Office of the Historian on the Smoot-Hawley tariff

Scholars disagree over the extent of protection actually afforded by the Smoot-Hawley tariff; they also differ over the issue of whether the tariff provoked a wave of foreign retaliation that plunged the world deeper into the Great Depression.  What is certain, however, is that Smoot-Hawley did nothing to foster cooperation among nations in either the economic or political realm during a perilous era in international relations.  It quickly became a symbol of the “beggar-thy-neighbor” policies of the 1930s.  Such policies, which were adopted by many countries during this time, contributed to a drastic contraction of international trade.  For example, U.S. imports from Europe declined from a 1929 high of $1,334 million to just $390 million in 1932, while U.S. exports to Europe fell from $2,341 million in 1929 to $784 million in 1932.  Overall, world trade declined by some 66% between 1929 and 1934. 

Smoot-Hawley marked the end of the line for high tariffs in 20th century American trade policy.  Thereafter, beginning with the 1934 Reciprocal Trade Agreements Act, the United States generally sought trade liberalization through bilateral or multilateral tariff reductions.  To this day, the phrase “Smoot-Hawley” remains a watchword for the perils of protectionism. 

~ Office of the Historian, "Protectionism in the Interwar Period"

Lawrence Reed on how FDR campaigned against the big spending policies of Hoover in 1932

Did Hoover really subscribe to a "hands-off-the-economy" free-market philosophy?  His opponent in the 1932 election, Franklin Roosevelt, didn't think so.  During the campaign, Roosevelt blasted Hoover for spending and taxing too much, boosting the national debt, choking off trade, and putting millions on the dole.  He accused the president of "reckless and extravagant" spending, of thinking "that we ought to center control of everything in Washington as rapidly as possible," and of presiding over "the greatest spending administration in peacetime in all of history."  Roosevelt's running mate, John Nance Garner, charged that Hoover was "leading the country down the path of socialism."  Contrary to the conventional view about Hoover, Roosevelt and Garner were absolutely right.

~ Lawrence W. Reed, "Great Myths of the Great Depression," Mackinac Center for Public Policy, 1981

Ryan McMaken on recent contraction in the money supply

The fact that the money supply is shrinking at all is so remarkable because the money supply almost never gets smaller.  The money supply has now fallen by $2.2 trillion (or 10.2 percent) since the peak in April 2022.  Proportionally, the drop in money supply since 2022 is the largest fall we've seen since the Depression.  (Rothbard estimates that in the lead up to the Great Depression, the money supply fell by 12 percent from its peak of $73 billion in mid-1929 to $64 billion at the end of 1932.)

~ Ryan McMaken, "The Money Supply Has Plummeted in the Biggest Drop Since the Great Depression," Mises Wire, May 11, 2023

Ronald Stöferle et al. on Austrian School adherents who predicated the collapse of the 1920s boom

The Great Depression was predicted by several economists of the Austrian School: in Austria, Ludwig von Mises recognized the problem when it was still in an early stage of its development, and told his colleagues in 1924 that the then largest Austrian bank, Creditanstalt, would ultimately become insolvent. Friedrich August von Hayek published several articles in early 1929, in which he predicted the collapse of the US economic expansion. Felix Somary uttered numerous warnings in the late 1920s. In the US, the economists Benjamin Anderson and E.C. Harwood warned that the monetary policy of the Federal Reserve would lead to a crisis. However, as was Somary, they were widely ignored.

~ Rahim Taghnizadegan, Ronald Stöferle, Mark Valek and Heinz Blasnik, Austrian School for Investors (2015), p. 62

Irving Fisher: laissez-faire approach to Depression would have led to a political revolution

39. If even then our rulers should still have insisted on "leaving recovery to nature" and should still have refused to inflate in any way, should vainly have tried to balance the budget and discharge more government employees, to raise taxes, to float, or try to float, more loans, they would soon have ceased to be our rulers. For we would have insolvency of our national government itself, and probably some form of political revolution without waiting for the next legal election.

~ Irving Fisher, "The Debt-Deflation Theory of Great Depressions," September 1933

Iriving Fisher: FDR's reflation efforts not enough to reach bottom (1933)

39. Those who imagine that Roosevelt's avowed reflation is not the cause of our recovery but that we had "reached the bottom anyway" are very much mistaken. At any rate, they have given no evidence, so far as I have seen, that we had reached the bottom. And if they are right, my analysis must be woefully wrong. According to all the evidence, under that analysis, debt and deflation, which had wrought havoc up to March 4, 1933, were then stronger than ever and, if let alone, would have wreaked greater wreckage than ever, after March 4.

