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SLUH REVIEW Vol. 1 Issue 8

A journal of Faith, thought, and civics

Great Myths of the Great Depression By Luke Chellis, Senior Editor

March 4, 2010

the early twenties or in previous decades. In fact, in the fall of 1928 margin requirements began to rise, and borrowers were required to pay a larger share of the purchase price of the stocks.”

Most students have a skewed impression of this nation’s greatest economic calamity, believing that the Great Depression was caused by free-market Capitalism and only finally righted by government intervention. This belief is potentially the greatest myth of the 20th century, with the most catastrophic of consequences. Though modern myth claims that the free market “self-destructed” in 1929, government policy was the debacle’s principal culprit. Active government policy, both monetary and fiscal, played the central role in causing and prolonging the destruction of the Great Depression.

But what did cause the burst bubble of malinvestment, that calamity that began in 1929 and lasted at least three times longer than any of the country’s previous depressions? People who argue that the free-market economy collapsed of its own weight in the 1930s seem utterly unaware of the critical role played by the Federal Reserve System’s gross mismanagement of money and credit. Using a broad measure that includes currency, demand and time deposits, and other ingredients, economist Murray Rothbard estimated that the Fed bloated the money supply by more than 60 percent from mid1921 to mid-1929. When government inflates the money and credit supply, interest rates at first fall. Businesses invest the government’s “easy money” in new production projects and a boom takes place in capital goods. As the boom matures, business costs and prices rise, interest rates readjust upward, and profits are squeezed. Because money was so cheap, investors pushed the stock market to dizzying heights. The money created out of thin air diverts real wealth, or real, saved, final goods, towards the holders of new money. As a result, less real savings become available to fund wealthgenerating activities. This in turn leads to a weakening in economic growth, creating a bubble of consumption of wealth. What’s the rationale for inflationary policy? The most influential man of this line of thinking, British economist John Maynard Keynes, said, “By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.”

Most history texts state that the Depression was caused by over-speculation and excessive investing with borrowed money, or marginal lending. At their peak, stocks in the Dow Jones Industrial Average were selling for 19 times earnings—somewhat high, but hardly what stock market analysts regard as a sign of inordinate speculation. Also, notes Marquette University economist Gene Smiley, “There was already a long history of margin lending on stock exchanges, and margin requirements—the share of the purchase price paid in cash—were no lower in the late twenties than in

The market needed to contract away from these non-productive activities; however, severe market intervention by Presidents Herbert Hoover and Franklin Roosevelt only exacerbated the necessary -1-

readjustment. Unemployment in 1930 averaged a mildly recessionary 8.9 percent, up from 3.2 percent in 1929. It shot up rapidly until peaking out at more than 25 percent in 1933. At the end of the decade and 12 years after the stock market crash of Black Thursday, 10 million Americans were jobless. The unemployment rate was in excess of 17 percent. What began with deceitful and harmful inflationary monetary policy was tragically extended through irresponsible fiscal and regulatory policy.

he took Hoover’s destructive policies and amplified them tenfold. In the first year of the New Deal, Roosevelt proposed spending $10 billion while revenues were only $3 billion. Between 1933 and 1936, government expenditures rose by more than 83 percent. Federal debt ratcheted up 73 percent. And to what avail? Roosevelt secured passage of the Agricultural Adjustment Act (AAA), which levied a new tax on agricultural processors and used the revenue to supervise the wholesale destruction of valuable crops and cattle, hurting millions of others who had to pay those bloated prices or make do with less to eat. In the six months after the National Industrial Recovery Act (NIRA) took effect, industrial production dropped 25 percent. Some economists have estimated that the NIRA boosted the cost of doing business by an average of 40 percent. After Hoover had more than doubled the top marginal income tax rate to 63 percent in 1932, under Roosevelt it was raised at first to 79 percent and then later to 90 percent. Before stricken down by Congress, Roosevelt issued an executive order to tax all income over $25,000 at the astonishing rate of 100 percent, literally making Americans fullfledged slaves of the state.

