The Real Lesson of the Great Depression
September 24, 2008
Washington, D.C.--Many of those calling for greater government control over the economy in response to the current financial crisis point to the Great Depression, arguing that it provides a clear example of the crucial need to curb the “excesses” of the free market through government intervention.
“The Great Depression does have something to teach us about the current crisis,” said Yaron Brook, executive director of the Ayn Rand Center for Individual Rights, “but it’s not that we need more government control over the economy.
“Most people believe the Great Depression was caused by an ‘excessively’ free market--and they regard the massive expansion of government intervention under FDR as its cure. But as many economists have demonstrated, it was government intervention that caused and exacerbated the Depression--from the massive tariffs of Smoot-Hawley to a series of disastrous interest rate hikes by the Federal Reserve to antibusiness measures such as the National Recovery Act.
“Few acknowledged this at the time, however. The Great Depression--a failure of government intervention--was called a failure of capitalism, and was used to justify even more government intervention. We are seeing this same process repeat itself today.
“There is overwhelming evidence that our current crisis is the result primarily of government intervention in the economy, from the Fed’s inflationary policy of keeping interest rates artificially low to the creation and regulatory coddling of Freddie Mac and Fannie Mae to the government’s quasi-official policy of bailing out large financial institutions deemed too big to fail. But despite such evidence, this crisis is being blamed on too little government control of markets, and is being used to justify an even greater expansion of the state’s control over financial markets.
“It’s time we learn the real lesson of the Great Depression: that instead of rushing to blame capitalism and businessmen for an economic crisis, we should work to discover its real cause--and its real cure.”
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