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Murray Rothbard’s America’s Great Depression and Its Importance Today

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Tags Book ReviewsBooms and BustsAustrian Economics Overview


On March 15, 2020, The Federal Reserve announced that the legal reserve requirement for banks was being lowered to zero percent1. In 2023, the legal reserve requirement is still zero percent. With this policy change, banks can now effectively loan out their reserves infinitely, drastically increasing the money supply. On top of this, the money supply grew by more than thirty-five percent between April 2020 and April 2021. In 2023, the national debt of the United States government exceeds 31 trillion dollars. With seven percent to nine percent inflation rates seen throughout 2021 and 2022, economics no longer seems to the average citizen as a discipline of little or no importance. Now, economic reality and the consequences of following unsound monetary policies are hitting average Americans in their wallets.

Thanks to the actions of central banks and governments worldwide, prices have skyrocketed, and the world financial system is in havoc. At the time of this writing, the price of eggs has doubled since last year. Additionally, beef has climbed sharply in price since the beginning of the covid lockdowns in March 2020. Price inflation has hit more than just food. Gasoline has drastically risen in price as well. In the summer of 2022, gas prices reached record high levels. It should also be noted that the average price of gasoline is still significantly higher than their pre-Covid lockdown levels.

These are just a few examples of the drastic price inflation seen in the United States in the past three years.

In reality, the economic wounds go much deeper. The value of the dollar has decreased by more than 95 percent since the inception of the Federal Reserve in 1913. Additionally, the Federal Reserve has engaged in billions upon billions of dollars of “Quantitative Easing” since the crash of 20072. This policy continues to this day. Capital markets are distorted to unprecedented levels, with everything from the tech sector to the state itself being funded by unbacked credit. It is safe to say that the economic chaos being seen today is not the result of a random accident; rather, these consequences are the direct effects of a society that has embraced a monetary fiat regime. The economic realities of today are affecting hundreds of millions of Americans, and billions of people worldwide. What is being seen is quite possibly the start of a new depression, one which may have an even more devastating impact than the Great Depression.

To understand the current state of the economies around the world and to see how the policies of today will shape the outcomes of tomorrow, a sound methodological foundation is required. Rothbard’s work, America’s Great Depression, gives readers the solid understanding of economic policy needed to understand the current state of the economy. Rothbard begins his work by laying out the Austrian theory of the business cycle. The business cycle, according to Rothbard, is different from a “business fluctuation”3. Since the economy is not static, there will naturally be profits and losses, entrepreneurial success and error in any economy. However, when there exists a “general boom and depression,” one which affects not just one specific industry but many, then there exists a business cycle4.

Rothbard’s work clarifies for readers that the crisis begins with an unsustainable boom.

Individuals have varying time preferences, or “the degree to which they prefer present to future satisfactions”5. In a free market, the interest rate is determined by these time preferences. Lower time preferences lead to a lower rate of interest. Savings necessitates delaying present consumption for future consumption. Since all capital projects require savings, there exists a deep interconnection between interest rates and savings. Rothbard importantly notes that in an unhampered market, the interest rate reflects individuals' willingness to consume or save, and, as such, there exists a “structure of interest rates”6.

In a hampered market, such as the one that exists in the United States, with the Federal Reserve and the fractional-reserve system, banks can create credit without the necessary underlying capital to fund their loans. In the case of the United States, the Federal Reserve creates billions of dollars every year. This new money enters the economy at specific places and points in time. This new money is given to banks which lend it out to businesses, thus lowering the interest rate. To businesses, it appears that there exists a general decrease in time preference and that resources are sufficiently saved for capital-intense projects.

However, this is not the case. In reality, no such decrease in time preference exists. Businesses then use this newly created money-credit to “invest in ‘longer processes of production,’ i.e., [lengthening] the capital structure”7. This, in turn, increases the price of capital goods and causes the structure of production to have more “higher” stages. Eventually, this money will reach consumers who will continue to spend their money in the old consumption-to-saving ratio. Businesses then learn that the higher stages of production are not demanded and will rush to liquidate “malinvested” capital.

Rothbard recognizes that the boom is not a period of wealth creation, but rather a period of malinvestment, eventually culminating in the bust. Ultimately, as painful as it may be, the bust is a necessary step in economic recovery to properly shift capital back to sustainable investment levels that match the true time preference for savings and investment of consumers.

