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Source link: http://archive.mises.org/11587/dangerous-lessons-of-1937/

Dangerous Lessons of 1937

February 2, 2010 by

The 1937-1938 dip was not the product of tight fiscal and monetary policy, but of excessive government regulation and loose monetary policy. We must clear away the misconception that, without deficit spending and easy credit, the market will fail. FULL ARTICLE by Jonahtan M. Finegold Catalan


Daniel Hewitt February 2, 2010 at 8:05 am

Krugman and DeLong lied about this too? How can that be…..

Suggestion – we have a Bailout Reader and a Health Care Reader; how about compiling a Great Depression Reader? This article would be a perfect start.

Al February 2, 2010 at 8:44 am

I second that idea. That would be helpful because the statists have lied about the history of the Great Depression in order to support their agenda. That would be excellent material to hand out and educate people. Bernanke and other assorted fools claim to be “experts on the Great Depression” and their dangerous idiocy needs to be exposed to the eyes and intellect of the public.

Deefburger February 2, 2010 at 9:17 am

I third that idea.

I don’t know why I should think this right now. But It just occurred to me that free market capitalism has the look of the Sunday Flea market on steroids. The corporatist/statist system looks like the mall with armed guards.

The motivational speaker Zig Zigler had a speech titled “Jump out of the jar”. His premise was that a jar full of fleas will after a time stop jumping high if the lid is kept on. They simply get used to the lid being there.

If the lid is removed, they fail to jump out of the jar, because they have learned not to jump so high. I believe that people are very much like this and Zigler’s insight is a valuable one.

It is vitally important that we learn the truth, and learn how restricting that lid is.

The difference between the two shopping experiences is the difference beween having a lid on the market, and not.

Jonathan Finegold Catalán February 2, 2010 at 1:35 pm


I agree. The current administration (and, well, let’s be fair—the Bush administration, as well), followed by an army of “mainstream” economists, have consistently drawn parallels between the Great Depression and today’s recession. Since the crowd that they appeal to—the majority of Americans—don’t have an inkling as to what the accurate history of the Great Depression is, they allow themselves to be fooled by these mainstream economists who will distort the truth in order to push their agenda and/or beliefs.

I don’t remember where I read a comment left on some website—I think it was copied to Mises.org’s forums or something like that—but, the poster wrote a long, fallacious account of the Great Depression. Given that most people are educated to believe that historicism is the best method by which to test the reliability of theory, they justify their Keynesian approach to economics by using these historical fallacies, which the majority believe to be true.

If we undermine their “historical foundations”, and force them to re-think their position on the basis that their examples are no longer tenable, then we can also force them to look at economics from a different perspective altogether. It is also worth considering that by undermining the reliability of these so-called professional economists (such as Christina Romer, Bradford DeLong, Paul Krugman, et cetera), they will lose reputation even amongst those who currently have absolute trust in them. Over the long-run, I think that this will drive people towards the truth.

Robert Hodge February 2, 2010 at 3:52 pm

Jonathan Finegold Catalán,

You make an excellent point. But I’m afraid you give people way too much credit. If Krugman still has a following after calling for a housing bubble to follow the crashing dot com bubble, there is no way people will see him for the fraud he is by any intellectual argument.

Richard February 2, 2010 at 4:23 pm

Glad to see the 1937 myth finally being tackled. My only criticism of Robert Murphy’s book on the Depression is that this issue was skipped over. I’ve heard it brought up by Keynesians ad nauseum.

Jonathan Finegold Catalán February 2, 2010 at 8:23 pm

Robert Hodge,

Point taken. I guess I am an optimist.


Actually, I bought Robert Murphy’s book when I first thought about writing on the topic, maybe a month after the book first came out, and I was really surprised that he didn’t cover it almost at all. He touches upon the subject in a debate with Jeff Madrick (I believe that to be his name, at least), although he doesn’t get into too much depth.

Jonathan Finegold Catalán February 2, 2010 at 9:18 pm

Robert Murphy brought up a mistake on my part (thankfully). The article states that the general price level (or CPI) went up by 31% between 1933-37. This is incorrect. The CPI went up by 11%, while wholesale prices went up 31%. Given the use of the figure, it’s not very important in regards to the argument, although I am sure it can be used to undermine the credibility of the article.

Ohhh Henry February 3, 2010 at 11:16 am

The most dangerous lesson of all is the “cure” for the recession of 1937-38 … WW2.

Speaking of which, has anyone noticed the sudden uptick in rhetoric between China-USA and Iran-USA? And about cyber terrorism? Not to mention underwear bombers with suspicious “friends”.

The_Orlonater February 3, 2010 at 4:41 pm

Hey Jonathan,

Congratulations on getting your wonderful article published on mises.org. I know you’ve been wanting to do it and you do a great job, especially on one of these Great Depression myths.

Xeno77777 March 17, 2010 at 6:31 pm

A noted feature of the Great Depression was the Roosevelt Administration’s buying up of food animals, executing them and burying the carcases to help the farmers, while starving the poor. The Obama Administration is buying up old clunkers, destroying the motors; these are all the poor can afford, so the Obama Administration is perpetrating all the
Roosevelt Administraton’s worst mistakes.

Patriotic Liberal September 6, 2010 at 10:10 am

Oh please. I have never seen such circuitous nonsense in the service of pre-selected conclusions.

Basically, your argument comes down to businessmen must be appeased, else they will be uncertain. And if they are uncertain, then the economy spirals into deflation. You are putting the cart before the horse. Businessmen are practical animals who adjust to the conditions. Moreover, certainty is not a legit policy goal in a world characterized by chance and mischance. We do not know what will happen in the future and it is stupid to pretend that we do.

1937 occurred because FDR listened to the wrong guys and prematurely put the clamp on spending. This led to an implosion of demand and created a severe downturn. You guys can hopscotch around it until the cows come home, and even gin up phony baloney atmospherics (the lack of business certainty) to explain real world phenomena (lack of demand quelching business activity). And while it is a good thing for government to work with business, rather than against it, this idea that the public interest must be sacrificed to the market is stupid nonsense–what created the crisis to begin with.

Jonathan M. F. Catalán September 13, 2010 at 5:33 pm

Patriotic Liberal,

I provide sufficient evidence as to why a government-caused decrease in aggregate demand did not cause the recession of 1937 (for example, the data that government spending did not actually decrease; simply, government tax receipts increased). So, I am not interested as much in re-stating my case in regards to the causes of 1937.

Rather, I’d like to defend myself from the accusation that government must “appease” businessmen, or reduce uncertainty further than the uncertainty which already exists in a market. First, I never supported “appeasing” businessmen. However, appeasing businessmen is not the same as ending the infringement on their property rights (disallowing them from making certain investments, regulating prices, taxing, et cetera). Furthermore, these do not represent natural uncertainties. They are added uncertainties to the market. It would be asinine to believe that more uncertainty is inconsequential to entrepreneurship, even though uncertainty is an aspect of entrepreneurship that will always exist.

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