WEBVTT NOTE 'America’s Great Depression' 50th Anniversary 1 00:00:00.000 --> 00:00:08.100 Preparing for this session, I obviously, like my colleagues on the panel, ended up rereading America's Great Depression. 2 00:00:08.100 --> 00:00:13.560 But when I picked up the book off my shelf, and I admit I had not read it for quite a while, 3 00:00:13.560 --> 00:00:18.260 I opened it up, and it reminded me when I first met Murray Rothbard, 4 00:00:18.260 --> 00:00:22.080 because he was my autographed copy that he signed. 5 00:00:22.080 --> 00:00:29.200 And the date is June 1974, which means a mere lad back then, probably in diapers. 6 00:00:29.200 --> 00:00:35.680 I had taken my copy to that first Austrian economics conference in South Royalton, Vermont 7 00:00:35.680 --> 00:00:40.640 that had been organized by the Institute for Humane Studies. 8 00:00:40.640 --> 00:00:46.880 And it made me remember my first reaction when I met Murray. 9 00:00:46.880 --> 00:00:52.240 Now I was an undergraduate in California, he's in New York, I've never met him. 10 00:00:52.240 --> 00:00:57.160 I only know him through his works and, you know, the occasional photo on the inside of 11 00:00:57.160 --> 00:00:59.760 of a Dust Jacket of a Book. 12 00:00:59.760 --> 00:01:02.120 In my mind, my picture of Murray Rothbard 13 00:01:02.120 --> 00:01:07.920 from just reading him, he was tall, very thin, 14 00:01:07.920 --> 00:01:10.920 and unbelievably serious. 15 00:01:10.920 --> 00:01:14.040 So I arrive at South Royalton, Vermont, 16 00:01:14.040 --> 00:01:16.680 and people starting arrive. 17 00:01:16.680 --> 00:01:18.480 And I'm looking around for Murray Rothbard, 18 00:01:18.480 --> 00:01:21.040 and there's this group of people of which I think probably Joe 19 00:01:21.040 --> 00:01:25.560 was one, because that was the first time Joe and I met, 20 00:01:25.560 --> 00:01:31.000 Around this short, kind of, return, roly-poly guy, who's just laughing and cackling. 21 00:01:31.000 --> 00:01:33.660 And I'm thinking, who's this? 22 00:01:33.660 --> 00:01:36.640 Let me introduce you to Murray Rothbard. 23 00:01:36.640 --> 00:01:39.320 So that's how I first met Murray. 24 00:01:39.320 --> 00:01:47.600 And it was, that shows that expectations can often be frustrated by reality. 25 00:01:47.600 --> 00:01:54.480 But that was obviously a memorable event, meeting Rothbard and all these other scattered Austrian 26 00:01:54.480 --> 00:01:57.600 and Economists, including others who are on this panel too. 27 00:01:57.600 --> 00:02:00.120 Roger Garrison I met there for the first time. 28 00:02:04.120 --> 00:02:09.120 This book, as already some of my colleagues on this panel 29 00:02:09.560 --> 00:02:11.640 have said is an important book. 30 00:02:11.640 --> 00:02:14.580 And for some of the following reasons, let me suggest. 31 00:02:15.620 --> 00:02:17.840 As was already pointed out, we need to remember 32 00:02:17.840 --> 00:02:21.480 that when Rothbard's America's Great Depression came out, 33 00:02:21.480 --> 00:02:28.400 What is now 50 years ago in 1963, the economics profession was dominated by the ideas of John 34 00:02:28.400 --> 00:02:35.480 Maynard Keynes and the Keynesian Revolution. Indeed, for most economists at that time, Rothbard's 35 00:02:35.480 --> 00:02:42.680 argument in this book was unintelligible. Indeed, that comes out very clear if you go 36 00:02:42.680 --> 00:02:52.160 Go back to the economics journals of 1963, 1964, and you look up and find the only handful 37 00:02:52.160 --> 00:02:57.640 of reviews that were done of the book in the scholarly journals of the time. 38 00:02:57.640 --> 00:03:03.080 They don't understand the historical and intellectual context out of which Murray is developing 39 00:03:03.080 --> 00:03:08.640 this argument, the Austrian tradition, especially out of Mises but also Hayek obviously in terms 40 00:03:08.640 --> 00:03:10.320 of the business cycle. 