Rothbard’s explanation of Austrian business cycle theory allows lay readers to understand the mechanisms of the boom-and-bust cycle, which so often causes real-world economic suffering. The threat of a recession still looms ominously in the United States, even while political officials and The Federal Reserve tell citizens that everything is fine. America’s Great Depression teaches readers that the price inflation and economic recession that they are experiencing today are not inevitabilities of the free market, but rather of state intervention.

Where Rothbard’s America’s Great Depression stands out is in its deep dive into the actions of the Herbert Hoover administration, a President who many historians falsely claim to be a laissez-faire president. This claim could not be further from the truth. Rothbard goes year- by-year into the actions and policies of President Hoover and correctly identifies him as an economic interventionist. As Rothbard states, “for if we define “New Deal” as an antidepression program marked by extensive governmental economic planning and intervention … Herbert Clark Hoover must be considered the founder of the New Deal in America” 8. Contrary to popular belief, Rothbard’s book documents how the Herbert Hoover administration was anything but a “do-nothing laissez-faire” administration.

Today, the conservative right in the United States is creating a narrative around inflation and President Joe Biden similar to the one created by mainstream academics about Herbert Hoover. With the term “Bidenflation” repeated by almost all right-wing pundits, conservatives fail to see that the price inflation of today is not completely Biden’s fault. The surge in prices in the United States began under the Trump administration, with the massive amounts of money printing that occurred under his administration amid the 2020 Covid lockdowns. There is no doubt that Biden has continued the inflationary policies of the Trump administration. However, just as Rothbard shows readers with Hoover, blame for the current financial crisis is often far more complex than the mainstream portrays it.

Arguably most importantly, the current relevance of America’s Great Depression comes in its policy prescriptions and solutions. Throughout the book, readers learn one important lesson: state intervention in the economy causes monetary chaos. A second and related lesson learned by readers is that state intervention ostensibly used to solve economic crises only leads to further chaos and destruction. While politicians today will tout price controls as a solution to the increased consumer prices seen throughout 2020-2023, Rothbard reminds the reader that interventionism only begets interventionism.

Additionally, as the inevitable consequences of unbacked monetary expansion unfold in the United States, Rothbard reminds readers that allowing the market to self-correct is the only mechanism that can fully reestablish a stable monetary system. The inevitable political conclusion of Rothbard’s book is that central banking is an outright disaster for society. The Federal Reserve was the source of the Great Depression, and it is the source of monetary volatility today. America’s Great Depression reminds readers that attempts to centrally plan the economy are doomed to fail.

The monetary regime in the United States is at a breaking point. Due to the enormous amount of money printed by the Federal Reserve, consumers have seen significant increases in prices since the beginning of the Covid lockdowns. Individuals who never cared about monetary policy are now forced to pay attention, as the consequences of these policies are now hitting their wallets. The subject of economics, which appeared to be relegated to the halls of colleges and universities, is now more important than ever for the average person to understand. Murray Rothbard’s work America’s Great Depression gives the lay reader the knowledge necessary to understand inflation and business cycles, as well as a historical account and analysis of the worst financial crisis in American history. The parallels between the Great Depression and today are apparent, and Rothbard’s work can help individuals identify them. Just as the economy of 1929 was based on a false reality, so too is the current economy built upon a pyramid of malinvestment. And just like the Presidential administrations of the 1930s and their policies, current administrations and their policies are only making the current economic crises worse.

Rothbard’s America’s Great Depression is the essential book to read for those wanting to understand the economic issues we face today.

  • 1. Murphy, Robert. 2021. Understanding Money Mechanics. Auburn, AL: The Ludwig von Mises Institute, page 94
  • 2. Murphy, 2022, pg 83
  • 3. Murray, Rothbard. 2000. America’s Great Depression. Auburn, AL: The Ludwig von Mises Institute, pg 4
  • 4. Rothbard. 2000, pg 6
  • 5. Rothbard. 2000, pg 9
  • 6. Rothbard. 2000, pg 10
  • 7. Ibid
  • 8. Rothbard 2000, pg 186

Samuel Peterson

Samuel Peterson is a student at Grove City College majoring in economics and history. Samuel has received numerous awards for his writing, including first place in the John Stossel Essay Contest, the Sound Money Defense League Essay Contest, and the America's Great Depression: Lessons for Today essay contest. Samuel was also the moderator for the SoHo Forum debate between Ben Burgis and Gene Epstein.

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