A Book Recommendation, and A Lesson

Below is a book written by Thomas DiLorenzo, one that will indeed go to Book Reports and be used in future Chalk Talk and In Real Time posts:

How Capitalism Saved America: The Untold History of Our Country, From the Pilgrims to the Present
This book is an excellent resource on the real economic history of America.  DiLorenzo communicates the basic principles of real free market capitalism--what it is and what it is not--and how it has unfolded in American history, from the Pilgrims to the Great Depression to the present.  He does a very good job of separating the real workings of capitalism and historical fact from the fables and myths that pollute the education system and common public discourse.

DiLorenzo writes crisply and persuasively, sparing those of us without PhDs in economics the graphs and jargon we often associate with economics.  Without reservation I recommend this book to elevate your appreciation of American history and to better understand the impact of today's government policies.

For this Chalk Talk we will pluck one lesson from DiLorenzo's book: Correctly remembering Herbert Hoover and the Great Depression.  (Chapter nine is titled, Did Capitalism Cause the Great Depression?)

This was the topic of a past Chalk Talk, quoted in part here:

"What is the standard public perception of President Herbert Hoover and the Great Depression? Is runs something like this:

'President Hoover deserves the blame for the Great Depression because he did
nothing while the country fell deeper into economic misery. He favored laissez-faire economics and refused to use the government to intervene in the economy, leading to higher unemployment and a deepening of the depression. It required the interventionalist policies of President FDR to recover the economy and save capitalism.'

None of the Hoover-was-doggedly-laissez-faire lore is true. The general script on Hoover is part of the fable that plagues the history of the Great Depression. Revisiting the historical record sheds truth on the matter and gives us deeper insight into what did actually cause the Depression to be so Great.

In truth Hoover deserves blame for the depression because he intervened too much and set the table fore the hyper interventionalism and meddling of the New Deal.

Hoover was a interventionalist across the board. He was anything but a proponent of "laissez-faire" economics. To that point in history (1929-1932) Hoover set all the records in relation to government intervention in the economy, only to be eclipsed by the dizzying manipulation of the market by his successor, FDR.

Here are some examples, from an excellent book on economic history, How Capitalism Saved America, by Thomas J. DiLorenzo. (When I finish reading the book I will submit it to Book Reports.)

• As Commerce Secretary under President Coolidge, Hoover disliked open competition in the market and favored government-sponsored competition, calling it "cooperative competition." This laid the groundwork for FDR's National Industrial Recovery Act and the National Recovery Association, a noxious system whereby businesses were forbidden from competing below price levels. Policies were set by business cartels supervised by government, and enforcement was provided by the government.

• As president he pushed for and signed the Smoot-Hartley tariff act. This high tariff cut off trade with consumers around the world, set off retaliatory tariffs from other countries, and greatly depressed domestic production of agricultural and manufacturing goods.

• Hoover was an enthusiastic proponent of public works. As DiLorenzo points out, by 1931 (FDR was not president until 1933) total government expenditures on public works was as high as any other year in the decade! This is astounding when we consider the millions FDR put on the public payroll with his myriad of works programs. Hoover also encouraged state governments to increase spending on public works.

• By 1931 Hoover's spending created a $2 billion deficit.

• He pushed through the largest tax increase in history, to that point in time. Income, corporate, surcharges, estate, and gift taxes all went up.

• Hoover created the Agricultural Marketing Act, creating another government-created cartel of large corporate interests in the form of the Federal Farm Board. This board colluded production interests that reduced production and drove up prices of agricultural goods. This was the predecessor of FDR's Agricultural Adjustment Act.

• He created the Reconstruction Finance Corporation (RFC). This board used tax payer funds to prop up uncreditworthy with credit, leading to the watering down of free market pressures and forces in lending and finance. This effectively steered capital investment away from productive ventures and job-creating businesses, skewing the market and depressing wealth creation and, therefore, job creation.

Decidedly not laissez-faire, all.

And all these gross interferences in the market occurred during the depression, paving the way for the Great Depression:

• When the market needed more freedom, not less, to create wealth and jobs, Hoover intervened.

• When people needed to save more of their own property in the form of savings, Hoover increased taxes.

• When entrepreneurs and businesses needed more certainty in the market in order to invest and plan for the future, Hoover rocked the boat with interventionalism.

• And when the country could least afford deficit spending, Hoover piled it on.

Setting the record straight on Hoover sheds much light on the actual causes of the Great Depression.  Capitalism---true, free market capitalism free from government collusion and manipulation---did not cause the Depression.  Excessive government meddling did.  That is, making the market less free, not more free, during the Hoover administration kept the economy down and set the table for more than a decade of economic misery during the New Deal.

Freedom works.  Government central planning does not.  Hoover proved so much.

And Thomas DiLorenzo reminds us so much.