Pedro el Communist: Wait, what? First of all, I feel like your mixing two bowls of the wrong stuff. Second, how was the, “depression” of the early 1920’s worse than the Great Depression? And Hoover didn’t do his, “interventionist” ideals until after the stock Market Crash in October of 1929 (he was only in office for 6 months by that time). Correct me if my facts or false.
Blackstone: I made many points, so what two bad bowls am I mixing? You ask how the Great Depression of the 1920’s worse than the Great Depression. A couple quick examples would be production, GDP, and unemployment figures. What you say about Hoover was true, he started his Keynesian style policies (like he wanted when he was Harding’s Commerce Secretary) when he was about 6 months in office. His and Roosevelt’s policies greatly prolonged the Great Depression; the most they accomplished was to stimulate mal-investment. What’s missing from your picture of what caused the Great Depression, is that in 1924 (which was after the recovery from the 1920’s Depression), the Fed started a massive expansion in credit which fueled the stock market crash in 1929. After a couple of years of expanded capital manipulation by various forms of regulation, but mainly monetary and fiscal stimulus, the Great Depression was well under way in 1931. Easy money must necessarily create mal-investment, for the consumers will not have the money to pay for the increased consumption, thus producing a bubble.
Pedro el Communist: If you’re looking at strictly unemployment, the Depression of the 1920’s was much easier than the Great Depression. During the Height of the Depression (winter of 1932) unemployment went to about 25%, while in 1920’s it went to 11-12%. And how did Roosevelt’s and Hoover’s policies promote mal-investment? From what I see, the first New Deal was just economic relief to people, get people in jobs and get them money. The 2nd New Deal I could see as prolonging the Great Depression, but still not that much. And, wasnt the New Deal worsening the Great Depression, b/c when Roosevelt stopped using Keynesian policies in, (what year, 1936 i think, maybe 1935), and he tried to balance the budget, the economy went into a recession? Doesnt that acknowledge that the New Deal helped somewhat in the Great Depression, if nothing, people’s hopes?
Blackstone: The only thing that I won’t cover from your last remarks is your history. You see, what you’ve written is so screwed up that to authoritatively put the matter to rest, I’d need several hours at least to go back to find various documents and records. I just don’t have that time.
Any who, not quite right about your unemployment figures, you see unemployment numbers are often calculated in many ways. It’s like you’re trying to say that a three-foot tall man is higher than another man who’s two yards tall, because three is greater than two. You have to be extremely careful when coming up with economic statistics because two different measurements are not only often used, but usually used. I was talking strict percentages of people fully employed.
As for the New Deal helping people, how can you help someone by taking their money, then giving back a portion to the very people you just pick pocketed? How charitable is that kind of scheme? It’s a ridiculous proposition to say that it helps.
Pedro, when you describe the New Deal, you describe the rationalization, but not the result of the bill. If we are to talk about the economics of the New Deal, we have to deal with praxeology and its consequences, not the attempted moral ratiocination for an evil action.
There are laws of economics, just like there are laws of physics: you can’t go against them without drawing the natural consequences of natural law. Let me go over some of these laws of economics instead of the history: we’re not getting anywhere with the history. I think things will become a bit clearer if you understood a few causal relations in economics. Most economists would kill me for simplifying and dumbing down markets as much as I’m about to do, but I kind of have to do it for the sake of time and making it easy to understand. Remember how I talked about the areas of capital manipulation that were used in the Great Depressions? Let me explain as simply as I can. I realize you haven’t studied economics.
The main cause of the mal-investment was from monetary stimulus: the Fed created money out of thin air, lent it out to the government and private banks at rates lower than the market demand. The money that was used by the government also made fiscal mal-investment worse, but I’ll explain that later. The majority of the money went to private banks. Now banks lend out the savings of their customers right? Well why shouldn’t they be able to lend out more? Well the savings represent resources that people want to use in the future. When there’s a lot of savings, the interest rates go down encouraging businesses to invest in future projects, because that’s what people consecrated their money for. Yes I say consecrate, for is not money a God endowed stewardship? And are not our stewardship to God what in turn consecrate us?
