Money, Bank Credit, and Economic Cycles - The Ludwig von Mises ...

Additional Considerations on the Theory of the Business Cycle 493Furthermore a drastic credit squeeze took place, and gross privateinvestment shrank from over $15 billion in 1929 to barely$1 billion in 1932. In addition unemployment reached its peakin 1933 at around 27 percent of the active population.The duration and particular severity of the Great Depression,which lasted an entire decade, can only be understood interms of the economic and monetary policy errors committedprincipally by the Hoover administration (President Hooverwas elected in 1928), but also by Roosevelt, an interventionistdemocrat. Virtually all of the most counterproductive measurespossible were taken to exacerbate the problems and hinder thearrival of recovery. Specifically a forced and artificial wage supportpolicy drove up unemployment and prevented the transferof productive resources and labor from one industry toanother. Moreover a colossal increase in public spending in1931 constituted another grave error in economic policy. Thatyear public spending rose from 16.4 percent of the gross domesticproduct to 21.5 percent, and a deficit of over $2 billionensued. Authorities mistakenly decided to balance the budgetby raising taxes (instead of reducing expenses): income taxesincreased from 1.5 percent–5 percent to 4 percent–8 percent,many deductions were eliminated and marginal tax rates forthe highest income levels jumped. Likewise corporate taxesclimbed from 12 to nearly 14 percent, and estate and gift taxesdoubled, reaching a maximum rate of 33.3 percent.Furthermore the public works considered necessary tomitigate the problems of unemployment were financed by thelarge-scale issuance of government securities, which ultimatelyabsorbed the scarce supply of available capital, cripplingthe private sector.Franklin D. Roosevelt, who succeeded Hoover in the 1932election, continued these harmful policies and carried theirdisastrous results a step further. 102102 Murray N. Rothbard concludes his analysis of the Great Depressionin this way:Economic theory demonstrates that only governmental inflationcan generate a boom-and-bust cycle, and that the depressionwill be prolonged and aggravated by inflationist and