How Keynesianism Caused The Great Depression
In 1926, President Hoover, as Secretary of Commerce, stated this economic nonsense, “The very essence of great production is high wages and low prices, because it depends on upon widening….consumption, only to be obtained from the purchasing-power of high real wages and increased standards of living.”[1] Hoover was an economic fool and America paid a heavy price for it; “America was brought to her knees as never before.”[2] Hoover, in a delusional state of mind in August 1932, stated during his Presidential renomination acceptance speech:
We might have done nothing. That would have been utter ruin. Instead, we met the situation with proposals to private business and to the Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic. We put that program in action.[3]
Hoover would proudly admit that it was a “program unparalleled in the history of depressions in any country and any time.” Economists Lowell Gallaway and Richard Vedder write, “He was an interventionist who, among other things, found morally and intellectually unacceptable the classical means of dealing with earlier incidents of depressed economic conditions.”[4]
Keynesianism, and Keynes in General Theory, purports that full employment and recovering from a recessionary economy is achieved from increasing aggregate demand – or a recession is caused by an excess of goods and services. Keynesianism is the antithesis of classic and Austrian economics, and Say’s Law (Jean-Baptiste Say, 1803) which is “[d]emand is constituted by supply but only so long as supply consists of what those with incomes to spend want to buy;”[5] that is, supplied products which create value for the consumer. This is the supply-side economics of the Reagan administration and the economics of Arthur Laffer. “Classical economists understood that economies are not driven by demand but by value adding production, which is what they referred to as “supply.” They understood perfectly well that raising demand without an increase in the level of value adding output cannot be an answer to recession and unemployment.”[6]
[1] Murray N. Rothbard, 2008 (originally published in 1963), America’s Great Depression, (Auburn, AL: The Ludwig von Mises Institute), p. 205. Hoover also stated, and acknowledged, that his administration “had to pioneer a new field,” and that “the primary question at once arose as to whether the President and the Federal government should undertake to investigate and remedy [economic recessions] evils….No President before had ever believed that there was a governmental responsibility in such cases. No matter what the urging on previous occasions, Presidents steadfastly had maintained that the Federal government was apart from such eruptions…” See Murray N. Rothbard, 2008 (originally published in 1963), America’s Great Depression, (Auburn, AL: The Ludwig von Mises Institute), p. 209.
[2] Murray N. Rothbard, 2008 (originally published in 1963), America’s Great Depression, (Auburn, AL: The Ludwig von Mises Institute), p. 207.
[3] Murray N. Rothbard, 2008 (originally published in 1963), America’s Great Depression, (Auburn, AL: The Ludwig von Mises Institute), p. 321. For full text see Herbert Hoover, August 11, 1932, “Herbert Hoover Address Accepting the Republican Presidential Nomination,” [http://americanhistory.about.com/library/docs/blhooverspeech1932.htm].
[4] Lowell Gallaway and Richard K. Vedder, 1987, “Wages, Prices, and Employment: Von Mises and the Progressives,” (The Review of Austrian Economics, Vol. 1, No. 1), p. 35, [http://mises.org/journals/rae/pdf/RAE1_1_4.pdf].
[5] Steven Kates, Winter 2010, “Why Your Grandfather’s Economics Was Better than Yours: On the Catastrophic Disappearance of Say’s Law,” The Quarterly Journal of Austrian Economics, Vol. 13, No. 413-28, pp. 19-20.
[6] Steven Kates, Winter 2010, “Why Your Grandfather’s Economics Was Better than Yours: On the Catastrophic Disappearance of Say’s Law,” The Quarterly Journal of Austrian Economics, Vol. 13, No. 413-28, p. 25.
Originally published on Townhall Finance.
Jim Huntzinger began his career as a manufacturing engineer with Aisin Seiki (a Toyota Group company and manufacturer of automotive components) when they transplanted to North America to support Toyota. Over his career he has also researched at length the evolution of manufacturing in the United States with an emphasis on lean’s influence and development. In addition to his research on TWI, he has extensively researched the history of Ford’s Highland Park plant and its direct tie to Toyota’s business model and methods of operation.
Huntzinger is the President and Founder of Lean Frontiers and a graduate from Purdue University with a B.S. in Mechanical Engineering Technology and received a M.S. in Engineering Management from the Milwaukee School of Engineering. He authored the book, Lean Cost Management: Accounting for Lean by Establishing Flow, was a contributing author to Lean Accounting: Best Practices for Sustainable Integration.
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