WSJ.com - Five Myths About the Great Depression

WSJ.com - Opinion: Five Myths About the Great Depression

 

The current financial crisis has revived powerful misconceptions about the Great Depression. Those who misinterpret the past are all too likely to repeat the exact same mistakes that made the Great Depression so deep and devastating. ...it is essential that the decisions of the coming months are shaped by the right lessons -- not the myths -- of the Great Depression.

Here are five interrelated and durable myths about the 1929-39 Depression:

- Herbert Hoover, elected president in 1928, was a doctrinaire, laissez-faire, look-the-other way Republican who clung to the idea that markets were basically self-correcting. The truth is more illuminating...

- The stock market crash in October 1929 precipitated the Great Depression. What the crash mainly precipitated was a raft of wrongheaded policies that did major damage to the economy...

- Where the market had failed, the government stepped in to protect ordinary people.   Following in Hoover's footsteps, FDR concentrated on trying to raise farm income by such tactics as setting quotas on production and paying farmers to remove acreage from production -- even though this meant higher prices for hard-pressed consumers and had the effect of both lowering productivity and driving farmers off their land.

- Greed caused the stock market to overshoot and then crash. The real culprit here -- as in the housing bubble in our own time -- is... a speculative fever induced by excessively easy credit and broken by the inevitable return to more realistic valuations...

- Enlightened government pulled the nation out of the worst downturn in its history and came to the rescue of capitalism through rigorous regulation and government oversight. To the contrary, the Hoover and Roosevelt administrations -- in disregarding market signals at every turn -- were jointly responsible for turning a panic into the worst depression of modern times...