I’ll be very interested to look at the Austrian perspective on the Great Depression in the videos from this course, and I’ll also provide a detailed critique of the Austrian arguments here on my blog.
Let us divide the statements in this video into the right and wrong:
I. What is right?
(1) It is certainly true that war, to the extent that it creates war materiel that is destroyed and diverts real resources to such war production (instead of to production of consumer goods), destroys wealth.II. What is wrong?
(2) It is true that Herbert Hoover engaged in a number of interventions during 1929 to 1933, and did not, strictly speaking, do nothing. Hoover rejected extreme liquidationism, and attempted to fight the onset of the Great Depression with a number of limited and weak interventions.
(1) Just because war is destructive and war production generally destroys wealth, it does not follow that all investment or employment during WWII was destructive. For example, the American government’s investment in aircraft during WWII helped to created a great deal of new technology and the capital goods to produce new and better generations of aircraft after the war ended. Many new technologies were invented during the war that were useful in the peacetime economy after the war ended and in the production of consumer goods.
The income of many people increased significantly during the way, allowing both businesses and households to clear private debt and save the money that fuelled the recovery after 1945.
(2) Just because it is true that Hoover did not do nothing, it does not follow that he did enough in terms of government interventions to prevent the severity of the depression or to end it quickly.
The proper and academic Keynesian critique of Hoover is not that he did nothing, but that he did not do enough and that his interventions were too mild, weak or ineffective.
(3) We are told from 0.27–0.31 that Hoover was an “extremely interventionist president”. I dispute that statement.
“Extremely interventionist” relative to what? Hoover was not “extremely interventionist” relative to the interventions that became commonplace in Western mixed economies after 1933 and certainly after 1945. Hoover was relatively non-interventionist in relation to the mixed economies of the post-1945 period.
It does make sense to say that Hoover was relatively “interventionist” compared to the economic system and presidents that preceded him, but even here the comparison is not necessarily “extreme.”
Take Hoover’s lowering of interest rates and open market operations, which I have examined here.
The Federal Reserve banks had regularly lowered rates and engaged in substantial bond buying programs in response to 1920s recessions before 1929. The Fed cut rates in 1921, 1924 and 1926–1927 to fight recessions, and cut rates and bought bonds in 1924 and 1926–1927.
For example, from July 1929 to late 1931, Federal Reserve holdings of US Treasuries securities increased about fivefold, over a period of about two years. Austrian critics might complain that this was an unprecedented “evil” monetary intervention.
But it was not. In the year from 1923–1924 during a recession, Federal Reserve holdings increased from $91 million in October 1923 to $585 million by October 1924. That was a six-fold increase over about a year, much more radical than the 1929–1931 program and in a shorter time too.
(4) It is claimed that “in most parts of the world the Great Depression” was over by much earlier and more quickly than in the United States.
Nobody denies that the Great Depression was highly variable in its length and severity throughout the world, nor that it ended more quickly in some countries.
We can see the real GDP loss and the duration of the Great Depression for 22 Western nations, ranked from the most severe to the least severe real output loss, here:Nation | Real GDP loss | Years of ContractionThe worst depressions were in Canada and the US, with Austria, Poland, Czechoslovakia, Germany, France and New Zealand following.
(1) Canada | -29.59% | 1929–1933
(2) US | -28.52% | 1929–1933
(3) Austria | -22.45% | 1929–1933
(4) Poland | -20.70% | 1930–1933
(5) Czechoslovakia | -18.19% | 1930–1935
(6) Germany | -16.11% | 1929–1932
(7) France | -14.65% | 1930–1932
(8) New Zealand | -14.63% | 1930–1932
(9) Yugoslavia | -13.69% | 1930–1932
(10) Bulgaria | -12.72% | 1934–1935
(11) Netherlands | -9.46% | 1930–1934
(12) Hungary | -9.36% | 1930–1932
(13) Switzerland | -8.02% | 1930–1932
(14) Belgium | -7.89% | 1929–1932
(15) Norway | -7.75% | 1931
(16) Sweden | -6.20% | 1931–1932
(17) UK | -5.80% | 1930–1931
(18) Australia | -5.78% | 1929–1930
(19) Romania | -5.57% | 1932
(20) Italy | -5.47% | 1930–1931
(21) Romania | -4.57% | 1929
(22) Finland | -3.97% | 1930–1932
(23) US | -3.97% | 1938
(24) Denmark | -2.62% | 1932
(25) Australia | -2.57% | 1932
(26) Bulgaria | -1.91% | 1929
But, since different nations were affected in different ways and had different economic strengths and weaknesses, and took different policy responses, it makes little sense to invoke one nation whose depression ended early and compare it with the US, without a careful analysis of the extent of the depression and the policy response in both countries.
And there is another important issue here: is the “Great Depression” being defined as(1) the actual period of real output collapse only, orStephen Davies asserts that in the UK the Great Depression “was over by 1933” (at 0.59–1.05). But in what sense?
(2) the period of real output collapse and the recovery with high unemployment and insufficient growth to restore full employment which followed?
If one defines the “Great Depression” in sense (1), then the Great Depression occurred from 1930–1931 in the UK and from 1929–1933 in the US.
But, in sense 2, the Great Depression continued in both the UK and the US (and in many other nations) until the late 1930s.
Crucially, the UK did not recover to full employment by 1933 at all, as we can see here in the UK unemployment statistics:Year | UK Unemployment RateEven in 1936, UK unemployment was still at 10.2%.
1928 | 8.2%
1929 | 8.0%
1930 | 12.3%
1931 | 16.4%
1932 | 17.0%
1933 | 15.4%
1934 | 12.9%
1935 | 12.0%
1936 | 10.2%
1937 | 8.5%
1938 | 10.1%
1939 | 8.5%
(Boyer and Hatton 2002: 667).
While the UK left the gold standard and devalued its currency quickly, which allowed some degree of export-led growth, its unemployment was still shockingly high in the 1930s without significant fiscal stimulus.
Stephen Davies asserts that the Great Depression in the US went on for more than a decade and in fact got worse by 1937. Without further clarification, this is misleading, because the US experienced a significant recovery from 1933 to 1936, and then Roosevelt turned to contractionay fiscal and monetary policy in 1937 and 1938 (the opposite of Keynesian fiscal policy!), and this caused the recession of 1937–1938 during which unemployment increased.
A final point is this: what nations emerged quickly from the depression in sense (2) to have a strong recovery where unemployment fell to low levels?
Those nations that recovered rapidly and successfully from the Great Depression defined as a severe real output collapse and its aftermath in sense (2) were New Zealand, Germany and Japan. They did so by large-scale fiscal stimulus. The US recovery was aided by its moderate fiscal expansion, but its stimulus was not nearly enough to drive the economy to full employment.
More on the fiscal expansion in New Zealand, Germany and Japan is given in these posts:
“More Fake History of the Great Depression,” September 28, 2012.
“The Great Depression in 22 Western Nations: Real GDP Data,” March 1, 2013.
“UK Unemployment, 1870–1999,” February 25, 2013.
Boyer, George R. and Timothy J. Hatton. 2002. “New Estimates of British Unemployment, 1870–1913,” The Journal of Economic History 62.3: 643–667.