I’m reading Murray Rothbard’s America’s Great Depression, which is both fascinating and frightening because of its relevance. The book argues that loose-money and government tinkering in the 1920’s led to the crash in 1929. Rothbard presents a logical and detailed case, which happens to go against everything our current leaders believe.

The passage below especially struck a chord with me. It describes various attempts to keep the bull-market going 1926-8. This 1928 quote by Treasury Secretary Andrew Mellon sticks out, “There is an abundant supply of easy money which should take care of any contingencies that might arise“. Mellon is often portrayed as a ultra-free-market liquidationist, but only the latter part of that may be accurate. He appears to have intentionally goosed the markets in the 20’s (Rothbard offers a lot of evidence of this) and advocated shoveling cash at problems in ’28.

This section of Rothbard’s book casts doubt on the widespread belief that The Great Depression could have been avoided if government acted more quickly. They were providing liquidity as a crutch long before the crash in 1929. From 1921-1929 there was 7.8% annualized inflation, almost all of it caused by various government interventions. This was exacerbated by creative abuse of reserve requirements, which increased the multiplier effect.

People have been trying to engineer an everlasting bubble for a long time, undeterred by the fact that it has never worked. It reminds me of the the perpetual motion machine. It is 100% physically impossible, yet people keep tinkering away with magnets and ball bearings. The Fed is the same.

Source: America’s Great Depression by Murray N. Rothbard. You can order it online here.

Updated 8/22/2009.