12 Apr 2013

Who Said It?

All Posts 19 Comments

“When the stock market crash arrived in October, 1929, Herbert Hoover, now the president, intervened so rapidly and so massively that the market–adjustment process was paralyzed, and the Hoover–Roosevelt New Deal policies managed to bring about a permanent and massive depression, from which we were only rescued by the advent of World War II.”

HINT: It’s not David Stockman. And I have actually read this quote several times, but never saw how odd it was until someone just emailed me, asking about it.

19 Responses to “Who Said It?”

  1. K.P. says:


  2. Sam Wilson says:

    At the time [the author] wrote that, Higgs hadn’t yet published his thorough debunking of the notion that it was the war that ended the Great Depression. I find it pretty hard to hold it against [the author] for taking the received wisdom at face value.

    • Daniel Kuehn says:

      I don’t buy it Sam.

      He was plenty skeptical of the Keynesian understanding by then even if one considers Higgs’s work on the war and the depression thorough.

      • K.P. says:

        It’s got to be a case of sloppy writing, I doubt Rothbard abandoned his views when it came to war.

      • Head Stomp says:

        Wouldn’t the ameliorating mechanism Rothbard had in mind be something more akin to under-consumption through rationing and liquidation of malinvestment for war repurposement rather than Keynesian stimulus? And wouldn’t Rothbard argue that a period of under-consumption and liquidation of malinvestment is what would have occurred absent hoover/new deal interventions?

  3. Seymour says:

    K.P. is right on the money! And it came from “America’s Great Depression.”

  4. Daniel Kuehn says:

    Mr. Rothbard – yes, it’s an odd one.

  5. Ryan Murphy says:

    It’s a bit out of context. The next sentence is “Laissez-faire—a strict policy of non-intervention by the government—is the only course that can assure a rapid recovery in any depression crisis.”

    The implication being, WWII and the 1940s brought with them a return to laissez-faire. That’s probably wrong too, but whatever.

    • Major_Freedom says:

      It is I think wrong to attribute to Rothbard the belief that WW2 ended the depression. I think it’s sloppy writing.

      For that last sentence you alluded to contradicts the idea that wars can end depressions.

      The statement “Laissez-faire—a strict policy of non-intervention by the government—is the only course that can assure a rapid recovery in any depression crisis” implies that war cannot be a means to end depression. If Rothbard really believed that war could end depressions, then he could not also believe that “Laissez-faire is the ONLY course…”.

      He would have to say “Laissez-faire—a strict policy of non-intervention by the government— and war, [are] the only course[s] that can assure a rapid recovery in any depression crisis.”

      • Head Stomp says:

        I think “assure a rapid recovery” is the key phrase. Wars can obviously be lost, become protracted, or lead to worse economic interventions.

        MF, what do you think about my reply to Daniel? I think there is an interesting argument to made that the war is what actually forced the government to allow the liquidation of malinvestments to aid the war effort. Of course, that was replaced by war (mal)investment/consumption but the USG was willing to eliminate that when the war ended, allowing the market process to begin to work, which is when the recovery actually began.

  6. Bob Roddis says:

    Technically the “advent” of WWII changed society considerably from the prior “depression” regime to the “let’s build planes to kill Germans and Japs” regime. It’s just that WWII did not bring or cause prosperity other than dragging out the bad times so far that all prior “debt deflation” had expired and run its course by the time the war ended. Everyone was getting a fresh start after the war, just like the West Germans in 1949.

    • RPLong says:

      I was thinking use of the word “advent” was an important feature of the statement. But I’m no Rothbard expert, so i can’t really say.

  7. Eric says:

    Well as Thomas sowelll asked, what about the war that brought economic recovery? It wasn’t the spending but that the war replaced the anti business rhetoric of the new deal and ushered in private business that felt secure in investing. (Regime uncertainty diminishes) rothbard then goes on to state the strict free market policies after the war but this implied the strict liquidation policy from 1944-1946 (I may be wrong) which restored the economy.

  8. steveZ says:

    Haha, to me it shows just how smart the guy was when people are shocked to find any minor inconsistencies, even when it’s between young and old Rothbard. He knew that war retards growth, and he would never say that a large increase in government spending would help in any way, so who knows what he meant. He was notoriously fast at writing, though, it’s not like he sat and dwelled over each line.

  9. steveZ says:

    And for as many words as the guy wrote in his lifetime, he was remarkably consistent.

  10. Richard Moss says:

    Maybe he meant rescued in an ironic way. If he did, he should have used scare quotes. Or, maybe they were left out by the publisher, or deleted.

  11. Bharat says:

    Milton Friedman probably inserted it when Rothbard went to take a potty break.

  12. Adrian Gabriel says:

    The quote is pretty straight forward in regards to how the mainstream view sees the Great Depression. Rothbard was a smart man and this was a basic synopsis written in his introduction. It’s important to look at it in context. He explains before this quote the dangers of government intervention. His focus is without a doubt the dangers bestowed by Hoover, but this is a very good lesson to see why WW2 was not prosperous. It was precisely a time of complete government intervention. It is only evident, especially when taking into consideration the mainstream teachings of the time. In these regards, Robert Higgs is a Rothbardian that did some great analysis on WW2 itself, and your article Professor Murphy is a great testament to that. I would also recommend your book The Politically Incorrect Guide to the Great Depression for a wonderful Rothbardian analysis of the this era.