41 00:03:10.320 --> 00:03:16.520 They don't understand the conceptual framework of a microeconomics of understanding macro 42 00:03:16.520 --> 00:03:23.360 problems at all, and in fact they basically reject it as a theoretically un-understandable 43 00:03:23.360 --> 00:03:29.800 historically clearly false and therefore no economics at all. 44 00:03:29.800 --> 00:03:35.400 This was due to the fact that for the economics profession at that time, they were obsessed 45 00:03:35.400 --> 00:03:42.760 focused on macroeconomic aggregates of total employment, total output, the general price 46 00:03:42.760 --> 00:03:52.560 level and Rothbard's attention to a microeconomics monetary process analysis seemed totally irrelevant 47 00:03:52.560 --> 00:04:01.320 and misplaced in the context of their sense that the analytical schema to understand economy-wide 48 00:04:01.320 --> 00:04:07.360 Fluctuations had to be the aggregates that had been developed through aggregate demand, 49 00:04:07.360 --> 00:04:12.880 aggregate supply in Keynes's work. These were the tools that were necessary for any 50 00:04:12.880 --> 00:04:21.000 serious analysis. Now, in this general sense, one thing that Rothbard can be credited for 51 00:04:21.000 --> 00:04:27.580 is that his book can be considered an early contribution to the search for what has become 52 00:04:27.580 --> 00:04:33.540 come to be known in macroeconomics as the search for microeconomic foundations of macroeconomic 53 00:04:33.540 --> 00:04:35.860 phenomena. 54 00:04:35.860 --> 00:04:42.540 But also, and more importantly for us, I suppose, is the fact that what Murray's book does is 55 00:04:42.540 --> 00:04:50.860 represent after a practically 30-year hiatus, a revival of the Austrian tradition of money 56 00:04:50.860 --> 00:04:55.260 in the Business Cycle. 57 00:04:55.260 --> 00:05:00.500 Because beginning in the 1930s and in the 1940s, the ascendancy and triumph of Keynesian 58 00:05:00.500 --> 00:05:06.540 economics had resulted in all of these alternative approaches to understanding business cycles, 59 00:05:06.540 --> 00:05:16.980 including the Austrian, being submerged in a tidal wave of Keynesian success. 60 00:05:16.980 --> 00:05:23.740 Now one of the tragedies in a sense of Rothbard having to do this is that all of what he presents 61 00:05:23.740 --> 00:05:30.160 in this book was already clearly explained and analyzed by that earlier generation of 62 00:05:30.160 --> 00:05:32.780 Austrian economists. 63 00:05:32.780 --> 00:05:38.620 It was Mises and Hayek who in the 1920s and then in the 1930s who were presenting this 64 00:05:38.620 --> 00:05:46.380 case of understanding how distortions of interest rates through monetary expansion brought about 65 00:05:46.380 --> 00:05:52.180 about an imbalance and a disequilibrium in the relationships between savings and investment, 66 00:05:52.180 --> 00:06:00.680 and that this would set in motion a series of sequences of events over time that would 67 00:06:00.680 --> 00:06:06.060 inevitably lead to a downturn that would require a correction. 68 00:06:06.060 --> 00:06:12.420 Furthermore, it wasn't, and this is too lost, and Rothbard refers to some of these 69 00:06:12.420 --> 00:06:37.820 The Expositions and the Presentations of this theory was in literally dozens of books and 70 00:06:37.820 --> 00:06:38.820 articles. 71 00:06:38.820 --> 00:06:44.680 For example, Lionel Robbins, who had brought Hayek to the London School, wrote his own 72 00:06:44.680 --> 00:06:50.020 exposition and application of the Austrian business cycle theory in his 1934 book, The 73 00:06:50.020 --> 00:06:51.540 Great Depression. 