Preparing for this session, I obviously, like my colleagues on the panel, ended up rereading America's Great Depression.
But when I picked up the book off my shelf, and I admit I had not read it for quite a while,
I opened it up, and it reminded me when I first met Murray Rothbard,
because he was my autographed copy that he signed.
And the date is June 1974, which means a mere lad back then, probably in diapers.
I had taken my copy to that first Austrian economics conference in South Royalton, Vermont
that had been organized by the Institute for Humane Studies.
And it made me remember my first reaction when I met Murray.
Now I was an undergraduate in California, he's in New York, I've never met him.
I only know him through his works and, you know, the occasional photo on the inside of
of a Dust Jacket of a Book.
In my mind, my picture of Murray Rothbard
from just reading him, he was tall, very thin,
and unbelievably serious.
So I arrive at South Royalton, Vermont,
and people starting arrive.
And I'm looking around for Murray Rothbard,
and there's this group of people of which I think probably Joe
was one, because that was the first time Joe and I met,
Around this short, kind of, return, roly-poly guy, who's just laughing and cackling.
And I'm thinking, who's this?
Let me introduce you to Murray Rothbard.
So that's how I first met Murray.
And it was, that shows that expectations can often be frustrated by reality.
But that was obviously a memorable event, meeting Rothbard and all these other scattered Austrian
and Economists, including others who are on this panel too.
Roger Garrison I met there for the first time.
This book, as already some of my colleagues on this panel
have said is an important book.
And for some of the following reasons, let me suggest.
As was already pointed out, we need to remember
that when Rothbard's America's Great Depression came out,
What is now 50 years ago in 1963, the economics profession was dominated by the ideas of John
Maynard Keynes and the Keynesian Revolution. Indeed, for most economists at that time, Rothbard's
argument in this book was unintelligible. Indeed, that comes out very clear if you go
Go back to the economics journals of 1963, 1964, and you look up and find the only handful
of reviews that were done of the book in the scholarly journals of the time.
They don't understand the historical and intellectual context out of which Murray is developing
this argument, the Austrian tradition, especially out of Mises but also Hayek obviously in terms
of the business cycle.
They don't understand the conceptual framework of a microeconomics of understanding macro
problems at all, and in fact they basically reject it as a theoretically un-understandable
historically clearly false and therefore no economics at all.
This was due to the fact that for the economics profession at that time, they were obsessed
focused on macroeconomic aggregates of total employment, total output, the general price
level and Rothbard's attention to a microeconomics monetary process analysis seemed totally irrelevant
and misplaced in the context of their sense that the analytical schema to understand economy-wide
Fluctuations had to be the aggregates that had been developed through aggregate demand,
aggregate supply in Keynes's work. These were the tools that were necessary for any
serious analysis. Now, in this general sense, one thing that Rothbard can be credited for
is that his book can be considered an early contribution to the search for what has become
come to be known in macroeconomics as the search for microeconomic foundations of macroeconomic
phenomena.
But also, and more importantly for us, I suppose, is the fact that what Murray's book does is
represent after a practically 30-year hiatus, a revival of the Austrian tradition of money
in the Business Cycle.
Because beginning in the 1930s and in the 1940s, the ascendancy and triumph of Keynesian
economics had resulted in all of these alternative approaches to understanding business cycles,
including the Austrian, being submerged in a tidal wave of Keynesian success.
Now one of the tragedies in a sense of Rothbard having to do this is that all of what he presents
in this book was already clearly explained and analyzed by that earlier generation of
Austrian economists.
It was Mises and Hayek who in the 1920s and then in the 1930s who were presenting this
case of understanding how distortions of interest rates through monetary expansion brought about
about an imbalance and a disequilibrium in the relationships between savings and investment,
and that this would set in motion a series of sequences of events over time that would
inevitably lead to a downturn that would require a correction.
Furthermore, it wasn't, and this is too lost, and Rothbard refers to some of these
The Expositions and the Presentations of this theory was in literally dozens of books and
articles.
For example, Lionel Robbins, who had brought Hayek to the London School, wrote his own
exposition and application of the Austrian business cycle theory in his 1934 book, The
Great Depression.
