Austrian School of Economics and the Great Depression

            Scholars and economists of the Austrian school of economics teach that American students of U.S. history are taught in the nation’s secondary school system to believe that Franklin D. Roosevelt’s famous New Deal and the Second World War brought the country out of the Great Depression; however, when actual economic statistics from the time period are reviewed, an alarming inconsistency to that story is revealed. Quickly, the old fables are exposed as myths and the true culprit of the Great Depression is discovered, government intervention.

            They further explain that opponents of free trade, interventionists, have attempted to blame the Great Depression as being a result of laissez faire economics; these interventionists have created the myth that government involvement saved the nation from economic hardship. According to their story, free markets are volatile and dangerous, while the New Deal represents the indispensable corrective power of the state.”[1] However, economists of the Austrian school teach that the Great Depression was not a result or failure of capitalism, “but of the hyperactive state.”[2] There are some black and white facts favor and support the Austrian economists.

            In the August 2004 Journal of Political Economy¸ “New Deal Policies and the Persistence of the Great Depression: A General Equilibrium Analysis,” interesting statistics supporting the argument against the New Deal assisting the nation to pull out of the Great Depression has been presented by UCLA economists Harold L. Cole and Lee E. Ohanian.[3] According to economist Thomas J. DiLorenzo, “This is a big deal, since JPE is arguably the top academic economics journal in the world.”[4] The two authors admittedly revealed their own surprise with such statistics as: “Real gross domestic product per adult, which was 39 percent below trend at the trough of the Depression in 1933, remained 27 percent below trend in 1939....Similarly, private hours worked were 27 percent below trend in 1933 and remained 21 percent below trend in 1939.”[5]

            Interventionists claim that the New Deal was bringing the United States out of the Great Depression, but the statistics do not match these claims. Especially, when compared to other nations that did not intervene in their nation’s economies on the same scale of the United States, like Great Britain. According to Steve Davies, Education Director at the Institute of Economic Affairs in London, he stated: “In Great Britain, the Great Depression was over by 1933, and Britain, in fact, enjoyed very rapid economic growth from 1931 onwards.”[6]  He goes on to say that the economic situation in the United States actually was getting worse as the years passed; “and by 1937, the level of unemployment in the United States is as high as it had been in 1932, but in addition the federal government has built up an enormous debt.”[7] Even by 1939, according to the U.S. Census Bureau, the unemployment rate in the United States was still very high at 17.2 percent, “despite seven years of ‘economic salvation’ at the hands of the Roosevelt administration.”[8] Prior to the Great Depression and government intervention, the unemployment rate was much lower at “about 3 percent.”[9] Economist DiLorenzo continues pre-and-post New Deal comparisons in his article: “Per capita GDP was lower in 1939 than in 1929 ($847 vs. $857), as were personal consumption expenditures ($67.6 billion vs. $78.9 billion), according to Census Bureau data. Net private investment was minus $3.1 billion from 1930–40.”[10]

               Austrian economists have viewed and claimed that Roosevelt’s New Deal policies only made the economic situation of the 1930s worse and “prolonged the Depression.”[11] This might have been alarming to economists Harold L. Cole and Lee E. Ohanian, but according to Austrian economists, they “have known this for decades.”[12] They have seen government intervention as a ploy to create “one giant cartel;” which John T. Flynn described in his 1948 book, The Roosevelt Myth: “New Deal cartelization policies are a key factor behind the weak recovery, accounting for about 60 percent of the difference between actual output and trend output.” It is clear that the opposing side of story told by the Austrian school of economy has not been taught in America’s secondary schools, which has contributed to the continuing myths behind the Great Depression and the New Deal.

Bibliography

Davies, Steve. “Top Three Myths About the Great Depression and the New Deal.” Learn Liberty, July 1, 2011. http://www.learnliberty.org/videos/top-three-myths-about-the-great-depression-and-the-new-deal/.

DiLorenzo, Thomas J.  “The New Deal Debunked (again).” Mises Institute, September 27, 2004. http://mises.org/library/new-deal-debunked-again.

Johnson, Paul. “Rothbard Revises the History of the Great Depression.” Mises Institute, October 14, 2011. http://mises.org/library/rothbard-revises-history-great-depression.

Woods, Jr., Thomas E. “Know the New Deal Cold.” Mises Institute, July 30, 2010. http://mises.org/library/know-new-deal-cold.

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[1] Thomas E. Woods, Jr., “Know the New Deal Cold,” Mises Institute, July 30, 2010, http://mises.org/library/know-new-deal-cold.

