Why is a recession better than a depression, or malaise better than recession? Human nature, not lax regulation, causes asset bubbles. Recession and depression, not public investment, cures excesses and restores growth. A stable currency and market-set interest rates create investment and jobs, not "stimulus".



“Liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate... it will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people” – Advice from Andrew W. Mellon which had it been followed bt President Hoover would have prevented the stock market corrections of 1929 from becoming the Great Depression in the first place.



Mr. Mellon was far from heartless:



Andrew Mellon's plan had four main points:

1. Cut the top income tax rate from 77 to 24 percent – predicting that large fortunes would be put back into the economy.

2. Cut taxes on low incomes from 4 to 1/2 percent – tax policy "must lessen, so far as possible, the burden of taxation on those least able to bear it."

3. Reduce the Federal Estate tax – large income taxes tempted the wealthy to shift their fortunes into tax-exempt shelters.

4. Efficiency in government – lower tax rates meant few tax returns to process by few government workers; cutting the actual size of paper bills to fit into wallets saved expenses in paper and ink.



Mellon believed that the income tax should remain progressive, but with lower rates than those enacted during World War I. He thought that the top income earners would only willingly pay their taxes if rates were 25% or lower. Mellon proposed tax rate cuts, which Congress enacted in the Revenue Acts of 1921, 1924, and 1926. The top marginal tax rate was cut from 73% to 58% in 1922, 50% in 1923, 46% in 1924, 25% in 1925, and 24% in 1929. Rates in lower brackets were also cut substantially, relieving burdens on the middle-class, working-class, and poor households.

By 1926 65% of the income tax revenue came from incomes $300,000 and higher, when five years prior, less than 20% did. During this same period, the overall tax burden on those that earned less than $10,000 dropped from $155 million to $32.5 million.[7]



Mellon also championed preferential treatment for "earned" income relative to "unearned" income. As he argued in his 1924 book, Taxation: The People's Business[8]

The fairness of taxing more lightly incomes from wages, salaries and professional services than the incomes from business or from investments is beyond question. In the first case, the income is uncertain and limited in duration; sickness or death destroys it and old age diminishes it. In the other, the source of the income continues; the income may be disposed of during a man's life and it descends to his heirs.

Surely we can afford to make a distinction between the people whose only capital is their mental and physical energy, and the people whose income is derived from investments. Such a distinction would mean much to millions of American workers and would be an added inspiration to the man who must provide a competence during his few productive years to care for himself and his family when his earning capacity is at an end.[9]



Mellon's policies helped reduce the overall public debt (the national debt skyrocketed from $1.5 billion in 1916 to $24 billion in 1919 because of World War I obligations) from $33 billion in 1919 to about $16 billion in 1929,[10] but then the Depression caused it to rise again because of reduced revenue and increasing spending. The top tax rate went to 80% by 1935 and the federal government increased excise taxes in an attempt to make up for the lost revenue.[7]

(From Wikipedia)

