An Evaluation of Economic Crises Past and Present

Given the current state of the economy—and the government’s chicken-with-its-head-cut-off response to it—people may want to consider the following:

Before the massive government interventions of the 1930s, all recessions were short-lived. The severe depression of 1921 was over so rapidly, for example, that Secretary of Commerce Hoover, despite his interventionist inclinations, was not able to convince President Harding to intervene rapidly enough; by the time Harding was persuaded to intervene, the depression was already over, and prosperity had arrived. When the stock market crash arrived in October, 1929, Herbert Hoover, now the president, intervened so rapidly and so massively that the market-adjustment process was paralyzed, and the Hoover-Roosevelt New Deal policies managed to bring about a permanent and massive depression, from which we were only rescued by the advent of World War II. Laissez-faire—a strict policy of non-intervention by the government—is the only course that can assure a rapid recovery in any depression crisis. In this time of confusion and despair, then, the Austrian School offers us both an explanation and a prescription for our current ills. It is a prescription that is just as radical as, and perhaps even more politically unpalatable than, the idea of scrapping the free economy altogether and moving toward a totalitarian and unworkable system of collectivist economic planning. The Austrian prescription is precisely the opposite: we can only surmount the present and future crisis by ending government intervention in the economy, and specifically by ending governmental inflation and control of the money supply, as well as interference in any recession-adjustment process. In times of breakdown, mere tinkering reforms are not enough; we must take the radical step of getting the government out of the economic picture, of separating government completely from the money supply and the economy, and advancing toward a truly free and unhampered market and enterprise economy.

The above words are not recent, although they might as well be. In fact, they were written in 1975 by economist and author Murray N. Rothbard during another of the busts of the boom-and-bust cycle created by government monetary policy (see Rothbard’s introduction to his famous America’s Great Depression, p. xxix). After exhausting every other solution, perhaps the geniuses in government responsible for the nation’s current economic calamities will turn to the economic theory that both predicted the recent economic fallout and offers a way out of the mess. The correction cannot be painless (years of inflationary monetary policy and interest rate manipulation have already seen to that), but perhaps government will realize that it should at least “do no more harm” and simply get out of the way. For those interested in a more detailed description of the “Austrian School” of economics, I highly recommend taking a look at the excellent writings on the Ludwig von Mises Institute Web site.

Adam Summers is a senior policy analyst at Reason Foundation, a nonprofit think tank advancing free minds and free markets. He has written extensively on privatization, government reform, law and economics, and various other political and economic topics.