In the same year of 1934, Mises's former protege, Fritz Machlub, had published a book
called A Guide Through Crisis Policies, in which he had demonstrated how misguided were
all of the interventionist policies being instituted in that time, and in fact they
They were exacerbating the very cure for the depression the policies were meant to provide.
Also in 1934, one of the most famous economists of that time, a Cambridge University economist,
Arthur Pagu, came to give a series of lectures at the London School of Economics with Mises
and Hayek and Lionel Robbins in the audience.
And in one of the lectures, obviously under the persuasion of some of these Austrian ideas,
says that clearly the situation that Britain has gotten into is due to the misallocations
of resources and misdirections of capital and labor brought about before the downturn.
And he even says in this lecture following the Austrians that it might very well be the
most effective way to bring about a correction and a rebalance to experience a deflationary
decline in prices and wages to find the appropriate equilibrium levels.
We also find in the Britain of that time a left-wing branch of Austrian monetary theory.
Hugh Gateskill, EFM Durbin, who after the Second World War became leaders of the British
Labour Party, were themselves writing articles or books in the early 1930s applying Hayek's
ideas to understand what had happened in generating the business cycle and to undermine what they
they viewed as the economic heretics who are saying that will the solution is just increased
demand. Now, perversely, their solution was to say, you see, this is the instability in
the current monetary system, the solution is nationalization of business and banks.
Over in Geneva, Switzerland, over in Geneva, Switzerland, at the League of Nations, Alexander
Professor Loveday, who was the director of the economics intelligence unit at the league,
had been commissioning a variety of economists with Austrian views to write special monographs
for internal use by the league to present a variety of expositions.
Mises, Gottfried Habler, and one of the leading German free market economists of that time,
Moritz J. Bonn, to analyze why it was that it was inherently impossible and dangerous
to attempt to stabilize the price level through monetary manipulation, and that gold had not
caused any of the causes leading to the Great Depression, and that a restoration of a properly
functioning gold standard might be a means to bring about rebalance and stability in
the economy.
Over here in the United States, and Rothbard of course refers to him, Benjamin Anderson,
The Senior Economic Analyst for Chase Bank in the 1920s and early 30s was grinding out
Chase bulletins every other month or every once every three months from the beginning
of the mid-1920s on the dangers of price stabilization and Fed credit expansion.
And perhaps less well-known is that in 1932, Aaron Director, who later became the brother-in-law
of Milton Friedman did a brief monograph on unemployment in which the analytical framework
that he refers to as an explanation of how the unemployment has been created is in fact
a two-page exposition and summary of Hayek's own argument.
This is the lost tradition that Rothbard was re-presenting at this time.
The one other element I would just briefly point out is that Rothbard was also explaining
the role historically and the policy importance of a gold standard.
That the gold standard, however imperfectly, had acted as a limit and a check on the government's
ability to expand the money supply.
And how central banks being in charge of the gold standards of that time, including the
The American Central Bank of the Federal Reserve
had weakened the ability of the rules of the gold standard
to prevent the monetary expansion and price distortions
that set in motion the inevitability
of the Great Depression.
And of course, also in the book on fines,
already Rothbard referring to, something
that has become a controversy among many Austrians today
in monetary theory.
And that is, how should a competitive free banking system
work, fractional reserves, or 100% reserve banking.
But let me suggest this, that if Mises' distinctions concerning
the different forms of fiduciary media, money substitutes,
had been the guide for economic policy then, in the 1920s
and 30s, and had been the guide for monetary policy
in the decades leading up to our current crisis,
These crises would have never occurred.
If checking accounts were viewed as warehouse receipts
against which 100% reserves have to be held,
if savings accounts were viewed all
as time deposits in which the depositor agrees
to leave his money on deposit for a specified period of time
so that the banks could take that specified savings
and loan it to investors for a similar specified
Period of Time for a coordination of the savings and investment decisions of the two
members of the society through the intermediary of banking.
None of these crises of either the 1930s or our own time would have occurred.
That is what makes this book and the ideas in it not only a wake up and an understanding
of an earlier era, but essentially of important relevance for our own time.
Thank you very much.