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same direction. Now the point is that empirically there is no possible way of deciding between them.6 Where is the empirical test to resolve the debate? How can the government rationally decide upon its next step? Clearly, the only possible way of resolving the issue is in the realm of pure theory by examining the conflicting premises and chains of reasoning. These methodological considerations chart the course of this book. The aim is to describe and highlight the causes of the 1929 depression in America. I do not intend to write a complete eco- nomic history of the period, and therefore there is no need to gath- er and collate all conceivable economic statistics. I shall only con- centrate on the causal forces that first brought about, and then aggravated, the depression. I hope that this analysis will be useful to future economic historians of the 1920s and 1930s in construct- ing their syntheses. It is generally overlooked that study of a business cycle should not simply be an investigation of the entire economic record of an era. The National Bureau of Economic Research, for example, treats the business cycle as an array of all economic activities dur- ing a certain period. Basing itself upon this assumption (and despite the Bureau s scorn of a priori theorizing, this is very much an unproven, a priori assumption), it studies the expansion con- traction statistics of all the time-series it can possibly accumulate. A National Bureau inquiry into a business cycle is, then, essential- ly a statistical history of the period. By adopting a Misesian, or Austrian approach, rather than the typically institutionalist methodology of the Bureau, however, the proper procedure becomes very different. The problem now becomes one of pin- pointing the causal factors, tracing the chains of cause and effect, and isolating the cyclical strand from the complex economic world. 6 Similarly, if the economy had recovered, the advocates would claim success for the theory, while critics would assert that recovery came despite the baleful influence of governmental policy, and more painfully and slowly than would oth- erwise have been the case. How should we decide between them? Introduction to the First Edition xlii As an illustration, let us take the American economy during the 1920s. This economy was, in fact, a mixture of two very different, and basically conflicting, forces. On the one hand, America expe- rienced a genuine prosperity, based on heavy savings and invest- ment in highly productive capital. This great advance raised American living standards. On the other hand, we also suffered a credit-expansion, with resulting accumulation of malinvested capi- tal, leading finally and inevitably to economic crisis. Here are two great economic forces one that most people would agree to call good, and the other bad each separate, but interacting to form the final historical result. Price, production, and trade indices are the composite effects. We may well remember the errors of smugness and complacency that our economists, as well as finan- cial and political leaders, committed during the great boom. Study of these errors might even chasten our current crop of economic soothsayers, who presume to foretell the future within a small, pre- cise margin of error. And yet, we should not scoff unduly at the eulogists who composed paeans to our economic system as late as 1929. For, insofar as they had in mind the first strand the genuine prosperity brought about by high saving and investment they were correct. Where they erred gravely was in overlooking the second, sinister strand of credit expansion. This book concentrates on the cyclical aspects of the economy of the period if you will, on the defective strand. As in most historical studies, space limitations require confin- ing oneself to a definite time period. This book deals with the peri- od 1921 1933. The years 1921 1929 were the boom period pre- ceding the Great Depression. Here we look for causal influences predating 1929, the ones responsible for the onset of the depres- sion. The years 1929 1933 composed the historic contraction phase of the Great Depression, even by itself of unusual length and intensity. In this period, we shall unravel the aggravating causes that worsened and prolonged the crisis. In any comprehensive study, of course, the 1933 1940 period would have to be included. It is, however, a period more familiar to us and one which has been more extensively studied. The pre-1921 period also has some claim to our attention. Many writers have seen the roots of the Great Depression in the Introduction xliii inflation of World War I and of the post-war years, and in the allegedly inadequate liquidation of the 1920 1921 recession. However, sufficient liquidation does not require a monetary or price contraction back to pre-boom levels. We will therefore begin our treatment with the trough of the 1920 1921 cycle, in the fall of 1921, and see briefly how credit expansion began to distort pro- duction (and perhaps leave unsound positions unliquidated from the preceding boom) even at that early date. Comparisons will also be made between public policy and the relative durations of the 1920 1921 and the 1929 1933 depressions. We cannot go beyond that in studying the earlier period, and going further is not strict- ly necessary for our discussion. One great spur to writing this book has been the truly remark- [ Pobierz całość w formacie PDF ] |