    Now going back to Rothbard’s points, they are most evident hin his book A History of Money and Banking in the United States. Before delving into the key pieces of that book, let us begin with another important quote from his book America’s Great Depression, in which you derive the quote you referred to from, that sums up the intent of the book itself:

    “What was the trouble? Economic theory demonstrates that only governmental inflation can generate a boom-and-bust cycle, and that the depression will be prolonged and aggravated by inflationist and other interventionary measures. In contrast to the myth of laissez-faire, we have shown in this book how government intervention generated the unsound boom of the 1920s, and how Hoover’s new departure aggravated the Great Depression by massive measures of interference. The guilt for the Great Depression must, at long last, be lifted from the shoulders of the free-market economy, and placed where it properly belongs: at the doors of politicians, bureaucrats, and the mass of “enlightened” economists. And in any other depression, past or future, the story will be the same.”

    It is only clear here the intention of his analysis. Now in A History of Money and Banking in the United States, he furthers his basic description of how government intervention kept making the same mistakes as those in his book America’s Great Depression:

    “The Committee for the Nation at first included several hundred industrial and agricultural leaders, and within a year its membership reached over two thousand. Its recommendations, beginning with going off gold and embargoing gold exports, and continuing through devaluing the dollar and raising the price of gold, were fairly closely followed by the Roosevelt administration.16 For his part, Irving Fisher, in response to a request for advice by President-elect Roosevelt, had strongly urged at the end of February a frankly inflationist policy of reflation, devaluation, and leaving the gold standard without delay. By April 19, when Roosevelt had cast the die for this policy, Fisher exulted, “Now I am sure—as far as we ever can be sure of anything—that we are going to snap out of this depression fast. I am now one of the happiest men in the world.

    …In short, the president was now totally committed to the nationalist Fisher–Committee for the Nation program for paper money, currency inflation and very steep reflation of prices, and then stabilization of the higher internal price level. The idea of stable exchange rates and an international monetary order could fade into limbo.

    …And in late 1938 President Roosevelt asked Professor James Harvey Rogers, an economist and disciple of Irving Fisher, to make a currency study of all of South America in order to minimize “German and Italian influence on this side of the Atlantic.

    …It is no wonder that German diplomats in Brazil, Chile, and Uruguay reported home that the United States was “exerting very strong pressure against Germany commercially,” which included economic, commercial, and political opposition designed to drive Germany out of the Brazilian and other South American markets.

    In the spring of 1935, the German ambassador to Washington, desperately anxious to bring an end to American political and economic warfare, asked the United States what Germany could do to end American hostilities. The American answer, which amounted to a demand for unconditional economic surrender, was that Germany abandon its economic policy in favor of America. The American reply “really meant,” noted Pierrepont Moffat, “a fundamental acceptance by Germany of our trade philosophy, and a thoroughgoing partnership with us along the road of equality of treatment and the reduction of trade barriers.” The United States further indicated that it was interested that Germany accept, not so much the principle of the most-favored national clause in all international trade, but specifically for American exports.

    When war broke out in September 1939, Bernard Baruch’s reaction was to tell President Roosevelt that “if we keep our prices down there is no reason why we shouldn’t get the customers of the belligerent nations that they have had to drop because of the war. And in that event,” Baruch exulted, “Germany’s barter system will be destroyed.”49 But particularly significant is the retrospective comment made by Secretary Hull:

    “[W]ar did not break out between the United States and any country with which we had been able to negotiate a trade agreement. It is also a fact that, with very few exceptions, the countries with which we signed trade agreements joined together in resisting the Axis. The political lineup follows the economic lineup.”

    We can now see how government intervention became a game control over the markets through complete monetary monopolization. For this reason Rothbard saw how war was the greatest tool by which to intervene or be the pretext by which to monopolize and intervene. Germany’s nationalism could be said to have been due to troubles of bad monetary policy that lead to inflation and later nationalism….sound familiar? Either way, Rothbard’s analysis is important to gather when reading his material. He is a man that leaves us with lessons that we can apply to other circumstances, such as the one in this case. As Mises was Rothbard’s teacher, it seems Rothbard has been a mentor for many more great Rothbardians. Rothbard used the ABCT to analyze Hoover’s era, after that it was imple for us to understand how things resulted and to apply the same analysis to later circumatances. Rothbard was a genius, as is Murphy.

  13. Tel says:

    I don’t have any problem with this.

    If a depression is a result of malinvestment, and if liquidation is required to clean up the malinvestment, then it is perfectly consistent to see war as one method of liquidation. Of course war liquidates both people and assets at the same time, but I didn’t say that war was the ideal method of liquidation, it is just one possible option that fulfils the purpose.

    After the war, a fresh start was possible, and that’s when the prosperity kicked in.

    I might also point out, that not all nations saw the after-war prosperity that the USA was party to. The socialist nations waited an extra 40 years to get that.

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