ALS: thoughts on freedom

The Great Depression – as explained by Supply Side economics

Today I stumbled on a paper that I first encountered a few years ago. I first saw it just prior to publication when a copy was shared with me by the authors father. The book length document expands on prior work from the Supply Side school of economic thought on the causes of the Great Depression. Given recent economic events I thought it was well worth another look and I thought others might also appreciate it. In my view the Supply Side analysis that it expounds still represents the most coherent explanation for the Great Depression.

History Incognito:
The untold origins of the Roaring Twenties, the Crash, and the Great Depression
By Sean P. Breen
Monday, April 10, 2006

This paper offers an answer to three important unanswered questions regarding the economic history of the 1920’s boom, the Crash of 1929 and the subsequent Great Depression. This paper supports its answers by creating new historical databases and subjecting the historical data to rigorous modern statistical analysis.
The three questions are: what caused the boom of the 1920’s, what caused the Crash of 1929 and what caused the ensuing Great Depression of 1930’s? The answer, which is detailed in the following pages, is that the antecedent cause for all three questions was the transformation of the United States into the world’s creditor as a result of World War One. This War and the reversal of the Unite States from a debtor nation to become the world’s only remaining banker, created a fragile world economy that demanded continued U.S. lending to support a level of international commerce that could allow repayment of War debts. The Mellon Treasury was masterful in managing the economic dislocation of the War Years and returning the U.S. economy to growth through a progressive and scientific reform of the U.S. tax structure and U.S. debt markets. This was the ‘cause’ of the 1920’s boom. The restructuring of lower peacetime tax rates and the lowering of tariffs promoted expanding trade with Europe that was essential if the European nations were to recover from the War and perform on the War debts owed to the U.S. Enabled by the Mellon treasury, the U.S. loaned money to Europe to buy U.S. products so that they could earn enough from the commerce to continue to perform on War debt and reparations that were in turn owed to the U.S. These policies were successful until the late 1920’s when declining agricultural prices, driven down by technological productive innovation, raised political temperament for agricultural tariffs. The politics of the agricultural tariff movement blossomed into a general tariff movement as all sectors of the economy sought to share in the political largesse. Unfortunately, the resulting Smoot-Hawley tariff destroyed the precarious basis under which the fragile international financial structure functioned. This was the ‘cause’ that resulted in the Crash of 1929. As international tariffs reduced international commerce the international financial system collapsed and the U.S. stock marked crashed. In reaction to the economic collapse U.S. policy retreated from the paradigm of low taxes and open markets to high taxes and closed markets which prevented recovery and so, ‘caused’ the Great Depression.

http://polyconomics.org/ras/Crashof1929_Thesis_Final.doc

November 5, 2009 Posted by TerjeP (say tay-a) | Economics | 11 Comments