Herbert Hoover Dramatically Increased Government Spending; Budget Surpluses Became Deficits; Taxes Were Raised; the Smoot-Hawley Tariff Was Imposed

Hoover also dramatically increased government spending during the depression. The federal government went from surpluses to deficits from 1930 to 1931. Since the government is a consumer, as I discussed in chapter 2, any increase in consumption beyond its appropriate bounds—beyond the protection of individual rights—detracts from the ability to produce wealth.

In addition, taxes were raised in 1932 to help pay for the additional spending. The tax increase was more onerous for high-income earners. The tax rate on the highest income earners was raised from 25 to 63 percent. Higher taxes on the wealthiest income earners are particularly destructive. First, they are immoral because they sacrifice the rich to the poor by redistributing income from the former to the latter. Second, higher taxes on the wealthy take money away from the most productive individuals in the economy and redistribute it to the least productive individuals. As discussed in chapter 2, this reduces the productive capability and standard of living.

Hoover also raised tariffs dramatically and effectively banned immigration. The Smoot-Hawley Tariff that was passed in June of 1930 effectively imposed a tax rate of 60 percent on more than 3,200 products and materials imported into the United States. The tariff did not cause the depression, as is sometimes believed, but it did make the depression worse. The Smoot-Hawley Tariff did not cause the Great Depression because it was imposed about a year after the depression had already begun.

—Brian P. Simpson, Money, Banking, and the Business Cycle, vol. 1, Integrating Theory and Practice (New York: Palgrave Macmillan, 2014), 206-207.

Some of the Serious Questions about the Validity of the Austrian Business Cycle Theory (ABCT)

Many criticisms of ABCT (Austrian Business Cycle Theory) have been made over the last several decades by various people. All of them are invalid. The theory provides the only comprehensive and logically consistent explanation of the cycle. It is the only theory that is consistent with all the facts of the cycle. Nonetheless, since many criticisms have been made, they need to be addressed. I will not address all of the criticisms in this chapter. Many of the criticisms are shown to be invalid in other chapters, such as the claim that ABCT does not explain the contraction phase of the cycle (chapter 3) and the claim that the theory is not based in reality (chapters 3 and 6-9). In addition, some of the criticisms are devoid of intellectual content or are incoherent and therefore require no response.

The only criticisms of ABCT I will address in this chapter are those that are not addressed elsewhere in this book and that raise serious questions about the validity of ABCT. One criticism, on whether ABCT is consistent with what contemporary economists call rational expectations, requires significant treatment to show that this, in fact, is not a valid criticism. Others pertain to claims that ABCT is too complex and that ABCT commits errors in regard to its use of interest rates. Still others criticize ABCT for allegedly requiring full employment at the start of the expansion to generate the harmful effects of the cycle. And there are many more. I address the "rational expectations" criticism last, since it requires a more lengthy treatment.

--Brian P. Simpson, Integrating Theory and Practice, vol. 1 of Money, Banking, and the Business Cycle (New York: Palgrave Macmillan, 2014), 87.