74 00:06:51.540 --> 00:06:57.580 In the same year of 1934, Mises's former protege, Fritz Machlub, had published a book 75 00:06:57.580 --> 00:07:03.460 called A Guide Through Crisis Policies, in which he had demonstrated how misguided were 76 00:07:03.460 --> 00:07:07.860 all of the interventionist policies being instituted in that time, and in fact they 77 00:07:07.860 --> 00:07:14.260 They were exacerbating the very cure for the depression the policies were meant to provide. 78 00:07:14.260 --> 00:07:20.980 Also in 1934, one of the most famous economists of that time, a Cambridge University economist, 79 00:07:20.980 --> 00:07:25.620 Arthur Pagu, came to give a series of lectures at the London School of Economics with Mises 80 00:07:25.620 --> 00:07:29.500 and Hayek and Lionel Robbins in the audience. 81 00:07:29.500 --> 00:07:36.100 And in one of the lectures, obviously under the persuasion of some of these Austrian ideas, 82 00:07:36.100 --> 00:07:42.140 says that clearly the situation that Britain has gotten into is due to the misallocations 83 00:07:42.140 --> 00:07:49.360 of resources and misdirections of capital and labor brought about before the downturn. 84 00:07:49.360 --> 00:07:53.860 And he even says in this lecture following the Austrians that it might very well be the 85 00:07:53.860 --> 00:07:59.480 most effective way to bring about a correction and a rebalance to experience a deflationary 86 00:07:59.480 --> 00:08:05.400 decline in prices and wages to find the appropriate equilibrium levels. 87 00:08:05.400 --> 00:08:13.320 We also find in the Britain of that time a left-wing branch of Austrian monetary theory. 88 00:08:13.320 --> 00:08:20.140 Hugh Gateskill, EFM Durbin, who after the Second World War became leaders of the British 89 00:08:20.140 --> 00:08:25.920 Labour Party, were themselves writing articles or books in the early 1930s applying Hayek's 90 00:08:25.920 --> 00:08:32.560 ideas to understand what had happened in generating the business cycle and to undermine what they 91 00:08:32.560 --> 00:08:37.480 they viewed as the economic heretics who are saying that will the solution is just increased 92 00:08:37.480 --> 00:08:44.040 demand. Now, perversely, their solution was to say, you see, this is the instability in 93 00:08:44.040 --> 00:08:53.960 the current monetary system, the solution is nationalization of business and banks. 94 00:08:53.960 --> 00:09:01.360 Over in Geneva, Switzerland, over in Geneva, Switzerland, at the League of Nations, Alexander 95 00:09:01.360 --> 00:09:06.720 Professor Loveday, who was the director of the economics intelligence unit at the league, 96 00:09:06.720 --> 00:09:12.160 had been commissioning a variety of economists with Austrian views to write special monographs 97 00:09:12.160 --> 00:09:18.440 for internal use by the league to present a variety of expositions. 98 00:09:18.440 --> 00:09:24.440 Mises, Gottfried Habler, and one of the leading German free market economists of that time, 99 00:09:24.440 --> 00:09:30.920 Moritz J. Bonn, to analyze why it was that it was inherently impossible and dangerous 100 00:09:30.920 --> 00:09:36.720 to attempt to stabilize the price level through monetary manipulation, and that gold had not 101 00:09:36.720 --> 00:09:43.780 caused any of the causes leading to the Great Depression, and that a restoration of a properly 102 00:09:43.780 --> 00:09:48.960 functioning gold standard might be a means to bring about rebalance and stability in 103 00:09:48.960 --> 00:09:50.960 the economy. 104 00:09:50.960 --> 00:09:56.760 Over here in the United States, and Rothbard of course refers to him, Benjamin Anderson, 105 00:09:56.760 --> 00:10:02.760 The Senior Economic Analyst for Chase Bank in the 1920s and early 30s was grinding out 106 00:10:02.760 --> 00:10:06.960 Chase bulletins every other month or every once every three months from the beginning 107 00:10:06.960 --> 00:10:14.880 of the mid-1920s on the dangers of price stabilization and Fed credit expansion. 