[2] Paul Johnson, “Rothbard Revises the History of the Great Depression,” Mises Institute, October 14, 2011, http://mises.org/library/rothbard-revises-history-great-depression.

[3] Thomas J. DiLorenzo, “The New Deal Debunked (again),” Mises Institute, September 27, 2004, http://mises.org/library/new-deal-debunked-again.

[4] Ibid.

[5] Ibid.

[6] Steve Davies, “Top Three Myths About the Great Depression and the New Deal,” Learn Liberty, July 1, 2011, http://www.learnliberty.org/videos/top-three-myths-about-the-great-depression-and-the-new-deal/.

[7] Ibid.

[8] DiLorenzo, “The New Deal Debunked (again).”

[9] Ibid.

[10] Ibid.

[11] Ibid.

[12] Ibid. 

Common Sense Changed the World

            Both Thomas Paine and the book he wrote, Common Sense, had a tremendous impact on the United States of America and the course of the world forever afterwards. During a time of political and economic turmoil in the thirteen British colonies in America, Thomas Paine authored and published a pamphlet that unified the colonies in a common argument that transcended their petty political, cultural, and economic differences. Common Sense became the “nation’s first bestseller,” [1] which cultivated the seeds of American independence and helped to create the constitutional republic of the United States of America.

            The 77-page pamphlet that sold over 120,000 copies after only three months [2] rolled off a colonial press in Philadelphia on January 10, 1776, just six months before the Declaration of Independence. In an age when most publications “were seldom distributed outside their area of origin,”[3] Common Sense had a far reaching distribution and influence thanks to the assistance of predominant patriots for American independence including Benjamin Rush, Benjamin Franklin, and Samuel Adams.[4] Thomas Paine’s propensity and flair to write on matters of liberty and attacking tyranny played out well in Common Sense and established a persuasive argument, would Americans chose independence or slavery?

            Thomas Paine used his masterful wisdom and pen to urge “the American people to form a government from scratch.”[5] Now was an extraordinary opportunity for an assembly of people to take charge of their government and establish a land of liberty unlike any other in human history. Common Sense was designed to awaken the populace to the reality of British rule and trace out “every evil in colonial society” as a result of it.[6] Colonial grievances were collected in his work, the argument posed, and a call to arms was raised. Thomas Paine illustrated that a line in the sand had already been drawn:

By referring the matter from argument to arms a new era for politics is struck—a new method of thinking has arisen. All plans, proposals, &c., prior to the 19th of April—i.e., the commencement of hostilities—are like the almanacks of the last year, which though proper then, are superseded and useless now. [7]

            Common Sense and the argument contained within it on the viability of independence helped to ease the minds of the colonials; it had changed their opinions on this issue and settled some of their fears, which Edmund Randolph commented on after its publication: “the public sentiment which a few weeks before had shuddered at the tremendous obstacles, with which independence was environed, overleaped every barrier.”[8] Murry Rothbard said that “Tom Paine had, at a single blow, become the voice of the American Revolution and the greatest single force in propelling it to completion and independence.”[9] Even John Adams admitted that because of Thomas Paine and the publication of Common Sense, “the sword of Washington would have been raised in vain.”[10]

            This pamphlet was crucial to the American debate on independence and discussion of liberty in 1776. Common Sense created such a remarkable stir of conversation on these subjects to the degree that it “elicited numerous responses in the newspapers and in pamphlet form.”[11] The minds of British subjects in America had changed and the Declaration of Independence was their collective voice and concluded answer to Thomas Paine’s question posed in Common Sense. For many, it was the influential work that caused them to cry out similar sentiments as Patrick Henry had declared on March 23, 1775: “I know not what course others may take; but as for me, give me liberty, or give me death!”[12] The rest of the world felt the ripple effect from this debate and successful revolution. Thomas Paine’s work went on to be read in other parts of the world and also “inspired revolutionaries in Europe to seek similar transformations in their home countries.”[13] The publication of Thomas Paine’s Common Sense forever changed the course of the world. 

Bibliography

Frothingham, Richard. The Rise of the Republic of the United States. Boston: Little, Brown, and  Company, 1910.

Liell, Scott. 46 Pages: Thomas Paine, Common Sense, and the Turning Point to Independence. Philadelphia: Running Press Book Publishers, 2003.

Nash, David. "THE GAIN FROM PAINE." History Today 59, no. 6 (June 2009): 12-18.

Paine, Thomas. Common Sense. Edited by Larkin, Edward. New York: Broadview Press Ltd., 2004.

