America’s Great Depression Quote of the Week: A Visit with ‘Dr. Hoover’

Robert Higgs advises us Don’t Rely on a Quack Doctor  as a parable about government intervention in the economy.

Rothbard in AGD documents the effects of a visits with Dr. Hoover on the economy. This week‘s quote is from the conclusion of AGD (pp. 336-37):

Mr. Hoover met the challenge of the Great Depression by acting quickly and decisively, indeed almost continuously throughout his term of office, putting into effect “the greatest program of offense and defense” against depression ever attempted in America. Bravely he used every modern economic “tool,” every device of progressive and “enlightened” economics, every facet of government planning, to combat the depression. For the first time, laissez-faire was boldly thrown overboard and every governmental weapon thrown into the breach. America had awakened, and was now ready to use the State to the hilt, unhampered by the supposed shibboleths of laissez-faire. President Hoover was a bold and audacious leader in this awakening. By every “progressive” tenet of our day, he should have ended his term a conquering hero; instead he left America in utter and complete ruin—a ruin unprecedented in length and intensity [emphasis mine].

Rothbard continues:

What was the trouble? Economic theory demonstrates that only governmental inflation can generate a boom-and-bust cycle, and that the depression will be prolonged and aggravated by inflationist and other interventionary measures. In contrast to the myth of laissez-faire, we have shown in this book how government intervention generated the unsound boom of the 1920s, and how Hoover’s new departure aggravated the Great Depression by massive measures of interference. The guilt for the Great Depression must, at long last, be lifted from the shoulders of the free-market economy, and placed where it properly belongs: at the doors of politicians, bureaucrats, and the mass of “enlightened” economists. And in any other depression, past or future, the story will be the same.

The recovery in the early 1920s, which Richard Vedder has referred to as a “stroke of luck” (Wilson, a progressive interventionist was president when the crisis began but was incapacitated by a stroke and his administration was unable to do damage before passing the reins to Harding) is an example of an economy rapidly recovering as government spending and taxes were cut. Another example is  “The Austerity of 1946” (see also Vedder and Gallaway ”The Great Depression of 1946”),  which despite Keynesian economists’ predictions of doom and gloom, was in fact was a period of  rapid return to relative prosperity following the massive reduction in government spending which followed the end WW II.

Things could have been and still could be different this time if recovery is left to the natural recuperative powers of an economy where economic agents are left free to plan, produce, exchange, and innovate.

Given how poorly the economy has fared following the ‘treatment’ proscribed by Dr. Bernanke and Dr. Obama isn’t it time to try a Dr. Rothbard’s natural cure?



  1. We must not ignore the impact of tax cuts in the 1945-46 recovery after WWII. Burton Folsom writes:

    “After many years of confiscatory taxes, businessmen desperately needed incentives to expand. By 1945 the top marginal income tax rate was 94 percent on all income over $200,000. We also had a high excess-profits tax that had absorbed more than one-third of all corporate profits since 1943—and another corporate tax that reached as high as 40 percent on other profits.

    In 1945 and 1946 Congress repealed the excess-profits tax, cut the corporate tax to a maximum 38 percent, and cut the top income tax rate to 86 percent. In 1948 Congress sliced the top marginal rate further, to 82 percent.

    Those rates were still high, but they were the first cuts since the 1920s and sent the message that businesses could keep much of what they earned.”

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