Gerard Jackson
22 August 2022

Professor Quiggin rightly notes that “[s]harp tests of economic theories are rare and hard to find.” Fortunately, for both economics and economic history, Australia’s experience during the Great Depression provides such a test.  His observation draws attention to the fact that history is the battlefield on which these economic arguments are either won or lost, or should be. According to the economic orthodoxy to which Quiggin dogmatically clings it would have been utter economic and political folly for any government during the Great Depression to have  imposed a policy of running surpluses while cutting money wages and government spending. Yet this is precisely what the Australian government successfully did.

Unfortunately, Professor Quiggin, like so many other economists, just does not know his economic history. Let us begin with the monetary situation. From March 1929 to September 1931 Australia suffered a severe deflation when the money supply (M1)  contracted by 28 per cent¹. By June 1932 unemployment had reached 30 per cent. In response to the crisis the government cut commonwealth spending² and state spending: It also cut wages by 20 per cent. In addition, it ran budget surpluses until WWII brought them to an end.

The vast number of economists today would call this policy austerity on steroids, No doubt Professor Quiggin would vigorously condemn it as catastrophic³. Yet the results were a resounding success. Unemployment began to fall, dropping to 8 per cent in March 1938 while in Roosvelt’s America it stood at 19 per cent. Manufacturing is of particular interest as it was the sector that led the recovery. By 1938 it was employing about 25 per cent more people than in 1928.

To fully understand what happened we need to turn to Professor Benham for help. While lecturing at the University of Sydney in the 1920s he studied the unemployment situation in Queensland. Using the data he collected from the state’s statisticians he constructed a table showing the relationship between wages, the value of output and unemployment in Queensland for the years 1916 to 1924⁴. He noted that unemployment rose as wages rose “relatively to the value produced per worker”, leading him to declare that “[i]t would be hard to find a clearer proof of our thesis”⁵, meaning the marginal productivity theory of wages.

 When making a connection between the rate of unemployment changes in wages economists use the price level to measure changes in the real wage and then compare them with changes in the demand for labour⁶. With respect to the Great Depression Benham’s approach of ignoring the price level by taking the ratio of the money wage rate to the money value of the product appears to produce a more accurate result. Therefore, if the method is applied to the state of Australian manufacturing in the depression then we should expect to find a very strong inverse correlation between the level of factory unemployment, money wage rates and the money value of manufacturing output.

Using figures from the Commonwealth Annual Year Books for that period I constructed indexes for the table below. Firms do not consider the price level when hiring labour: they deal only in money values. (This is not to assume that firms do not have expectations of price changes.) So additional workers are hired on the expectation that their money wages will not exceed the money value of their product.

Therefore, the real factory wage is the ratio of the money wage to the money value of output. As this ratio rose factory employment fell, bottoming out at 75. As we can see from the table below, once the real factory wage fell below 126 and continued to fall the demand for factory employment continued to rise. When the real factory wage had fallen to 75 in 1938 factory employment had increased by about 68 per cent over its lowest level and by about 25 percent over its 1928 level. (All figures were rounded off.) 

 According to Professor Quiggin’s Keynesian economics by 1932 the Australian economy could only be saved by a “large-scale monetary expansion and fiscal stimulus⁷”. Yet it underwent a recovery by doing the exact opposite. Any Keynesian would vigorously condemn the government’s fiscal policy of running budget surpluses as contractionary and guaranteed to deepen the depression by causing a fall in aggregate demand. Then again, Keynesians⁸, including Professor Quiggin, seem to have no real idea about Australia in the Great Depression. Keynes’ solution for mass unemployment was to raise the demand for labour by using inflation to cut real wages⁹.

We can see there was no fiscal stimulus and neither was there a monetary expansion. M1 peaked in March 1929 after which it contracted by 28 per cent, finally coming to a halt in September 1931. When converted into an index the contraction stops 72. It is important to note that the money supply does not begin to undergo a sustained expansion until September 1933 where the index stood at only 74. And yet unemployment began to slowly fall after June 1932 when it stood at 30 per cent. By September 1933 the unemployment rate had already dropped by nearly 17 per cent. Moreover, for the financial year 1932-33 full-time factory employment rose by 10 per cent and, as we can see from the table, continued its rise without interruption.

