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Same and different

by Kurt Schuler August 24th, 2012 9:38 pm

The Great Depression in Britain versus the current slump

Great Depression (1929-31) Current (since 2008)
Length of contraction 6 quarters (1930Q2-1931Q3) 6 quarters (2008Q2-2009Q3)
Time to surpass previous peak output 4 years (1930Q1-1934Q1) 4 years plus (since 2008Q1)
Monetary policy Gold standard (to September 1931 trough), then floating Floating, with inflation target
Monetary authority Central bank (privately owned) Central bank (state-owned)

Sources: James Mitchell and Solomos Solomou, “Monthly GDP Estimates for Inter-War Britain” (working paper, 2011); U.K. Office for National Statistics.

Discuss among yourselves.

And now for something completely different. Having mentioned Ayn Rand in my previous post in connection to Paul Ryan, I direct your attention to a New York Times Magazine article last weekend about the influence of Friedrich Hayek on Ryan. The article describes Hayek as “largely ignored,” which is comical given that the staff writer on economics at The New Yorker -- yes, The New Yorker -- has described the 20th century as "the Hayek century."

Finally, for readers who may  be wondering what is the opposite of this blog, I give you a site I just came across today, the American Monetary Institute. Here is a description of some themes of its upcoming conference:

"What are these broad national parameters supported by over 3000 years of history? That the control of the money system must shift away from private control toward governmental control. Away from commodity money notions; away from fractional reserve banking – using debt for money. Towards money issued interest free by government and spent into circulation for the common good. All serious reformers understand that we must replace our private credit system with a government money system, ending what is known as fractional reserve banking."

7 Responses to “Same and different”

  1. avatar joe bongiovanni says:

    The presentation of the few fact-ors involved in the years actually prior to the Great Depression and the present situation just prior to the second shoe dropping onto the Great Recession is probably supposed to tell us something about ..........??
    Is it that the gold-standard caused the Big D?
    Is it that the so-called fiat nature of currency today is no help in preventing financial instability?
    And when exactly did the ownership of the shares in FRBNY change hands?
    I guess it just doesn't matter who OWNS the CB, just its existence is problematic. Got it.

    As for the AMI site and the upcoming conference.
    It looks like there will be a healthy discourse about what is wrong with the present money and banking system, and possible solutions that will unfortunately not involve free-banking.

    The MisesBlog folks discovered AMI a couple of years ago, describing the solutions proposed as the ONLY reforms proposals out there that are actually worse than the system we have now.
    http://mises.org/daily/4102

  2. avatar Peter Surda says:

    Might I present you a different conference: http://www.bitcoin2012.com/ . Disclaimer: I'm one of the speakers.

  3. avatar Paul Marks says:

    The bust of 1929 had the same cause as the bust of 2008 - the credit bubble (credit-money expansion) of the previous years.

    The fault of the gold STANDARD (rightly called by Paul Johnson in "Modern Times" a "not in front of the children" system) was that that it allowed Benjamin Strong of the New York Federal Reserve (and his friend M. Norman of the Bank of England) to create a vast credit-money bubble (just as Alan Greenspan, and his allies, created the vast credit-money bubble before the 2008 bust without any "gold standard").

    This is my problem with a gold STANDARD - either gold is the money or it is not, a "standard" confuses the issue.

    However, the bust of 1929 would NOT on its own have created the Great Depression - like all other busts (such as that of 1921) the economy would have recovered and unemployment would have gone down. The reason that it did not is govenrment policy.

    For the first time in peacetime history the American Federal government (led by Herbert "The Forgotten Progessive" Hoover) actively worked to PREVENT the market clearing (i.e. the market working).

    President Hoover, gripped by the "demand" fallacy, did all in his power to PREVENT wage rates ajusting to the bust. And engaged in many other sorts of other interventionism designed to OBSTRUCT free market price movements and so on.

    Sadly the Administration of Franklin Roosevelt continued the policies of high taxes and constant obstruction of the market inherited from President Hoover.

    In Britain policy was also very interventionist - but less so than in the United States of Franklin Roosevelt. So the British economy did less badly in the 1930s than the American one did.

    As for now - the real horror will be next year (2013) and onwards.

    The current orgy of govenrment spending (the talk of "cuts" in Britain is absurdly wide of the mark) and endless monetary expansion (i.e. bailoutism) has created a totally false economy - in both Britain and the United States.

    This false economy will start to fall apart next year - regardless of who is elected in November.

  4. avatar ShaneCRoach says:

    In what sense is the current Federal Reserve government owned? I understand the regulation of it changed substantially after the Great Depression, but it never became government owned.

    • avatar Kurt Schuler says:

      The President appoints a majority of the members of the Federal Open Market Committee, which determines monetary policy. The other members are appointed subject to the approval of the Federal Reserve Board of Governors, meaning that the President's appointees have a big say in the matter. Aside from a small dividend paid to member banks, the Federal Reserve pays its profits to the Treasury. The stock that commercial banks own in regional Federal Reserve banks gives them no real influence over monetary policy and little directly profit from the Fed's operations. That is the sense in which the Fed is owned by the federal government.

      • avatar ShaneCRoach says:

        Ok, thanks for the reply. I'd note that that is not what "own" means, and that the regional reserve banks are notoriously stingy with information about their operation and definitely are not accountable to the government, so the Federal Reserve System as a whole is hardly a government owned project - more or less the motive behind me asking why anyone would make such a claim.

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