Mises Wire

What Have We Learned? Lessons from America’s Great Depression?


There has been much talk lately about the Great Depression. Not only because we are on the cusp of a recession, but comparisons have always been drawn to this ominous period of economic downturn. The best action we can take as economists is to study it, and Murray Rothbard did just that. America’s Great Depression, published in 1963, contains many valuable lessons that still hold true today for preventing and dealing with depressions. In fact, the similarities between government intervention in the economy in the 1920s-30s and our present moment are simply too many to be covered in this essay. Thus, we will only focus on the major, repeating topics of the book, including monetary policy (low discount rates, inflation of bank reserves, etc.), the fallacy of stable wages, public works, and taxation.

Monetary Policy

Monetary policy receives the most attention in America’s Great Depression and for good reason: it was responsible for fueling inflation leading to the depression. As Rothbard makes clear early in the book, many economists did not detect the ongoing inflation because it was masked by a stable price level, which would have decreased had the money supply not increased.1  When inflation caught up to the government during the late 1920s, the Federal Reserve inflated the money supply by lowering the discount rate and pumping money into bank reserves through purchases of federal government securities. This was done to prop up unsound positions on loans and to expand economic activity, but instead caused inflation and worsened asset bubbles to the point where the dollar was debased by abandoning the domestic gold standard in 1933.

According to George Ford Smith, before 2020, the price level was, on average, increasing by 2.13 percent per year, in near perfect accordance with the Fed’s target of two percent. However, after the COVID-19 pandemic began, this number had more than doubled, increasing at 4.67 percent annually. So, why the sudden, significant increase? During the pandemic lockdowns, which were massive government interventions, the Federal Reserve loosened interest rates and pumped new money into the economy, drastically increasing the money supply in an attempt to supplement income and stimulate consumption. While this worked during the lockdown (because there was a lower velocity of money, as people could go out shopping), as soon as they were lifted, the glut of money in circulation, at this point 35 percent more than it was before the pandemic, took its toll. Without the Fed raising both the federal funds rate and discount rate, inflation increased starting in early 2021, which, unsurprisingly, the Fed ignored. Chairman Jerome Powell held a press conference on March 1st, 2021, stating that the Fed justified inflation above the target amount in order to maintain long-term average rates at 2 percent. He said, “I would note that a transitory rise in inflation above two percent, as seems likely to occur this year, would not meet this standard.” Also, just like the Fed in the 1920s and 30s, he pledged to continue buying federal assets and inflating the money supply in attempt to speed the recovery, “In addition, we will continue to increase our holdings of Treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month until substantial further progress has been made toward our maximum-employment and price-stability goals.”2  The outcome is the inflation we are experiencing today, currently at 6.5 percent, the highest it has been since the 1970s.3

The Fallacy of Stable Wages

Between 1929 and 1933, both Congress and President Hoover unleashed a number of measures to ensure that both prices and wages remained stable and encouraged consumption while discouraging saving (or “hoarding” as Hoover called it). One of the main beliefs among economists and politicians at the time was that high wages led to a higher standard of living since the workforce could then take their wages and spend their earnings demanding the goods that they produced. This would create a positive cycle of higher incomes for firms, which would beget higher wages, which would beget more prosperity, and so on, and this set of beliefs strongly influenced policy in the Hoover administration.

Unfortunately, this viewpoint neglects the fact that in a free market, prices, including those of labor, determine the costs of a firm and not the other way around. As Rothbard writes:

What of the Keynesian argument, however, that a fall in the wage rates would not help cure unemployment because it would slash purchasing power and therefore deprive industry of needed demand for its products? This argument can be answered on many levels. In the first place, as prices fall in a depression, real wage rates are not only maintained but increased. If this helps employment by raising purchasing power, why not advocate drastic increases in money wage rates? … It is clear that the effect of such a decree would be total mass unemployment and a complete stoppage of the wheels of production … The point is that the free-market rate is precisely the one that adjusts wages—costs and incomes—to the full-employment position.4

Today, many economists see the fault in this reasoning, and it is rarely discussed seriously during recessions, but it remains a prominent talking point of the progressive movement. Robert Reich, for example, the Secretary of Labor in the Clinton Administration and an economic advisor to the Bernie Sanders presidential campaign in 2016, lauded this Keynesian idea of ‘wages begetting prosperity’ numerous times despite the fact that he has no background in economics. In a testimony to the Senate Committee on Health, Education, Labor and Pensions he stated:

During three decades from 1947 to 1977, the nation implemented what might be called a basic bargain with American workers. Employers paid them enough to buy what they produced. Mass production and mass consumption proved perfect complements. Almost everyone who wanted a job could find one with good wages, or at least wages that were trending upward.5

This simply is not true. Wages and prosperity increased in this era was because of the savings and investment of the American people, which helped firms expand their capital and employ more workers at higher wages, achieving higher profits in the process. As president, Hoover made it a top priority to ensure that wages, as well as prices altogether, remained steady and did not fall, even if that meant unemployment and reduced hours. As a result, Hoover left the presidency with a “terrible and unprecedented [unemployment] rate of 25 percent of the labor force,”6  all spurred on by his stubborn adherence to this philosophy.

