It Ain't So, Joe

By Gonzalo Schwarz

Commenting on the appearance of the 100th issue of the Journal of Economic Perspectives, its founding editor, Joseph Stiglitz,remarks (page 22) that a diversity of perspectives is “especially important in a field known for having certain orthodoxies—orthodoxies that dominate for a while and then fade, making the profession sometimes look less like a science than it would pretend to be. A case in point is the well-known and widely documented belief within the profession as the economy entered the Great Depression that markets were self-correcting and that government intervention would be a mistake. Another is the monetarist fad a half-century later.” It takes a lot of chutzpah to offer the Great Depression as a counterexample to the claim that government intervention is a mistake. Thanks to the evidence and arguments made by the monetarists Stiglitz also derides, it is now generally accepted that the major fault for the Depression lies with the Federal Reserve System and the Bank of France, which as central banks were creatures of government intervention. (And here is the connection to free banking: the actual or plausible hypothetical behavior of free banks offers a standard of comparison to what central banks did, especially the massive accumulation of gold by the Federal Reserve and the Bank of France. Because gold earned no interest, it is implausible that free banks would have accumulated it on such a large scale, creating deflationary pressure. I know of no actual large-scale free banks that held such high ratios of gold reserves.) I recommend for Stiglitz or anybody else who thinks as he does the sections on the Depression from the books below: ...Continue reading at for more on Hoover's "austerity" go to

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