Secretary of the Treasury Andrew Mellon Wanted to “Liquidate” Labor, Stocks, Farmers, and Real Estate to Purge the Rottenness from the Economy

And so we see that when the Great Depression struck, heralded by the stock market crash of October 24, President Hoover stood prepared for the ordeal, ready to launch an unprecedented program of government intervention for high wage rates, public works, and bolstering of unsound positions that was later to be christened the New Deal. As Hoover recalls:

the primary question at once arose as to whether the President and the Federal government should undertake to investigate and remedy the evils. . . . No President before had ever believed that there was a governmental responsibility in such cases. No matter what the urging on previous occasions, Presidents steadfastly had maintained that the Federal government was apart from such eruptions . . . therefore, we had to pioneer a new field.

As his admiring biographers, Myers and Newton, declared, “President Hoover was the first President in our history to offer Federal leadership in mobilizing the economic resources of the people.” He was, of course, not the last. As Hoover later proudly proclaimed: It was a “program unparalleled in the history of depressions in any country and any time.”

There was opposition within the administration, headed, surprisingly enough, considering his interventions throughout the boom, by Secretary of Treasury Mellon. Mellon headed what Hoover scornfully termed “the leave-it-alone liquidationists.” Mellon wanted to “liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate,” and so “purge the rottenness” from the economy, lower the high cost of living, and spur hard work and efficient enterprise. Mellon cited the efficient working of this process in the depression of the 1870s. While phrased somewhat luridly, this was the sound and proper course for the administration to follow. But Mellon’s advice was overruled by Hoover, who was supported by Undersecretary of the Treasury Ogden Mills, Secretary of Commerce Robert Lamont, Secretary of Agriculture Hyde, and others.

—Murray N. Rothbard, America's Great Depression, 5th ed. (Auburn, AL: Ludwig von Mises Institute, 2000), 209-210.

International Cooperation to Support the Gold Standard Is the Maintenance of a Cheap Money Policy without Suffering the Loss of Gold

Thus, the close international Central Bank collaboration of the 1920s created a false era of seemingly sound prosperity, masking a dangerous worldwide inflation. As Dr. Palyi has declared, "The gld standard of the New Era was managed enough to permit the artificial lengthening and bolstering of the boom, but it was also automatic enough to make inevitable the eventual failure." The pre-war standard, Palyi points out, had been autonomous; the new gold standard was based on the political cooperation of central banks, which "impatiently fostered a volume of credit flow without regard to its economic results." And Dr. Hardy justly concluded, "International cooperation to support the gold standard . . . is the maintenance of a cheap money policy without suffering the loss of gold."

--Murray N. Rothbard, America's Great Depression, 5th ed. (Auburn, AL: Ludwig von Mises Institute, 2000), 149.

The Fault of Inflation Is in the Legalized Counterfeiting Operations of the Government Itself--The Power to Create New Money

The fault of inflation is not in business “monopoly,” or in union agitation, or in the hunches of speculators, or in the “greediness” of consumers; the fault is in the legalized counterfeiting operations of the government itself. For the government is the only institution in society with the power to counterfeit—to create new money. So long as it continues to use that power, we will continue to suffer from inflation, even unto a runaway inflation that will utterly destroy the currency.

--Murray N. Rothbard, introduction to the third edition of America's Great Depression, 5th ed. (Auburn, AL: Ludwig von Mises Institute, 2000), xxix.

Mitchellians, Keynesians, and Marxians Are Convinced That Business Cycles Spring from Deep within the Capitalist System

Yet, on closer analysis, the common reaction is by no means self-evident. It rests, in fact, on an unproven assumption—the assumption that business cycles in general, and depressions in particular, arise from the depths of the free-market, capitalist economy. If we then assume that the business cycle stems from—is “endogenous” to—the free market, then the common reaction seems plausible. And yet, the assumption is pure myth, resting not on proof but on simple faith. Karl Marx was one of the first to maintain that business crises stemmed from market processes. In the twentieth century, whatever their great positive differences, almost all economists—Mitchellians, Keynesians, Marxians, or whatnot—are convinced of this view. They may have conflicting causal theories to explain the phenomenon, or, like the Mitchellians, they may have no causal theory at all—but they are all convinced that business cycles spring from deep within the capitalist system.

--Murray N. Rothbard, introduction to the first edition of America's Great Depression, 5th ed. (Auburn, AL: Ludwig von Mises Institute, 2000), xxxviii.

Hayek Found Keynes Ignorant of Capital Theory and Real-Interest Theory

F.A. Hayek subjected J.M. Keynes’s early Treatise on Money (now relatively forgotten amid the glow of his later General Theory) to a sound and searching critique, much of which applies to the later volume. Thus, Hayek pointed out that Keynes simply assumed that zero aggregate profit was just sufficient to maintain capital, whereas profits in the lower stages combined with equal losses in the higher stages would reduce the capital structure; Keynes ignored the various stages of production; ignored changes in capital value and neglected the identity between entrepreneurs and capitalists; took replacement of the capital structure for granted; neglected price differentials in the stages of production as the source of interest; and did not realize that, ultimately, the question faced by businessmen is not whether to invest in consumer goods or capital goods, but whether to invest in capital goods that will yield consumer goods at a nearer or later date. In general, Hayek found Keynes ignorant of capital theory and real-interest theory, particularly that of Böhm-Bawerk, a criticism borne out in Keynes’s remarks on Mises’s theory of interest.

--Murray N. Rothbard, America's Great Depression, 5th ed. (Auburn, AL: Ludwig von Mises Institute, 2000), 37n.