Public Works

To remedy the unemployment problem, Hoover embarked on massive spending for public works including dams, highways, bridges, ships, and more, setting the stage for the Roosevelt New Deal which was to finish many of these projects. This policy was bound to fail, as it constituted consumption by the government since consumers who were taxed for them would have spent their money elsewhere. Instead, it was forcibly taken through taxation and spent for different ends that Washington chose. Not only did it magnify the heavy load of government acquiring resources and crowding out private firms that would have undertaken the same projects (assuming there was sufficient demand for them), it also raised consumption further causing a decrease in saving and investment, worsening the depression.7 Today, public works continue to be a favorite interventionist tool, especially during downturns. While experiencing inflation in 2021, President Biden signed the Infrastructure Investment and Jobs Act (IIJA) which

“…provides $550 billion over fiscal years 2022 through 2026 in new Federal investment in infrastructure, including in roads, bridges, and mass transit, water infrastructure, resilience, and broadband.”8

Biden’s law has aggravated the ongoing inflation by adding to the money supply, and also has created the same problems Hoover did—forcing out private enterprise and adding to consumption (not investment, as the law claims) in a period in which the government should be consuming as little as possible. We are yet to see the full effects of this legislation, but an analysis done by the Wharton School of Business found that the law would have a net zero effect on employment and wages in both the medium and long-term,9  which concurs with Rothbard’s analysis.


When Hoover realized that his public works projects were creating a large federal deficit, he decided not to lower expenditures, but rather to raise taxes, further burdening the American citizen and lowering national savings even more. In 1932, Hoover signed into law the Revenue Act, which raised income taxes, excise taxes, corporate income taxes, estate taxes, postal rates, and other revenue streams for the Federal government. It was “one of the greatest increases in taxation ever enacted on the United States in peacetime.”10  We may discuss here that Biden and Congress also greatly raised income and corporate taxes with the Inflation Reduction Act during a time of inflation, which has eliminated approximately 29,000 jobs thus far, according to the Tax Foundation, 11  or that modern progressives have proposed legislation that would curb stock market ‘speculation’ by taxing computer driven high-frequency trading, such as Bernie Sanders’ (I-Vt.) and Barbara Lee’s (D-Calif.) Tax on Wall Street Speculation Act of 2021. This would accomplish little while destroying the gains brought about by lower financial transaction costs and causing even less investment, recalling Hoover’s failed moral suasion policy and ignorance to the importance of the stock market’s role as a capital allocator.12

However, the emphasis given to the estate tax in the book is particularly interesting, since it continues to be a rallying cry for progressives. One voice stands out as an advocate for raising the estate tax: Elizabeth Warren (D-Mass.). Warren’s “Ultra-Millionaire Tax,” according to her website, states that “It applies only to households with a net worth of $50 million or more—roughly the wealthiest 75,000 households, or the top 0.1 percent. Households would pay an annual 2 percent tax on every dollar of net worth above $50 million and a 6 percent tax on every dollar of net worth above $1 billion.”13

Ignoring that this tax is difficult to implement, since the wealthy’s assets are often tied up in real estate, businesses, and other ventures, Warren’s plan would be a disaster for the U.S. economy, because it would hurt the ability of the wealthy to continue operating successful fortunes, and would have a more potent effect than an income tax since it is taxed annually. Rothbard, responding to Hoover’s demand for an estate tax to stop those same “evils of inherited economic power”, describes this perfectly:

… there was no hint that he realized that a tax on inherited wealth is a tax on the property of the able or the descendants of the able, who must maintain that ability in order to preserve their fortunes; there was not the slightest understanding that a pure tax on capital such as the estate tax was the worst possible tax from the point of view of getting rid of the depression.14


Not much has changed from 1929-33 when it comes to how our government behaves in uncertain economic times, and the reasons mentioned above are only the tip of the iceberg. If Rothbard’s words are to be believed, we are currently entering a recession as inflation has begun to slow, which makes all the actions above liable for such a downturn, and these are only the primary factors. Further comparisons can be made with tariffs, unions, immigration, intimidation of businesses by government, and more.

While it is relatively simple to focus on the failures of the past and present, “America’s Great Depression” serves as a reminder that a brighter future where these missteps are recognized and no longer pursued, is in fact possible, where the individual can act unhindered by such needless intervention and can economically prosper through their own freedom. Let us, then, serve as advocates towards this future in pointing out the flawed economics of our government so that we may return to an era of prosperity and freedom for all.

  • 1Murray Rothbard, America’s Great Depression, (Eastford CT: Martino Fine Books, 2019, 1963): 82
  • 2Jerome Powell, Transcript of Chair Powell’s Press Conference (Washington D.C.: Federal Reserve Bank of the United States, 2021)
  • 3 Inflation Calculator, Current US Inflation Rates: 2000-2023 | US Inflation Calculator, (2023)
  • 4Rothbard, America’s Great Depression, 46
  • 5Robert Reich, Hearing on the Endangered Middle Class:Is the American Dream Slipping Out of Reach for American Families?, (Washington D.C.: Senate HELP Committee, 2011)
  • 6Rothbard, America’s Great Depression, 168
  • 7Rothbard, America’s Great Depression, 224
  • 8U.S. Department of Transportation Federal Highway Administration, Bipartisan Infrastructure Law - FHWA | Federal Highway Administration, (Washington D.C.: Federal Highway Administration, 2021)
  • 9Jon Huntley and John Ricco, Updated Bipartisan Senate Infrastructure Deal: Budgetary and Economic Effects, (Philadelphia Pennsylvania: Wharton School of Business, 2021
  • 10Rothbard, America’sGreat Depression, 253
  • 11Alex Durante et al., Inflation Reduction Act Taxes: Details & Analysis, (Washington D.C.: Tax Foundation, 2022)
  • 12Bernard Sanders, The Tax on Wall Street Speculation Act of 2021, (Washington D.C.:sanders.senate.gov, 2021): 1, 2
  • 13Elizabeth Warren, Ultra-MillionaireTax, (Washington D.C.: elizabethwarren.com, n.d.)
  • 14Rothbard, America’sGreat Depression, 254
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