Anyway, when savings are low, interest rates go up, indicating to business that little future investment is necessary since people only have the resources to purchase what they are presently consuming. Now they still compute market prices to determine what things are of the greatest (subjective) utility relative to the current production/supply. But basically, savings allows resources to be allocated to a later date when that option has been determined by the individual consumers to be the highest utility of all available choices. Now what do you think happens when artificially low interest rates creep in? The money, being produced by inflation, is taken from people’s income and savings. So what happens? People, especially the lower classes, become poorer due to the inflation, and the money is mostly transferred to businesses that use it to expand, hire employees, stock up, etc., on things which the consumers are not yet ready to purchase. The only way for these things to be purchased is through consumer debt which individuals enter into. Because the banks have all this looted credit being devalued if they let it sit without collecting usury, they give it to people who would otherwise be considered bad credit risks. And because it’s easier to borrow, because the liabilities are less immediately costly, borrowers borrow much more than they otherwise would because the payments are smaller. This is a false economic signal because the cost of credit will go up sooner or later. Also, the banks savings account yield is lowered because of the competition of easier, cheaper credit, thus further discouraging, decreasing, and punishing savings. Individuals, businesses, and governments take an unreasonable amount of the cheap money, because it’s… well, cheap. The easy money thus sends a false signal to employers that there’s demand for the goods. It’s like if a circus rolls into a small town, and all the people who work in the circus start going to this one restaurant all the time. Imagine if the restaurant owner were to see the increased demand and were to think it was permanent? This guy would probably expand, open up another restaurant, and hire new employees. And because restaurants profit margin is almost always slim, if existent at all, this would all be funded by debt. But what happens when the circus leaves town? The employees of the second store will be sitting there idol, and will quickly be fired; the second store will fail; the entire business will probably fail. This is basically what happens when such false market signals are sent, and they can only be sent by the government.
Have you ever heard from one of your teachers that the Great Depression was largely fueled by too much credit? That’s a common narrative, and there’s actually more truth to that than they realize. The question is how did all that lending happen? It couldn’t have been an unregulated free market, because the market is naturally restricted in how much money it can lend by the amount of savings, which are real assets. Because of this, you can’t lend more money than actually exists. No, it was plainly the result of easy money, for the Fed at the time was creating monstrous amounts of credit off of the sweat and labor of the American people.
And what’s more, top experts of all of today’s major schools of economic schools of thought, even socialist monetarists like Christopher Sims, or Paul Krugman believe that the Great Depression was the result of bad Federal Reserve policies, although for different reasons. Of course, I doubt your schools teach this. Why would they share what the experts think, even the experts of their own persuasion if it might cause students to question the merits of government planning, or the infallibility of the planners?
Ludwig Von Mises defined socialism as the government ownership or control of capital. Therefore, by his definition, the New Deal, government manipulations of private business by regulation, and the Fed in all its actions are socialist. I say this so you can understand where he’s coming from when he said this about the American progressive movement in his book Bureaucracy:
“The champions of socialism call themselves progressives, but they recommend a system which is characterized by rigid observance of routine and by a resistance to every kind of improvement. They call themselves liberals, but they are intent upon abolishing liberty. They call themselves democrats, but they yearn for dictatorship. They call themselves revolutionaries, but they want to make the government omnipotent. They promise the blessings of the Garden of Eden, but they plan to transform the world into a gigantic post office. Every man but one a subordinate clerk in a bureau. What an alluring utopia! What a noble cause to fight!”
As for fiscal mal-investment, I think you’ve started to catch on by now. The government does not, “give people money”, nor does it, “invest”. There are dozens of reasons for this, but for time and simplicities sake, I’ll just enumerate a few. The government around the Great Depression got its money in two ways: 1, by looting from people through taxes, tariffs, etc., or 2, by artificial credit produced by inflation. So in either case, the money is simply plundered from people. So what are they going to do, give some of it back? Why would they then take the money in the first place? No, the point is to allocate capital. The presumption is clearly that the government, operating only by bureaucratic rules, without any reference to either financial statement or index, can make smarter investment decisions than private parties who were the initial creators of the said wealth. But if so, why doesn’t the government invest all the time? Why doesn’t the government produce its own revenue stream instead of taking from the real producers? Why haven’t totalitarian forms of planning such as Communism worked? Why aren’t we or any other country on Earth, living in a vast government utopia resembling the Garden of Eden? Answer these will you, or do you not have an answer? Perhaps you’ve made the greatest economic discovery of all time, but I doubt it.
So Pedro, wherein is a New Deal project of greater utility than the food, clothing, shelter, and other things that real living breathing human beings want during a depression? Wherefore are the fruits sown of coercion better than those sown in freedom? If they are, would you then claim that Satan’s collective, coercive plan of his own government utopia was superior to that of Christ’s offering of free agency? Are you claiming that those founding principles and the Constitution of the United States are really inferior to your own socialist ideas?