If, as soon as there appeared signs of a general boom on
security markets, the Central Banks were to take action to bring it to an end,
it seems probable that extremes of business fluctuations might be
avoided. Certainly this is a policy which would have averted much of the
distresses from which the world has been suffering recently.
But whatever may be the truth in this very difficult matter,
one thing seems tolerably certain. The policy of stabilizing the general
level of prices and ignoring all other movements is a snare and a
delusion. It was this policy, conjoined with that other policy of
frustrating the effects of gold movements, to which we have already alluded,
which was largely responsible for the catastrophe of 1929. Again and
again during the boom years we were assured by men who should have known better
that the trade cycle had been eliminated, that so long as prices did not rise
there was no fear of over-expansion, that the boom in land and common stocks
was merely a reflection of the increased value of property, and that if there
were any sign of a fall of prices due to a transfer of expenditure to Stock
Exchange and real-estate speculation, then the Central Banks should create more
credit to support the speculation. This policy was pursued. Yet
such is the inflexibility of the human mind that, in spite of all that it led
to, there are yet to be heard voices of men who failed utterly to see what was
happening before the depression, and who throughout the slump, no doubt with
the best will in the world, have consistently supported those policies which
have arrested liquidation, prolonged uncertainty and delayed the coming
recovery.
~ Lionel Robbins, The Great Depression, 1934