Smith, George Ford. “Thomas Paine, Liberty’s Hated Torchbearer.” Mises Institute, June 8, 2010. http://mises.org/library/thomas-paine-libertys-hated-torchbearer.

"Tom Paine's Myth." Wilson Quarterly 30, no. 3 (Summer2006 2006): 80.

Wendell, Barrett. Liberty, Union and Democracy: The National Ideals of America. New York: Charles Scribner’s Sons, 1906.

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[1] "Tom Paine's Myth." Wilson Quarterly 30, no. 3 (Summer2006 2006): 80.

[2] Scott Liell, 46 Pages: Thomas Paine, Common Sense, and the Turning Point to Independence, (Philadelphia: Running Press Book Publishers, 2003), 16.

[3] “Tom Paine’s Myth,” Wilson Quarterly.

[4] Ibid.

[5] David Nash, "THE GAIN FROM PAINE," History Today 59, no. 6 (June 2009): 12-18.

[6] Liell, 46 Pages, 16.

[7] Richard Frothingham, The Rise of the Republic of the United States, (Boston: Little, Brown, and Company, 1910), 473.

[8] Thomas Paine, Common Sense, edited by Edward Larkin, (New York: Broadview Press Ltd., 2004), 8.

[9] George Ford Smith, “Thomas Paine, Liberty’s Hated Torchbearer,” Mises Institute, June 8, 2010, http://mises.org/library/thomas-paine-libertys-hated-torchbearer.

[10] Ibid.

[11] Paine, Common Sense, 8.

[12] Barrett Wendell, Liberty, Union and Democracy: The National Ideals of America, (New York: Charles Scribner’s Sons, 1906), 111.

[13] Paine, Common Sense, 8.

Old World Economics Led to the Great War

            During the mid-nineteenth century, an economic war and debate was raging throughout the world. The economic principles of free trade and protectionism were hotly disputed during that period history. Efforts were attempted in England by Richard Cobden, a supporter of free trade, to move his nation more towards a laissez-faire economic system. Even though leading European nations like Britain and France made strides to implement free trade, which lead an example for other nations to follow, this “did not mean the abolition of tariffs.”[1] At the same time, the United States of America was being torn apart by Abraham Lincoln, an “old Henry Clay-Tariff Whig” [2] supporter, and his protectionist driven Republican Party; who had passed the Morrill Tariff bill on March 2, 1861, which increased tariffs “by as much as 250 percent on some items” on the eve of the Civil War.[3] During the close of the nineteenth century and right up until the commencement of the First World War, “the free trade system” was continually “under…attack.”[4]

            Opponents of free trade argued that protectionism was the only means to protect national interests. Jules Méline, the French Commerce Minister, Gustav Schmoller, a German economist, and Henry Carey Baird, an American economist all supported the ideals of protectionism. Baird had said that “protection was a policy, which not merely rested on foundations of justice, but it was vindicated by all history.”[5] As the century ended, economists and politicians were attempting to rebrand the old world economic system of mercantilism under a new guise. Free trade or real capitalism was being destroyed through “aggressive imperialism and nationalism,” which created the twentieth century phenomenon of “war collectivism.”[6]

            Unlike the governments that imposed mercantilism in the seventeenth and eighteenth centuries, the governments during the mid-nineteenth century to early twentieth century were not as “brutally frank in [their] class rule, and in [their] scorn for the average worker and consumer.”[7] However, their goals to maintain economic control through a strong centralized government remained the same as before. Thus, the old approach to justify mercantilism received a facelift and the “new ideology of 20th-century liberalism” was born.[8] Citizens were made to believe that nationalism now meant that the government had the welfare of the worker and “the common good of all citizens” in mind when they governed over them.[9] This new ideology created the “corporate” liberal.[10]

            The corporate liberals were responsible for the economic system, which set the stage for the First World War. The United States was drawn into the war as a result of the Federal government joining big businesses in an effort to further “industrial cartelization.”[11] The war overseas drove the Federal governments’ economic plan to create several committees lead by predominant businessmen; which in turn, lead to the creation of the Committee on Industrial Preparedness in 1916.

Next, the Council of National Defense (CND) was created, whose mission was explained by President Wilson as a joint operation between the private and public sectors to promote “Americanism.”[12] The new economic structure and drive of the CND was to form a collective union between the state, the military, the industries, and the public. The CND was formed by key individuals; one of whom was related to the president, and others had great influence and powerful positions in various industries. These men used their sub-committees to promote mercantilism.

