In your note on the Keynesians’ arguments, it says:
In general, the model turns out to be completely counterintuitive: the crisis is caused by the overproduction of goods (according to ABCT it is caused by the overproduction of money, and when there are many goods, that’s actually great, which completely corresponds to the worldview of any ordinary person)
But the gold standard in the USA was abolished only after the main crisis, in 1933. Does this mean that “overproduction of money” could not have been its cause and the Keynesians are right?
Solo 322 (question accompanied by a donation of 322.8 rubles)
To understand the causes of the Great Depression in detail, it makes sense to read Rothbard’s book America’s Great Depression. But that’s 560 pages, and I personally haven’t gotten around to it yet. So my ideas are based mainly on a much shorter essay by Pavel Usanov, The Great Depression and the New Deal – Lessons for Modernity. It’s only 44 pages, including all appendices and the bibliography; anyone can handle that volume.
For instance, it is stated there that in 1926 Keynes wrote that thanks to the Fed’s activities, there would be no more crises (this prediction would later be broadcast by mainstream economists after every major crisis, specifically citing the fact that the Fed has now learned how to deal with them). Hayek in 1927 and Mises in 1929, on the contrary, predicted a crisis, based precisely on the Austrian Theory of the Business Cycle, according to which the cause of such crises is the credit expansion of central banks.
Between 1921 and 1929, the money supply in the USA grew from $45.3 billion to $73.3 billion. This was achieved by lowering the Fed’s discount rate, based on roughly the same fractional reserve mechanisms as today. The inflated financial bubble burst in 1929. Something quite similar happened in 1921, when the stock market crash was fully comparable and was caused by the same reasons—the inflation of the money supply during World War I. But then the Harding administration ignored the crisis, and it resolved itself literally within a year. In 1929, the Hoover administration began fighting the crisis through price regulation, injecting liquidity into bankrupt banks, a public works program, and then introducing protectionist tariffs. As a result, the depression truly became Great.
Roosevelt, who came to power under slogans of deregulation and reduction of government spending, on the contrary, only intensified this policy, which later became known as the New Deal. As a result, the Great Depression lasted until the end of World War II, when Roosevelt finally passed away, and a considerable part of his regulatory measures were repealed, while simultaneously enshrining in the Twenty-second Amendment to the Constitution the prohibition of one person holding the presidential post for more than two terms. As an example, I’ll give just a couple of figures: the share of government spending decreased from 44% of GDP in 1944 to 8.9% in 1947—of course economic growth would happen with such a reduction in government appetites!
Now, what happened in 1933, and what abolition of the gold standard are we talking about? We are talking about the confiscation of gold from citizens and declaring settlements in gold illegal within the country. In international trade, gold retained its significance, and the price of gold in dollars was fixed by the government; that is, the gold standard was preserved, but in a very distorted form: there are pieces of paper, it is stated that they are worth so much gold, they must be trusted like gold, but you cannot get gold for them. When the gold standard was finally abolished in the seventies, gold became an ordinary commodity with a floating price.
Roosevelt’s confiscation of gold was not the cause of the growth of the money supply, but rather its consequence. At that time, the government had gold worth approximately $4 billion, while the demands for exchanging dollars for gold totaled $25 billion. To avoid offending anyone, the government refused to satisfy the demands of everyone)))
