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Salsman Lecture

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RadCap

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I noted in your post on the OC that you attended Richard Salsman's lecture: “The Cause and Consequence of the Great Depression" and disagreed with it. I did not attend the conference (how does one swing a position as "working scholar" anyway?) so I do not know what Salsman attributed as the cause of the GD, nor the consequences he identified.

What were they, and what is your disagreement with them?

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Salsman denied the role of the Fed in inflating the currency or creating any sort of "inflationary boom" because the country was on the gold standard until 1933. According to him, because the dollar was free convertible into gold, the Fed was powerless to inflate or contract the currency. Furthermore, the economic “boom” during the 1920’s was not “artificial” in any way, but caused by legitimate economic growth, with rapid rise in stock prices being caused by rational expectations of higher profits. The depression was initiated by the Smoot-Hawley Tariff that Hoover 1930, and worsened by each successive attempt to "fix" the economy by taxing/regulating it into socialism, especially the banking regulations against bank branching that made them extremely vulnerable to runs.

The key point he made is that the Keynseans, Monetarists, and Austrians all misunderstand the relation between inflation and interest rates. In his opinion, the boom/bust view all three groups support is a Marxist invention. According to Salsman, interest rates reflect the cultures aggregate time preference. (So that lower I = higher premium for the future, and higher I = shorter range perspective) There was a sharp drop in interest rates in the 20’s, validating the economic boom that followed. Salsman rejected the “Austrian” view that inflation is the increase in the money supply (I don’t know where he got this) or the Monetarist view that inflation is the increase of money in excess of output. I never did get what his view of inflation was, though I presume he would say that it’s measured by the rising price of gold.

Anyway, I agree with him on all the causes he attributed to the great depression, but I think he overestimates the effect of the 1930 tariff because he proportionally underestimates the power of the Fed to inflate credit, even on a gold standard. Using tools like reserve requirements, government securities, Fed interest rates, treasury-held currency, and foreign currency and loans, the Fed could significantly influence the money supply to create the artificial boom that Salsman rejects. Interestingly, he also claimed that the late 90’s boom was also “real” rather than created in large part by the Fed. I’m not too familiar with the numbers, but it seems obvious to me that the large drop and subsequent rise in Fed rates was indication of the Fed artificial inflating the money supply by manipulating credit.

(What I known about the Great Depression comes mostly from Rothbard, and I suspect I would agree with his book on it.)

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Hmmm - interesting indeed. From some of his things I have read previously, Salsman seems to be a good Objectivist when it comes to grasping economics. Yet, from what you say, it seems he contradicts even Rand on the concept 'inflation' as well as how credit and interest rate manipulations (ie govt intervention into the economy) were key factors leading to (and extending) the GD..\

I must admit I am surprised.

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...it seems he contradicts even Rand on...how credit and interest rate manipulations (ie govt intervention into the economy) were key factors leading to (and extending) the GD..\

Well, he certainly believes that it was government intervention into the economy that caused the Depression, he just disagrees about which particular interventions. (I think the disagreement is much less when it comes to what extended the Depression.)

I'm afraid I don't know enough about economics to comment much beyond that.

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  • 1 month later...

Interesting thread. I wrote a longish essay about the Great Depression that took exactly the opposite tact: "Inherent in the System"

I argued that the Great Depression's frontmost cause was the Federal Reserve. I address the dramatic expansion of bank credit in the period 1922 to 1928 that occurred primarily because of relaxation of credit at the Fed (there's more to it then that, look for the phrase "1922-1928 credit expansion" about halfway through my essay).

In fact, the Federal Reserve's meddling with the economy leads me to suggest that the gyrations are inherent in the system. That we don't have many nowadays shows how we've grown accustomed to Fed machinations and have incorporated them into our economic calculations.

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  • 1 year later...

Mr. Salsman also wrote a 3-part article titled "The Causes and Consequences of the Great Depression" in "The Intellectual Activist". The issues, and sub-titles of the parts are:

June 2004: "What Made the Roaring 20's Roar"

July 2004: "How the Welfare State Caused the Great Depression"

Aug 2004: "Roosevelt's Raw Deal"

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