~ Irving Fisher, "The Debt-Deflation Theory of Great Depressions," September 1933

Kevin Duffy on how Milton Friedman was guilty of data mining when studying the Great Depression

Milton Friedman studied the Great Depression and noticed that money supply dropped by one-third from 1929-1933.  He came to the conclusion that this was the cause of the depression and that the Fed hadn't acted strongly enough.  He also influenced a guy by the name of Ben Bernanke who, at Friedman’s 90^th birthday party, vowed not to make the same “mistake.” 

Did the Fed really sit by idly as Friedman claimed?  Actually, no.  The Fed acted aggressively, buying government securities and expanding its balance sheet from 1929-1933.  It also lowered the discount rate from 5% to 1 ½%.  Friedman appears to be guilty of data mining.  Correlation doesn’t prove causation.  In fact, gold flows and loss of confidence in banks were contributing factors to the contraction in money supply.  If anything, the monetary inflation of the Fed probably made matters worse.

~ Kevin Duffy, "Mr. Market Flunks the Marshmallow Test," Grant's Spring Conference, March 15, 2017

Business Week economist on government spending to fight the Great Depression

Just as we saved our way into depression, we must squander our way out of it.

~ Virgil Jordon, Business Week economist, 1932

Lionel Robbins on the delusion of stabilizing the price level (1934)

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

Walter Block on how the truth about Friedman, Reagan, and the Great Depression is distorted by language

Walter: Well, we spoke of being free to choose earlier; that’s of course the title of a famous book by Milton Friedman, an economist highly regarded by most free-market type people. I must say a word or two about Milton Friedman.

Q: Okay, shoot. Metaphorically; no sectarian violence allowed.

Walter: Murray Rothbard used to say that mainstream economists specialize in what they are bad in. If you look at Milton Friedman’s work, you can see that he’s very good on free trade, minimum wage, rent control, occupational licensure, and other topics…

Q: But he was a monetary interventionist.

Walter: Yes, he was a monetary interventionist – and that was his main thing, apart from educational vouchers, which are also a horrible idea. If someone says “monetarist,” who will most people come up with by association? Milton Friedman. He was just horrible on this; he favored fractional reserve banking, he favored the Fed, all sorts of government monetary and tax intervention, and he had the audacity to name his book Free to Choose. But when people were free to choose, what did they choose? Gold. He’s a disgrace!

Q: Don’t hold back, Walter – tell us what you really think.

Walter: [Chuckles] Well, I don’t mind disagreement. We have to have Krugmans and Keyneses – but the problem is that everyone thinks Friedman was a champion of free enterprise, and people will come to you, and me, and Doug, and tell us were wrong because “even Milton Friedman concedes…”

Q: It’s like the problem arising from Ronald Reagan using libertarian rhetoric to get elected, and then overseeing the biggest acceleration of growth in government ever seen until that time. That had typical results of too much regulation and government spending, and people think that the Reagan years showed that free enterprise doesn’t work. Just as people are taught that the Great Depression proves that “unbridled laissez-faire capitalism” doesn’t work – when, in fact, the Depression was the result of government intervention into the economy.

Walter: Precisely.

~ Walter Block, "Walter Block: Doug Casey is an Optimist," LewRockwell.com, April 13, 2013

Time reporter Justin Fox on Irving Fisher's prescription for the 1930s bust

For all its flaws, [Irving] Fisher's economic approach delivered genuinely important insights. He proposed in 1911 that the government issue inflation-linked bonds; in 1997, the Treasury Department finally got around to doing so. If anybody in power in Washington had been willing to follow his advice in 1930 or '31 (which essentially amounted to "Print more money"), the Great Depression might not have been so great. For the past two years, the Federal Reserve has been working right out of the Fisher playbook, and while the results haven't been perfect, they've been a lot better than those of the early 1930s.

~ Justin Fox, Time, "The Myth of the Rational Market," June 22, 2009

Time magazine on the Fed doing "practically nothing" to stop the contraction of the money supply in the early 1930s

[Milton] Friedman blames unknowing monetary policy in large measure for the magnitude of the Depression of the 1930s. Partly because so many banks failed between 1929 and 1933, the U.S. supply of money shrank by 33%—and that compounded a worldwide economic collapse. The Federal Reserve, which took a narrow view of its responsibilities, felt itself almost powerless to reverse the tide of events. Not really understanding what should be done, it did practically nothing to offset the contraction of the money supply.

