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Hans Sennholz talking (in 1988) about the Great Depression (and about the danger of another Great Depression) I’m now watching a video of Hans Sennholz, produced by the Foundation for Economic Education.
Sennholz is talking about the Great Depression, arguing that freedom didn’t fail, politics failed, and that “if we repeat these government polices there is going to be another Great Depression”. I’m typing while he talks, but that is the gist of it.
Until now, Sennholz was just a name to me. Now he is a name, a face, a voice, an attitude. And a prophet.
This video was made (or should I say this film was shot?) on February 29th (!) 1988. I was steered towards it by Richard Carey (whom I SQotDed earlier this week) of Libertarian Home, to whom thanks.
The First World War use to be called The Great War. Soon, The Great Depression is likely also to become known by a different title, which also includes the word “First”.
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Like too many commenters on the Great Depression, he has underestimated the role of technical change. There were major changes due to the introduction of the motor car, and particularly the tractor. Agriculture was the main employer in the 19th century, and a minor one in the twentieth.
This would always have required a major realignment in the world economy regardless of any government policy position. We were never to going to get through a realignment of that size without some form of depression.
His assessment of agriculture is a bit off. The technology reduced the costs to US farmers, but later when the technology went overseas, it reduced costs overseas, too. The resulting competition slashed the earnings of US farmers, prolonging the depression there.
I must say that this is the first time I have seen, heard, or read an account of the Depression that considers it as a bunch of puzzle pieces all of which must be put into the right places in order to explain the result. (Or, perhaps, as four different input streams, the confluence of which caused the Slimy Bog.)
The introductory part, stating that one must search for the causes of a depression by first noting the preceding boom to which it’s a reaction and then searching for the causes of said boom, is also new to me.
So I think the lecture is very important, and would be so even if every conclusion were false.
I shall have to listen again, and this time take notes.
Thanks very much, Brian, for posting.
“Like too many commenters on the Great Depression, he has underestimated the role of technical change.”
Precisely, that is why i always bang heads with any economic theory, they are all obsessed with money.
Things that changed between 1930 and 1940: aircraft engines output went from 300hp to 1200hp, merchant ship instead of steam engines started to get diesel engines…, radio, tv etc… and i am just talking about things that are easily seen.
The credit bubble we had is a result of that money obsession: dump money everywhere and growth will occurs. It didn’t.
In my country we have now too many highways and everyone has house so the building market is for a decade or more of depression. This will probably will not lead to a lack of know-how since building stuff is not complex, but for example in military equipment we are seeing such cases with weapons having such extended live that knowledge is lost. Today there are just 3 western world countries that make modern naval guns: US, Italy, Sweden.
In small arms France and UK already stopped building them, the next replacement for Famas French gun will be an import. There is only one Western country that develops tank guns: Germany. The British and French guns already are dead. In Anti tank/support Missiles everyone has to choose US or Israeli. Meanwhile B-52 continue to fly and their crews have half the age of the bomber, maybe in 10 years time they will have 1/3 the age of the plane they are on.
[Soon, The Great Depression is likely also to become known by a different title, which also includes the word “First”.]
Strictly speaking it should probably be “Second,” and the current one is the Third. The title of ‘First’ should by rights go to the period now known as the ‘Long Depression:’ the period of general economic stagnation from 1873 to 1879.
‘In my country we have
now too many highways
and everyone has house
so the building market is
for a decade or more of
depression.’ Which country is that?
Portugal
Thanks:-)
IIRC, in 1975 I attended a conference in Los Angeles. As is often the case, there is a final speaker, over Sunday morning breakfast. In this case Hans Sennholz was the speaker.
To my great frustration & embarrassment most of the others in the room were either too tired, too rude, or too dull-witted to appreciate this brilliant man.
That sad memory, and the memory of what a superb, passionate, and cultured advocate of liberty he was, stays with me always.
Like every bust since 1819 (see Murray Rothbard’s “The Panic of 1819”) the bust of 1929 was caused by the preceeding credit money expanson – the “boom”
Specifically Benjamin Strong of the New York Federal Reserve caused the boom-bust event (partly, in the boom part. to help his friend M. Norman of the Bank of England – help try and prop up the false exchange rate of the British Pound against the Dollar by producing more Dollars).
But causing a bust does NOT cause a Great Depression.
