Re: 1929 deja vu

Date: Wed Apr 26 2000 - 17:10:25 MDT

John Clark writes:
> The idea that the poverty of the 30's was because people got too good at growing
> food that people could eat and too good at manufacturing products that people
> could use is just too silly to debate.

This was a common perception at the time of the reason for the economic
slowdown. I think John is right that it is largely a myth.

However what happened during the 1920's is that there had been large
postwar increases in productivity which had not produced corresponding
drops in prices. This meant that there was a sort of "hidden inflation"
going on. Prices were higher than they would have been in a free market,
but because of the increased productivity they hadn't actually changed
much. But the effect is similar to inflation, in that people got the
wrong signals about the proper level of investment. The economy got
over-stimulated and a correction was necessary.

I've read some books about the era and it is sad to see how well-
intentioned programs just made things worse. People were really baffled
over why the economy was doing so badly, and everyone had his pet
theories. Factories were idle because goods were stacked in warehouses.
Men did not work because jobs were scarce. And people couldn't buy
goods because so many were unemployed. It was a vicious cycle and
no one understood which were the causes and which the effects.


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