108 00:10:14.880 --> 00:10:20.760 And perhaps less well-known is that in 1932, Aaron Director, who later became the brother-in-law 109 00:10:20.760 --> 00:10:27.660 of Milton Friedman did a brief monograph on unemployment in which the analytical framework 110 00:10:27.660 --> 00:10:32.880 that he refers to as an explanation of how the unemployment has been created is in fact 111 00:10:32.880 --> 00:10:40.980 a two-page exposition and summary of Hayek's own argument. 112 00:10:40.980 --> 00:10:48.780 This is the lost tradition that Rothbard was re-presenting at this time. 113 00:10:48.780 --> 00:10:53.780 The one other element I would just briefly point out is that Rothbard was also explaining 114 00:10:53.780 --> 00:10:59.620 the role historically and the policy importance of a gold standard. 115 00:10:59.620 --> 00:11:05.780 That the gold standard, however imperfectly, had acted as a limit and a check on the government's 116 00:11:05.780 --> 00:11:09.240 ability to expand the money supply. 117 00:11:09.240 --> 00:11:13.800 And how central banks being in charge of the gold standards of that time, including the 118 00:11:13.800 --> 00:11:17.600 The American Central Bank of the Federal Reserve 119 00:11:17.600 --> 00:11:20.880 had weakened the ability of the rules of the gold standard 120 00:11:20.880 --> 00:11:24.600 to prevent the monetary expansion and price distortions 121 00:11:24.600 --> 00:11:26.120 that set in motion the inevitability 122 00:11:26.120 --> 00:11:28.520 of the Great Depression. 123 00:11:28.520 --> 00:11:30.720 And of course, also in the book on fines, 124 00:11:30.720 --> 00:11:32.960 already Rothbard referring to, something 125 00:11:32.960 --> 00:11:37.040 that has become a controversy among many Austrians today 126 00:11:37.040 --> 00:11:38.280 in monetary theory. 127 00:11:38.280 --> 00:11:41.520 And that is, how should a competitive free banking system 128 00:11:41.520 --> 00:11:47.560 work, fractional reserves, or 100% reserve banking. 129 00:11:47.560 --> 00:11:54.600 But let me suggest this, that if Mises' distinctions concerning 130 00:11:54.600 --> 00:11:58.880 the different forms of fiduciary media, money substitutes, 131 00:11:58.880 --> 00:12:02.520 had been the guide for economic policy then, in the 1920s 132 00:12:02.520 --> 00:12:06.240 and 30s, and had been the guide for monetary policy 133 00:12:06.240 --> 00:12:08.480 in the decades leading up to our current crisis, 134 00:12:08.480 --> 00:12:11.680 These crises would have never occurred. 135 00:12:11.680 --> 00:12:16.280 If checking accounts were viewed as warehouse receipts 136 00:12:16.280 --> 00:12:20.040 against which 100% reserves have to be held, 137 00:12:20.040 --> 00:12:22.480 if savings accounts were viewed all 138 00:12:22.480 --> 00:12:25.440 as time deposits in which the depositor agrees 139 00:12:25.440 --> 00:12:29.720 to leave his money on deposit for a specified period of time 140 00:12:29.720 --> 00:12:33.440 so that the banks could take that specified savings 141 00:12:33.440 --> 00:12:37.480 and loan it to investors for a similar specified 142 00:12:37.480 --> 00:12:41.280 Period of Time for a coordination of the savings and investment decisions of the two 143 00:12:41.280 --> 00:12:45.880 members of the society through the intermediary of banking. 144 00:12:45.880 --> 00:12:51.760 None of these crises of either the 1930s or our own time would have occurred. 145 00:12:51.760 --> 00:12:58.160 That is what makes this book and the ideas in it not only a wake up and an understanding 146 00:12:58.160 --> 00:13:03.220 of an earlier era, but essentially of important relevance for our own time. 147 00:13:03.220 --> 00:13:03.720 Thank you very much. 148 00:13:07.480 --> 00:13:09.480 Thank you very much.