~  Time, December 19, 1969

Henry Morgenthau on the failure of New Deal Spending in 1939

We have tried spending money. We are spending more than we have ever spent before and it does not work. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises. ... I say after eight years of this administration we have just as much unemployment as when we started ... and an enormous debt to boot!

~ FDR's secretary of Treasury and close friend, Henry Morgenthau, who served from 1934 to 1945, writing in 1939

Robert Taft on the New Dealers

[The New Dealers] are willing to sacrifice individual freedom in order supposedly to improve the condition of the poor and increase their material welfare. But in this purpopse the policy has completely failed. There are more than 10,000,000 people unemployed today, and the largest relief expense this year, 10 years after the depression, than any in the history of the United States. Farm prices are lower than they have been for 6 years. Businessmen are discouraged and indignant. Deposits have piled up in the banks because rich and poor alike are afraid to put their time or money into private enterprise, because they fear that Government regulation will prevent success and Government taxation will take whatever profit there might be. The New Deal policy is the only one which has ever plunged us into a second depression before we were out of the first. If any policy leads backward and not forward, it is the policy of spending billions of borrowed money and piling up a tremendous debt for future generations to pay. A policy which leads inevitably to the bankruptcy and inflation of the currency will not only make the poor people poorer, but it is likely to force a socialism which will utterly deprive them of individual freedom.

~ Senator Robert Taft, late 1930s, from a series of radio debates with Rep. T.V. Smith

Forbes magazine of the 1930s committing the broken window fallacy

The drought was a Godsend. So was the rain that followed it. The prolonged dry spell brought distress to hundreds of thousands of families and has hurt business over a wide area, but it has restored the food markets of the nation to a new basis of stability.

~ "The Editors", commentary in Forbes magazine, September 1st, 1930

Philip Fisher on faulty investment community appraisals of market conditions

Ridiculous as it may seem to us today, in the period from 1927 to 1929, the majority of the financial community actually believed we were in a "new era." For years earnings of most U.S. companies had been growing with monotonous regularity. Not only had serious business depressions become a thing of the past but a great engineer and businessman, Herbert Hoover, had been elected President. His competence was expected to assure even greater prosperity from then on. In such circumstances it seemed to many that it had become virtually impossible to lose by owning stocks. And many who wanted to cash in as much as possible on this sure thing bought on margin to obtain more shares than they could otherwise afford. We all know what happened when reality shattered this particular appraisal. The agony of the Great Depression and the bear market of 1929 to 1932 will be long remembered.

~ Philip Fisher, stock legend, "Still More About the Fourth Dimension", Common Stocks and Uncommon Profits, 1958

Timothy Geithner on putting out the economic forest fire

To stand back and let it burn is irresponsible. It's what happened in the Great Depression.

~ Treasury Secretary Timothy Geithner, testifying about AIG bailout, January 27, 2010

Herbert Hoover on the fascist roots of Roosevelt's New Deal

Among the early Roosevelt fascist measures was the National Industry Recovery Act (NRA) of June 16, 1933. The origins of this scheme are worth repeating. These ideas were first suggested by Gerard Swope (of the General Electric Company) at a meeting of the electrical industry in the winter of 1932. Following this, they were adopted by the United States Chamber of Commerce. During the campaign of 1932, Henry I. Harriman, president of that body, urged that I agree to support these proposals, informing me that Mr. Roosevelt had agreed to do so. I tried to show him that this stuff was pure fascism; that it was merely a remaking of Mussolini's "corporate state" and refused to agree to any of it. He informed me that in view of my attitude, the business world would support Roosevelt with money and influence. That for the most part, proved true.

~Herbert Hoover, The Memoirs of Herbert Hoover: The Great Depression 1929-1941 (New York: Macmillan, 1952), p. 420

Friedrich Hayek on monetary policy from the mid-1920s to the early 1930s

We must not forget that, for the last six or eight years monetary policy all over the world has followed the advice of the stabilizers. It is high time that their influence, which has already done harm enough, should be overthrown. 

~ Friedrich Hayek, 1932

William Trufant Foster: "Thrift is wasteful" (1931)

The glow of righteous satisfaction that many have felt in their recent savings should be replaced by the knowledge that thrift under certain conditions is very wasteful.

~ William Trufant Foster, leading pre-Keynesian economist in the “underconsumptionist tradition,” September, 1931