After all – there had been a bust as recently as 1921 (the bursting of the World War One credit money bubble) without a Great Depression.
So what was different?
What was different was government reaction.
In every previous bust (to 1819 and before) real wages and prices (yes – including farm prices) were allowed to adjust.
However, Herbert “The Forgotten Progressive” Hoover would not allow real wages and prices to adjust – he was a victim of the “demand” fallacy (a Keynesian before Keynes).
And neither would Franklin Roosevelt.
Of course real wages did eventually fall – but not till World War II, when under the cover of price controls (government statistics ignored REAL i.e. “black market” prices) real wages fell.
So, in a perveted way, the left are correct – World War II did end the mass unemployment of the Great Depression – but not because of higher government spending, but because of (disquised) real wage cutting.
As for getting productivity back up (so that real wages could up – without mass unemployment) that did not happen till after World War II.
The period of the “Do Nothing” Congress. Which in fact did quite a lot – it repealed a lot the New Deal nonsense. Although (sadly) not all of it.
By the way those places that did not let price controls lapse paid a price for that.
Try renting an apartment in New York City.
First you have to employ a special agent to get you into ……
The various things that have developed because rent control destroyed the conventional rented accomidation market.
As for now?
Well I have been gently scolded for using language like the collapse of 2013. As if I was a Roman commander on the Rhine (stripped of most of his troops) watching the Germanic tribes pouring over the ice in 405 AD – and preparing to fall on my sword to avoid being taken alive.
However, the facts are the facts.
And they are bad.
In the 1930s civil society in the United States was actually basically sound – family structure was mostly stable (broken families were rare things – they existed, but they were rare), the churches were strong and well intergrated into mainstream society.
Most old people had either childen who knew their duties and/or were part of fraternal networks providing income in their old age.
And on and on.
None of this is true today.
The state has largely taken over the role of Civil Society – “From the cradle to the grave”. And it just will not work.
Fiscal bankruptcy (levels of government spending that would have been unthinkable – even under FDR in the 1930s) and social bankruptcy also.
And, yes, 2013 will see the first obvious signs of it – although 2014 (and so on) will be worse.
“And Britain….”
Well the front cover of that “free market” Economist magazine says that Britain is going to be fine – and the inside story says how the government “austerity” policy has worked -and how good the Bank of England’s Quantative Easing is a wonderful thing.
So that is O.K. then.
We had best not think of how “Austerity” really means – the government spending as much money as it possibly can whilst talking the language of “cuts” very loudly.
And we had better not think of how the Bank of England’s “boomlet at any price” policy is destroying the capital structure.
And the social side?
If anything even worse than the United States.
Two excellent comments from Paul Marks. I agree with both of them.
Can Paul – or someone else – explain that?
Thank you for posting this link. It was one of most interesting lectures I have ever listened to on economics. I for one had never really considered the causes of the prolonged Great Depression in this way before. Very illuminating.
Sorry for not being on here for so long Alisa – I have been distracted by certain people.
The matter is not complicated – if one is experienced in the corrupt world of politics (which, disgustingly, I am).
During World War II governments held that real wages were not falling – because they measured wages against prices and wages were not falling.
BUT – they measured wages against OFFICIAL prices (just as Hitler had done in the 1930s – before World War II), not the prices people actually had to pay for goods.
The real prices – the “Black Market” prices”.
So real wages were actually falling.
Real wages falling – the money can be spread over more people. So unemployment goes.
“You now have a job and everyone’s wages are just as high as before”.
“But my money is not buying what it used to”.
“You are not buying things on the Black Market are you – that is a very serious matter.”
Of course the real trick is to have rising productivity – so that you can have full employment and rising wages.
But (in reality – not official statistics) American productivity was not really rising till after World War II – 1946, 1947, 1948 and so on.
To give some modern examples….
Many Americans believe that the government “price index” does not fully weight reflect the increases in prices they have to pay for vital goods (such as food and fuel). So that they are getting worse and worse off.
Be that as it may – there are some places where it is certainly is true.
For example, in Argentina “inflation” (which moderns define as a increase in prices in the shops) is below 10%.
Prices may double or triple – but “inflation is below 10%”.
So the kind government can afford to give people increases (in various things) “well above inflation”.
And if you complain and say their figures are lies?
They put you in prison.
Thanks Paul.