The bizarre and harmful burdens on the functions of the free market began in Hoover’s administration. Commenting decades later on Hoover’s administration, Rexford Guy Tugwell, one of the architects of Franklin Roosevelt’s policies of the 1930s, explained, “We didn’t admit it at the time, but practically the whole New Deal was extrapolated from programs that Hoover started.” The crowning folly of the Hoover administration was the Smoot-Hawley Tariff, passed in June 1930. It came on top of the Fordney-McCumber Tariff of 1922, which had already put American agriculture in a tailspin during the preceding decade. The stock market, which had regained much of the ground it had lost since the previous October, tumbled 20 points on the day Hoover signed Smoot-Hawley into law, and fell almost without respite for the next two years. The most protectionist legislation in U. S. history, Smoot-Hawley virtually closed the borders to foreign goods and ignited a vicious international trade war. Prices on everything imported shot through the roof. Governments of nearly every U.S. trading partner responded in kind with tariffs, so prices on exports also skyrocketed. Consumers were able to buy fewer goods, and business shut down. The shrinkage in world trade brought on by the tariff wars helped set the stage for World War II a few years later. 19th century French philosopher and economist Frédéric Bastiat wisely observed, “If goods don’t cross borders, troops will.” Roosevelt won the 1932 election by a landslide, collecting 472 electoral votes to just 59 for the incumbent Hoover. But despite campaigning for a 25 percent reduction in federal spending, a balanced federal budget, a sound gold currency “to be preserved at all hazards,” the removal of government from areas that belonged more appropriately to private enterprise, and an end to the “extravagance” of Hoover’s farm program, Roosevelt not only fulfilled none of these promises,


Roosevelt’s strategy of government employing jobless workers didn’t stimulate the economy. If a thief goes house to house robbing everybody in the neighborhood, then heads off to a nearby shopping mall to spend his ill-gotten loot, it is not assumed that because his spending “stimulated” the stores at the mall he has thereby performed a national service or provided a general economic benefit. Likewise, when the government hires someone to catalog the many ways of cooking spinach, his taxsupported paycheck cannot be counted as a net increase to the economy because the wealth used to pay him was simply diverted, not created. Economists today must still battle this “magical thinking” every time more government spending is proposed—as if money comes not from productive citizens, but rather from the tooth fairy.

concerning domestic politics and the economy. People used to call it an inevitable Vietnam—a criticism which is now laughable. What happened? Due to General Petraeus’s surge strategy, pioneered in the twilight years of the Bush Administration but also used during Obama’s reign, American casualties gradually dwindled. So was the Iraq War a success? To determine this, a definition of “success” is necessary. We must ask: what were US intentions for entering this undeclared war? Were these the right intentions? Did we achieve these intentions or something better or something worse? The American intervention in Iraq did topple Sadaam Hussein’s brutal dictatorship and secured (somewhat) a volatile nation in the Middle East. But was the cost prohibitive to the result? Did the American government create a springboard for civil liberties abuses? Must American soldiers who have pledged their lives to defend the Constitution risk those lives in the name of a foreign people?

The genesis of the Great Depression lay in the irresponsible monetary and fiscal policies of the U.S. government in the late 1920s and early 1930s. These policies included a litany of political missteps: central bank mismanagement, tradecrushing tariffs, incentive-sapping taxes, mindnumbing controls on production and competition, senseless destruction of crops and cattle and coercive labor laws, to recount just a few. It was not the free market that produced 12 years of agony; rather, it was political bungling on a grand scale. The war’s destruction of people and resources did not help the U. S. economy, but renewed trade with the Allies and the lessening of regulatory burdens after the war did. Those who can survey the events of the 1920s and 1930s and blame free-market capitalism for the economic calamity have their eyes, ears and minds firmly closed to the facts. Changing the wrong-headed thinking that constitutes much of today’s conventional wisdom about this sordid historical episode is vital to reviving faith in free markets and preserving our liberties.

Perhaps these questions are the wrong ones to ask. A deeper question would concern the propriety of that invasion: Should the government be in the business of war at all? Some noble causes for war no doubt exist, but could not private institutions make war upon dictatorships without government assistance? The proposal is radical today, but private armies are not the stuff of fairy tales. Even now, private militias exist throughout the United States.

-Based on an article of the same name by Lawrence Reed. The full, unedited version can be found at

Private militias could receive funding from charitable institutions which desire the toppling of oppressive dictatorships. Perhaps if private militias had been at the forefront of the first Persian Gulf War, they could have destroyed the regime of Sadaam Hussein over ten years before the actual event. Beyond the realm of destroying dictatorships, small and large businesses alike

A Free Market Proposal for Security By Logan Hayward, Junior Editor The Iraq War used to take its own big chunk of news. Now, it usually falls behind headlines


might incorporate militias to protect vital economic interests.

What is really going on during the Mass? The Mass is both the memorial service of Jesus Christ and a wedding ceremony. We are remembering the courageous acts our Savior and Messiah performed back in 33 A.D. As cliché as it is and as many times as we hear it, it is still true: Jesus Christ died for us. Every single one of us: white, black, Asian, Hispanic, rich, poor, sinner, prophet, Catholic, Jew, Hindu, and Atheist. He died for us all. Now, let’s think about that for a moment. Some guy who did not even know who I am, died for me. He died so that I could have eternal life after I die. Could you take the place of your best friend and die for his eternal salvation? What about your brother? Your teacher? Your Congressman? A complete stranger? America had not even been discovered yet, and Christ died for every single one of us. How incredible is that? The Mass is a remembrance of what Jesus Christ did for us. He gave us His Body and Blood so that we can live forever in the presence of God. Every time we proceed to receive Communion, we do so as a bride does during a wedding. Just as a wedding day is beautiful and glorious, every Sunday, or even every week day on which we attend Mass, should be glorious. We should be celebrating the great achievements and the beauty of God’s love for us.

