Great Myths of the Great Depression
Many volumes have been written about the Great Depression of 1929-1941 and its impact on the lives of millions of Americans. Historians, economists and politicians have all combed the wreckage searching for the “black box” that will reveal the cause of the calamity. Sadly, all too many of them decide to abandon their search, finding it easier perhaps to circulate a host of false and harmful conclusions about the events of seven decades ago. Consequently, many people today continue to accept critiques of free-market capitalism that are unjustified and support government policies that are economically destructive.
(Editor’s note: This publication was updated in April 2010.)
Students today are often given a skewed account of the Great Depression of 1929-1941 that condemns free-market capitalism as the cause of, and promotes government intervention as the solution to, the economic hardships of the era. In this essay based on a popular lecture, Mackinac Center for Public Policy President Lawrence W. Reed debunks the conventional view and traces the central role that poor government policy played in fostering this legendary catastrophe.
Table of Contents
A Modern Fairy Tale
The Great, Great, Great, Great Depression
Phase I: The Business Cycle
Central Planners Fail at Monetary Policy
The Bottom Drops Out
Buddy, Can You Spare $40 Million?
Phase II: Disintegration of the World Economy
"The greatest spending administration in all of history"
You Tax Me, I Tax You
Free Markets or Free Lunches?
Phase III: The New Deal
"Nothing to fear but fear itself"
New Dealing From the Bottom of the Deck
Blue Eagles, Red Ducks
The Alphabet Commissars
"An astonishing rabble of impudent nobodies"
Signs of Life
Phase IV: The Wagner Act
An Unfriendly Climate for Business
Whither Free Enterprise
Postscript: Have We Learned Our Lessons?