Pro Rege Papers

As I explained in my post about the Great Depression, one of the major causes of the stock market crash, the bank closings, and the ensuing poverty was credit inflation. Rather, it was the credit contraction that Hoover ordered that started the cycle. But that came as a result of the huge credit expansion. Anyway, credit inflation was one of the major causes. This being the root source of the crash, you would think that government would take steps to restrict fractional reserve banking, the buying of stocks on margin, the inflationary practices of the Federal Reserve, etc. However the measures taken by the government following the crash were nothing like that. They were in entirely the wrong direction. Those measures sought to keep credit from contracting, and even sought to re-inflate the currency, as well as hinder private industry. In hindsight, the governmental response ended up prolonging the Depression.

Credit contraction helps prices and wages to readjust to the new conditions. It’s the first stage in an economic recovery. However, right after the crash at the end of 1929, the Federal Reserve raised rediscount rate on loans. Hoover also pushed through a banking loan corporation, which aided fractional reserve banks to reestablish their reserves. This, in effect tried to reinstate the cause of the stock market crash. These practices drove inflation back up, creating a temporary façade of recovery. But, the inevitable came again, and prices plunged.

More measures were taken by FDR, who took us off the gold standard and onto a government managed currency. Thus, the President could decide how much money was printed, and what price relation the dollar had to gold. FDR also established the Federal Deposit Insurance Corporation, the Home Owners Loan Corporation, the Farm Credit Administration, and the Commodity Credit Corporation. All these agencies expanded credit further to slow down the contraction from running its course, which it eventually did in 1933.

The regulations imposed on private industry, as well as the free rein given to labor unions throughout Roosevelt’s administration served to keep the country in the state of economic doldrums.

The National Recovery Administration required industries to develop codes that the President would have to approve that would be binding on all companies in that industry. They also sought to reduce of all “unfair” competition by merging different businesses under the same rules. That was part of a collectivist agenda to destroy individuality and competition.

The National Labor Relations Board was set up; restricting the number of ways courts could issue injunctions against, or companies could act against, labor unions. It defined a series of crimes that companies could commit against their employees, such as prohibiting the organization of labor unions, preventing strikes, refusing to negotiate with strikers, etc.

Tax after tax was laid on companies and private citizens. All these things made life much harder for private industry, which prevented them from hiring more people or their stock from rising in value. As a result, the economic recession lasted well into the ‘40s. Yes, extensive government intervention in the economy doesn’t work.