View From a Height
Commentary from the Mile High City
Friday, October 29, 2004

Basic Economics 

On this, the 75th Anniversary of the great stock market crash, the Denver Post ran two stories on the event - one from the AP, and one on the local reaction at the time. Both stories repeat the myth that the stock market crash caused the Great Depression. At the end, they get around to mentioning that the Fed raised interest rates, making things worse. Even then, they only get half the story.

The stock market crash was caused by a speculative bubble, but a market decline was inevitable. The economy had already begun to go into recession. The stock market bubble was poised to be popped, but the Great Depression was almost completely a result of mismanagement by the Government. Not only did they raise interest rates, they raised tariffs, and the Fed refused to help ease a liquidity crisis as it had so many times in the past.

Anyone who wants to write about the depression should be required by his editor to read Milton Friedman's Free to Choose, which covers this in depth. The question here isn't what could have been done to ease the Depression - they are many answers to that - it's that the Stock Market Crash didn't cause it in the first place.

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