In most AH threads the great depression is treated as an immutable fact. As if it would have happened no matter in what other manners the world had changed. However, the great depression was actually a very unlikely event that only happened because of a series of incredible stupid policy decisions by a variety of people in the aftermath of the stock market collapse of the '20s bubble.
Specifically three poor decisions are to blame:
1. Smoot-Hawley tarrifs, and the subsequent retaliation by other nations, led to a collapse of international trade and therefore a permanent reduction of the Production Possibility Frontier.
2. The Federal Reserve Banking System decided to tighten monetary controls and reduce currency in circulation against the advie of the NY Federal Reserve Bank. This action lead to dramatic deflation of about 33 percent.
3. President Hoover and Congress reacted to growing budget deficits by cutting spending and raising taxes, further aggravating the situation.
WI after the bubble burst in Oct '29 Congress would have suspended work on the Smoot-Hawley bill after consulting with learned economists. The Fed listened to the NY branch and held rates steady or cut them and Congress would not have worried about short-term deficits.
There would be no world-wide depression. No mass unemployment. No rise of Hitler in Germany. No New Deal in the US. How dramatically different would the world have been?
Specifically three poor decisions are to blame:
1. Smoot-Hawley tarrifs, and the subsequent retaliation by other nations, led to a collapse of international trade and therefore a permanent reduction of the Production Possibility Frontier.
2. The Federal Reserve Banking System decided to tighten monetary controls and reduce currency in circulation against the advie of the NY Federal Reserve Bank. This action lead to dramatic deflation of about 33 percent.
3. President Hoover and Congress reacted to growing budget deficits by cutting spending and raising taxes, further aggravating the situation.
WI after the bubble burst in Oct '29 Congress would have suspended work on the Smoot-Hawley bill after consulting with learned economists. The Fed listened to the NY branch and held rates steady or cut them and Congress would not have worried about short-term deficits.
There would be no world-wide depression. No mass unemployment. No rise of Hitler in Germany. No New Deal in the US. How dramatically different would the world have been?