's Great Depression, Rothbard sets forth in detail how the Federal Reserve acted to stimulate economic growth in the 1920s. Through the artificial creation of bank credit — i.e., credit not based on real savings — the Fed distorted market signals such as interest rates. That induced businessmen to go on an investment spree that could not be indefinitely sustained. Finally and inevitably, the bubble burst. As has recently been suggested, the "Hoovervilles" of the Great Depression should more aptly be called "Federalreservevilles."

~ Ralph Raico, "FDR - The Man, the Leader, the Legacy, Part 7," June 1999

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