Broken Windows Open Minds
This concise guide to The Great Depression is contrary to most of the history I heard in High School. No offense to Mr. Calhoun or any of the other fine teachers I had back at D-Y, but from my own investigations into economics and history, I have to agree with Dr. Murphy, rather than what you taught me.
While many people revisionist history as helping to cover up a crime, this is a bit of revision that I think should be heard by a wider audience. All through my school age years, I heard about the March of Dimes, and the legacy of Franklin Delano Roosevelt, and how wonderful a president he was. Although since my formal schooling has ended, I have made an effort to continually learn, and have debunked much of what I thought was good about FDR subsequent to having read The P.I.G. to the Great Depression and the New Deal.
The book starts off rather gently establishing the doings of the expansionist and historically interventionist Herbert Hoover, and the establishment of a central bank in the United States under president Woodrow Wilson. Murphy establishes the main culprits which worked to create a speculative boom in stocks in the 1920’s, and the subsequent banking failures and contraction in the economy.
Murphy does not shy away in assessing the blame during chapters 4, 5, and 6. It is these sections that kept me a rapt attention, as Murphy explains what was done, and what should not have been done by the meddling New Deal bureaucrats. Murphy points out the faults of those that opposed the New Deal during peacetime, but essentially were co-opted when FDR baited Imperial Japan to attack the United States to start World War Two.
Murphy pointedly shows how incomplete Nobel Prize winning economist Paul Krugman’s thinking is in “Chapter 5: The Failure of the New Deal” by contrasting Krugman’s view with that of Robert Higgs: “In contrast to Krugman’s theory, Bob Higgs advanced a revolutionary thesis in a 1997 paper that could explain what made the Great Depression different from all previous slumps. Higgs attributed much of investor skittishness to ‘regime uncertainty’:
[T]he insufficiency of private investments from 1935 through 1940 reflected a pervasive uncertainty among investors about the security of their property rights in their capital and its prospective returns. This uncertainty arose, especially, though not exclusively, from the character of the actions of the federal government and the nature of the Roosevelt administration during the so-called Second New Deal, from 1935 to 1940.“
Robert Murphy illustrates many economic truths very eloquently. None, however are done better than his analysis of wages in a contracting economy which he provides in Chapter 7: The Outrages of the New Deal”
“The crucial point, however, is that even if the revised plan eventually calls for all worker on the construction site to being contributing to the redesigned (and more modest) house, they probably won’t all be needed the first day after the blueprints are revised. For example, those workers who had been busy painting a deck may be “idle” for weeks, because the revised blueprint no longer has a deck at all, and the painters won’t be needed until the rooms of the new house are ready. This is a decent analogy for the situation that many businesses found themselves in in during the Great Depression: after the bursting of the unsustainable bubble in 1929, employers had to reassess their needs for workers and resources. Market prices help to make this happen. If producers can’t find customers, they probably need to to lower their prices. If displaced workers can’t find work quickly, they probably need to lower their wage demands. As the economy grows, labor becomes more valuable and wages rise."
The section in which Dr. Murphy explains Frederic Bastiat’s “Fallacy of the Broken Window” is just so good that you’ll have to buy the book! Broken window’s open minds.