Federal Reserve Bank chairman Ben Bernanke is touted as an expert on the Great Depression. Many would say we are fortunate to have him heading our central bank at this time when our economy is suffering through its worst crisis since that dreadful epoch 80 years ago. Yet others believe Bernanke is far from an expert on anything economic, given his choice of policies since the current crisis began. One thing is for sure, Bernanke’s study of the Great Depression did not include reading the works of Murray Rothbard, for if he had, he certainly would not be pursuing his current policies as leader of the Fed.
Considering all of Rothbard’s storied career, his most authoritative work on the Great Depression probably was America’s Great Depression. Written in 1949, the text is a solid analysis of those policies and personalities that brought on the financial and economic collapse of America in the 1930s. Rothbard’s work dispels the myths taught in public schools that Hoover was a free marketer and the Great Depression was caused by the shortcomings of capitalism. Informative for understanding what caused the 1929 recession and for what turned it into the Great Depression, today the book stands as a prophetic manuscript for where we are headed economically.
Readers of the book will be appalled to realize that there are significant similarities between the decade preceding the crash of 1929 and the decade preceding our current financial and economic crisis. For one thing, in both time periods the Federal Reserve had well-respected chairmen at the helm: Benjamin Strong and Alan Greenspan. These banking helmsmen were respected because they were both viewed as the great caretakers of America’s economy. Their policies were revered for the economic booms which they produced. When things got choppy, administrations of both decades could count on the financial maestros at the Fed to right the ship back on a course to prosperity.
Of course, both maestros used inflationary policies to achieve their ends. Inflationary used here refers to inflating the money supply. Strong used banker’s acceptances to inflate the money supply and continually put off downturns. He also loaned money to brokerage houses, no less onerous than lending to banks, thereby producing the bubble, the eventual popping of which is regarded as the beginning of the depression. Greenspan, on the other hand, was the master of the low interest rate in keeping the boom going. His lowering of the fed funds rate to practically zero percent for two years after the 2001 recession is regarded as the initial catalyst for the crisis we now face. He also monetized over $6 trillion worth of federal debt to keep the “prosperity” rolling. In all circumstances, both Strong and Greenspan pulled off the illusion that prosperity through inflation has no costs.