Conservatives and libertarians often say nice witticisms about the smaller government is, the better the nation is. Unfortunately, in an age of gargantuan public debt, our hopes for a future with minute government will take a while to realize. To shrink the size and scope of the federal government, Congress could return military funds to taxpayers, thereby decreasing the demand for federal security and increasing the demand for private security forces. Let me be clear that I am not bashing the military: I believe the vast majority of American soldiers are noble, brave, and self-disciplined people. But perhaps they deserve better than government control. In a future of a privatized military, American businesses would have more cash and more demand for investment in a missile defense program, which has had some real success even under government funding. The best investors with the best scientists would produce the best version of missile defense. Since it would be impractical and absurd to charge each citizen for missile protection, the best military firm would construct such protection for its own safety as well as the safety of the entire populace.

It is easy to get bogged down by the Liturgy of the Word. It happens to the holiest people, and it happens to the faithless. As Catholics, we believe that Scripture is the Word of God. We believe that God is speaking to us and assisting us in our everyday lives through Scripture. Really absorbing the readings at Mass is a hard task, but very beneficial, I have found. Whatever we may be struggling with in our lives, or whatever answers we may be searching for, God may be guiding us through his Holy Word. If you do not pick out the messages right away while listening to the lector, there is the homily. The homily is one of my favorite parts of the Mass because it always helps to have someone who dedicates their life to Scripture and the Mass to help me understand what God is trying to say. Whether or not I hear every word that the homilist says, the homily still leaves me with a feeling that God has really spoken to me and inspired me to do something. The homilist may spark something in my memory that makes me reflect on what I am doing in and with my life. In my opinion, little things like that can be the most beneficial and effective forms of growth in my faith life.

Thus, in a privatized system of competing military firms, the non-selfish and rational interests of a few would secure the lives of the many, all without abuse of civil liberties or federal taxation. The Mass Matters By Matthew Burke, Writer The Celebration of the Most Holy Eucharist is the most spiritual ceremony, yet also the most misunderstood and underemphasized part of the Catholic faith. I used to wake up on Sunday morning, dreading Mass. While I was a young kid, many parents, mine among them, supplied coloring books, reading books, and even Cheerios to occupy their children’s attention so that they would not be disruptive. We did not understand the meaning of the Mass and its importance at such a young age. Now, as teenagers, things seem to be about the same: bringing our cell phones, talking to our friends, chewing gum, and even sleeping. These are all things which occupy our attention, preventing us from giving our full attention to the celebration.


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of a long day and so we doze off during the Homily. However, there is so much more to be found in the Eucharist. He always speaks to us even when we may not expect it. Here are some of my tips. Try going to Mass with an open mind. Try to pay attention to every prayer and think about what is being said. Reflect on the symbolism and the reality that is presented in each part of the Mass. Lastly, thank God for the wonderful gift of your life and for the gift of His Son’s life, death, and resurrection.

(n.d.): Image Collection, EBSCOhost (accessed March 4, 2010). Yet another bulky and sometimes seemingly repetitive part of the Mass is the Eucharistic Prayer. This is the part that we all dread because we have to kneel for what seems like an eternity. I remember as a little kid that this is the time where I complained the most. What I did not realize as a young child is that we are reciting one of the most extravagant and beautiful prayers I have ever heard. It features basically anything you could think of that would need prayers is featured. We pray for thanksgiving, forgiveness, blessings upon everyone, and the dead. It is all there.

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If there is one thing that a lot of Catholics do not know, it is why we eat the Body and drink the Blood of Christ. It sounds slightly creepy, but I think it is quite elegant. The way I understand it, one reason we eat the Body and drink the Blood is because at the Last Supper Jesus did this with his apostles. So, we are connecting back to the Last Supper. Also, Jesus was a sacrifice. He sacrificed himself for us and our sins. When we eat His Body and drink His Blood, we are becoming one with Him through our sacrifice and taking a part in the sacrifice to God. We are connecting with Jesus in yet another profound way. All of these things and more are going on during this celebration—a celebration of the gifts that God gave us, especially the gift of His Son, our Savior. In my opinion, these one or two hours that we take out of our day in order to praise God through the Mass can be the best one or two hours of our week if we just focus on the meaning and events of the Mass. I know that sometimes we are tired because


SLUH Review Vol. 1.8  

student political editorial