Protectionist tariffs and imperialism destroyed free trade and peace throughout the world, which lead to the First World War (even though the French and Indian War can be argued as the world’s first “world war” for the same reasons that contributed to this conflict). The war created an economic crisis that helped governments to promote the destruction of competition through “conservation efforts.”[13] The various committees created by the Federal government to promote war collectivism helped to create a “Standardize[d] American Industry.”[14] This economic system based on old-fashioned mercantilism would be an example to other nations and only help contribute to further wars.

Bibliography

DiLorenzo, Thomas. Lincoln Unmasked: What Your’re Not Supposed to Know About Dishonest Abe. New York: Three Rivers Press, 2006.

DiLorenzo, Thomas. The Real Lincoln: A New Look at Abraham Lincoln, His Agenda, and an Unnecessary War. New York: Three Rivers Press, 2003.

Mulligan, William. The Origins of the First World War. Cambridge: Cambridge University Press, 2010.

Rothbard, Murray N. “War Collectivism in World War I.” Mises Institute, December 13, 2011. http://mises.org/library/war-collectivism-world-war-i.

   

     

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[1] William Mulligan, The Origins of the First World War, (Cambridge: Cambridge University Press, 2010), 186.

[2] Thomas DiLorenzo, Lincoln Unmasked: What Your’re Not Supposed to Know About Dishonest Abe, (New York: Three Rivers Press, 2006), 124.

[3] Thomas DiLorenzo, The Real Lincoln: A New Look at Abraham Lincoln, His Agenda, and an Unnecessary War, (New York: Three Rivers Press, 2003), 127.

[4] Mulligan, The Origins of the First World War, 187.

[5] Ibid, 188.

[6] Murray N. Rothbard, “War Collectivism in World War I,” Mises Institute, December 13, 2011, http://mises.org/library/war-collectivism-world-war-i.

[7] Ibid.

[8] Ibid.

[9] Ibid.

[10] Ibid.

[11] Ibid.

[12] Ibid.

[13] Ibid.

[14] Ibid. 

Was Thomas Jefferson's Election in 1800 a "Revolution?"

            There was a “revolution” in 1800 when Thomas Jefferson was elected to the presidency of the United States. His ascension to the highest office in the Executive Branch did not come by the literal “blood of patriots,” [1] but it was the result of a bloodless rebellion against the Federalist Party and their “Court party” policies.[2] Through the “might wave of public opinion,” President Jefferson was the appointed leader of “the revolution of 1800,” through whom they hoped would restore the “principles of our government as that of 1776.”[3] Jefferson did restore many republican principles during his presidency; however, he also committed some acts that could be considered unconstitutional. In the end, he can also be criticized for not doing more to promote “American synthesis” or what can be defined as “a unique blend of early liberalism, ‘the rights of Englishmen,’ and republican theory.”[4]

            The first decade of the United States government was controlled by the Federalist Party, which had attempted to reinstate the British System of mercantilism based on old world “Court Party” policies.[5] Republican minded Americans and politicians, who favored liberty and limited government, were dismayed at the resurgence of “standing armies, inflationary public debt, and the rigging of markets.”[6] The American people were again being subjugated to internal and external taxes, which led to eruptions like the Whiskey Rebellion. Other controversial issues arose, which began to tear apart the young nation like Jay’s Treaty, the XYZ Affair, the Quasi-War with France, the French Revolution, and the 1798 Alien and Sedition Acts.

            Spirited debates were had in the halls of government, in newspapers and pamphlets, and in public forums. As tensions rose in the United States, there were many who believed the great experiment was nearing its end. John Adams feared that some of his party members “desired the destruction of the republic, and ultimately, a new constitution;” while others were spreading whispers of a possible “civil war.”[7]

            The revolution did occur in 1800 and Thomas Jefferson became the third American president without any loss of blood. With the mindset of “a government rigorously frugal and simple,” Jefferson went to work downsizing the Federal government.[8] During his presidency, Jefferson reduced taxes and the size of the nation’s standing army. In his First Annual Message to Congress on December 8, 1801, he informed Congress of how he had already taken steps to down size the Executive Branch: “Among those who are dependent on executive discretion, I have begun the reduction of what was deemed necessary. The expenses of diplomatic agency have been considerably diminished. The inspectors of internal revenue who were found to obstruct the accountability of the institution, have been discontinued. Several agencies created by executive authority, on salaries fixed by that also, have been suppressed.”[9] Jefferson’s reductions in the Treasury Department’s personnel “alone reduced the number of federal employees by more than one-third.”[10]

