Indeed, at both times the illusion seemed like reality. The stock market soared, many companies produced more than was needed in the 1920s and many Americans bought more house than they could afford in the 2000s. Despite a growing money supply, a general rise in prices (inflation) did not materialize in the 1920s. Rothbard attributes this to the offsetting effect of the high productivity of the decade. In essence, too much money was not chasing too few goods, as the 20s was a time of great production.
In contrast, and more ominously, the inflationary effects of Greenspan’s policies were concealed by government manipulation of the consumer price index (CPI). The most basic staples of life, food and energy, are no longer a part of the inflation index. Additionally, the way government statisticians calculated the number changed over time. For instance, due to high demand, the cost of buying a home increased significantly through the decade, yet the CPI was adjusted by bureaucrats to counterbalance the effect this data would have on inflation statistics by increasing the weight of the costs of the depressed rental market in the calculation. Thus, the inflationary effects of the policies of both Strong and Greenspan were not evident at the time of their inflating; the economy appeared to be growing, so everyone, politicians, business leaders, and economists were happy.
And the illusions of prosperity were perpetuated because no one in the know ever objected to what was going on. Presidents, legislators, and economists were silent during both periods about any concern they may have had about the direction of the U.S. economy. In fact, Hoover and Bush, both liked to say that the economy had “sound fundamentals.” Yes, as long as the Fed chiefs increased the supply of money and the government statistics were favorable, all was well in Mudville. Thus, in 1929, as in 2008, policymakers were blindsided by their respective crises.
Even Ben Bernanke, the so-called expert on the Great Depression, didn’t realize Greenspan was repeating history by egregiously inflating the money supply in the early 2000s. Even Bernanke didn’t recognize the crisis after it hit. Makes you wonder what he studied to learn about the Great Depression. Clearly, it was not the work of Murray Rothbard.
The entire text of America’s Great Depression has been graciously placed online in PDF format by the Ludwig von Mises Institute.
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