The Great Depression of the 1930s was an economic calamity that brought disastrous declines in every important metric of economic health – employment, manufacturing output, farm prices, exports, among many others. The depression, and the political state’s laws and regulations deployed to “fix” it, fundamentally re-shaped American society.
Many historians and John Maynard Keynes-influenced economists assign blame for the depression on the failures of an unfettered system of capitalism. However, we argue in this chapter that the various state interventions prolonged and worsened the pain and suffering experienced by millions of Americans and gradually altered the character of America from a place of mostly free and self-reliant people to one where a significant percentage are wholly or in part dependent on the state.
The position that most free-market oriented economists maintain is that tariffs imposed by the US, and by foreign political governments in retaliation, thwarted international trade, while the lax lending policies of the US Federal Reserve encouraged risky and reckless speculation in real estate and the stock market.
After the crash of the stock market in October 1929, additional tariffs were imposed, further choking international trade; massive farm subsidies were enacted to increase farm prices at just the time when people were struggling to feed themselves; and taxes were increased considerably to pay for new government spending meant to stimulate the economy. A side-effect, however, was that the higher taxes compromised the ability of individuals to save and invest, adding a further impediment to recovery.
The entry of the US into World War II brought an end to the depression. In the ensuing decades, an enormous expansion of state intervention in the economy has resulted in the continuing and dramatic devaluation of the US dollar, a ballooning national debt that will fall on the shoulders of future generations, and vast social welfare programs that have done little to curtail poverty rates despite trillions in spending.