The Great, Avoidable Depression

Via RealClear Politics is a review by the Manhattan Institute's Nicole Gelinas of Amity Shlaes' recently-released The Forgotten Man: A New History of the Great Depression. From the looks of it, the book would seem a worthwhile and interesting read at a minimum and perhaps even a much-needed corrective to generations of misdiagnoses of the causes and purported remedies of the Great Depression.

Shlaes argues that the 1929 stock-market crash wasn't a well-deserved punishment for Roaring '20s greed. Many profits that drove up the market in those days were real - the result of private-sector managers' ingenious exploitation of new technologies.

Nor did the crash guarantee that a decade of depression would follow. Decision-makers, beginning with Herbert Hoover, helped to make it so.

Hoover wasn't unfeeling or incompetent. Before he was president, he'd been a successful businessman, and had won praise as commerce secretary for his compassion and management expertise when he aided the victims of the 1927 Mississippi flood.

After the market crashed, President Hoover immediately applied this same can-do attitude to the economy. To protect workers, he called upon big businesses not to cut jobs or wages. And to protect big business, he gave in to protectionist sentiment and signed into a law a huge tariff on imported goods.

Hoover wanted to help, but instead, he hurt. The tariff ignited a trade war that harmed companies and consumers. Encouraging employers to keep wages and employment up when the economy couldn't support such measures ensured stock prices' continued fall.

After Hoover, President Franklin D. Roosevelt launched his own wave of economic experiments, detailed by Shlaes, ranging from ambitious public-works programs to fiddling with the dollar's value.

Shlaes makes a good case that Roosevelt didn't do any one thing that protracted the Depression. Instead, with his bold and oft-changing ideas, he created an air of economic uncertainty that was deadly to private-sector recovery. Investors had no idea what might come next, so they were afraid to move on.

Many of these points echo those made by Richard Salsman in a series of articles on "The Causes and Consequences of the Great Depression" starting in the June 2004 issue of The Intellectual Activist (and cited by Andrew Bernstein in his discussion of the Great Depression in Chapter 13 of The Capitalist Manifesto).

Following the link at "Shlaes" above will take you to the author's web site, where you can find excerpts from other reviews as well as links to some of them. The book is apparently well-written and informative. However, I am completely unfamiliar with Shlaes' work, and so will be very curious to see how her critique stacks up against Salsman's.

If any of my readers are familiar with Shlaes, I would be interested in hearing from you regarding her other work in general or this review in particular.

-- CAV

Updates

12-12-07: Corrected "Schlaes" to "Shlaes" near end of article.