            Jefferson was also successful in downsizing the State Department when he “reduced the number of foreign missions to three;” but despite the reduction in some government spending and programs, his budget for the Department of the Navy did increase from the Federalist average of $1.3 million to $1.5 million a year.[11] However, the use of a strong Navy to protect U.S. commerce and trade would not be considered unconstitutional; especially, since the Constitution itself states that Congress is “To provide and maintain a Navy.”[12] Where Jefferson could be considered taking unconstitutional action was when he “sent a small squadron of frigates into the Mediterranean” to deal with the Barbary Pirates without the consent of Congress.[13] His purchase of the Louisiana Territory was also an action that overstepped his executive authority, which caused many in New England to call for their States to secede; and again the call was made for succession when Jefferson’s administration enacted an embargo act against England and France.[14]

            As evident, there was great change during Jefferson’s presidency and a new “revolution.” It is true that some actions taken by Jefferson and his administration can be considered unconstitutional, but not as damaging to liberty and the spirit of ’76 as the Federalist Party had done during the time in office. The most disappointing aspect of Jefferson’s presidency was that no action was taken to end the institution of slavery. However, it was the Federalists who pushed for and obtained a new Constitution in 1787, which protected the slave owner in Article IV, Section 2, Clause 3: “No Person held to Service or Labour in one State, under the Laws thereof, escaping into another, shall, in Consequence of any Law or Regulation therein, be discharged from such Service or Labour, But shall be delivered up on Claim of the Party to whom such Service or Labor may be due.”[15] In theory then, Jefferson’s inaction to destroy the institution of slavery was in fact him supporting of the Constitution. So in the end, something that has not changed with the election of Thomas Jefferson is the argument of what is or is not constitutional. This is an argument that has continued to the present day in the United States.

Bibliography

Cogliano, Frank and Cogliano, Francis D. Companion to Thomas Jefferson (2nd Edition). Somerset: John Wiley & Sons, 2011.

Jefferson, Thomas. Master Thoughts of Thomas Jefferson. Edited by Catchings, Benjamin S. New York: The Nation Press, 1907.

Jefferson, Thomas. “Thomas Jefferson: First Annual Message to Congress.” The Avalon Project, December 8, 1801. http://avalon.law.yale.edu/19th_century/jeffmes1.asp.

Secession, State, and Liberty. Edited by Gordon, David. New Brunswick: Transaction Publishers,

           2009.

Stromberg, Joseph R.  “The Election of 1800.” Mises Institute, January 4, 2001. http://mises.org/library/election-1800.

Trask, H.A. Scott. ”Was Thomas Jefferson a Great President? Mises Institute, July 12, 2010. http://mises.org/library/was-thomas-jefferson-great-president.

“U.S. Constitution: Article I.” The Avalon Project, accessed on March 10, 2015. http://avalon.law.yale.edu/18th_century/art1.asp.

“U.S. Constitution: Article IV.” The Avalon Project, accessed on March 10, 2015. http://avalon.law.yale.edu/18th_century/art4.asp.

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[1] Thomas Jefferson, Master Thoughts of Thomas Jefferson, edited by Benjamin S. Catchings, (New York: The Nation Press, 1907), 110.

[2] Joseph R. Stromberg, “The Election of 1800,” Mises Institute, January 4, 2001, http://mises.org/library/election-1800.

[3] Frank Cogliano and Francis D. Cogliano, Companion to Thomas Jefferson (2nd Edition), (Somerset: John Wiley & Sons, 2011), 145.

[4] Stromberg, “The Election of 1800.”

[5] Ibid.

[6] Ibid.

[7] Cogliano, Companion to Thomas Jefferson, 148.

[8] H.A. Scott Trask, ”Was Thomas Jefferson a Great President? Mises Institute, July 12, 2010, http://mises.org/library/was-thomas-jefferson-great-president.

[9] Thomas Jefferson, “Thomas Jefferson: First Annual Message to Congress,” The Avalon Project, December 8, 1801, http://avalon.law.yale.edu/19th_century/jeffmes1.asp.

[10] Ibid.

[11] Ibid.

[12] “U.S. Constitution: Article I,” The Avalon Project, accessed on March 10, 2015, http://avalon.law.yale.edu/18th_century/art1.asp.

[13] Jefferson, “Thomas Jefferson: First Annual Message to Congress.”

[14] Secession, State, and Liberty, edited by David Gordon, (New Brunswick: Transaction Publishers, 2009), 135.

[15] “U.S. Constitution: Article IV,” The Avalon Project, accessed on March 10, 2015, http://avalon.law.yale.edu/18th_century/art4.asp.