So how does Professor Quiggin explain these results given that the fiscal contraction and the absence of a monetary expansion? He could argue that a Keynesian policy would have restored aggregate demand and this process would have driven up the demand for labour and that would have increased real wages. That Keynes fully understood, unlike Professor Quiggin and those like him, the true nature of a persistent high rate of unemployment was made clear when he wrote that workers will

resist a reduction of money-wages,  it is not their practice to withdraw their labour whenever there is a rise in the price of wage-goods [consumer prices]…. But, whether logical or illogical, experience shows that this is how labour in fact behaves¹⁰.

Thus it is fortunate that the workers, though unconsciously, are instinctively more reasonable economists than the classical school, in as much as they resist reductions of money-wages… whereas they do not resist reductions of real wages, which are associated with increases in aggregate employment…¹¹

In fact, a movement by employers to revise money-wage bargains downward will be much more strongly resisted than a gradual and automatic lowering of real wages as a result of rising prices¹².

So now we have it, Keynes’ cure for unemployment was a god dose of wage-cutting inflation. When Keynesians argue for an increase in aggregate demand they really mean a monetary expansion. This is why the Australian currency has lost about 97 per cent of its purchasing power since 1950. There is nothing new in this Keynesian quackery. Nearly 200 years ago Henry Thornton explained how monetary expansion stimulated the demand for labour by cutting real wages while leaving money wages unchanged¹³. He then condemned inflationary policies as immoral.  Perhaps influenced by Thornton’s work Colonel Robert Torrens wrote:

[A] fall in the value of money, instead of diminishing, would, for some time, increase the demand for labour. As long as this fall raised the price of goods, without effecting an equivalent rise in the rate of money wages, the profits of stock would be increased; and thus the master’s capital would accumulate more rapidly, while he would have a stronger motive to employ upon productive labour…¹⁴P

Thornton also produced the first real theory of the boom-bust cycle¹⁵ that blamed the phenomenon on the banking system’s reckless credit expansions. This thoroughly refutes Quiggin’s unfounded assertion that it was Keynes and his disciples who produced “the first really convincing theory of the business cycle¹⁶”.  Apparently determined  to prove that he never read a classical economist, notwithstanding the impression he gives to the contrary, Quiggin made the preposterous assertion that

Marx was the first economist to treat crises and panics as an inherent feature of capitalism rather than as an inexplicable, but fortunately temporary, departures from a natural equilibrium¹⁷.

Even this statement is wrong. It was not Marx but John Stuart Mill¹⁸ and Thomas Tooke along with John Fullarton who were the first to try to formulate a successful theory that explained what were called “revulsions” as an innate and undesirable feature of a free market economy. This theory formed the basis of the Banking School. Marx filched the theory and then dressed it up as his own. The ridiculous situation has emerged where post-Keynesians are drawing on the dangerous fallacies of the banking school to support their own theories¹⁹.

Perhaps with respect to economics there really is nothing new under the sun.

This essay has gone on much longer than I intended. However, we do need to dispense with the myth that the January 1931 devaluation drove Australia’s recovery. Before WWI prices in both countries moved roughly together. However, two years after the war deflationary polices were implemented. Wholesale prices peaked in Britain, America and Australia in 1920. By January 1931 British wholesale prices had fallen by 60 per cent, 54 per cent for America and 42 per cent for Australia. (It is a little known fact that the classical economists would oppose the idea that price levels could be used to calculate the correct exchange rate²⁰.)

Given these figures it is a wonder that Australian manufacturing did not feel the effects of an overvalued currency much sooner than 1925. Nevertheless, from 1925 onwards imports, despite protectionist measures, began to squeeze manufacturers’ profits. The true extent of the overvaluation started to become painfully clear in July 1927 when the premium on the British pound began a steady rise. In July of 1929 the premium had reached £1 and on 29 January 1931 it had climbed to £30. 5s. The market was making it loud and clear that the government must accept the fact that Australian prices were too high relative to those of their trading partners. However, it was the private sector that took the lead and not the government.

Alfred Davidson, general manager of the Bank of New South Wales, succeeded in pressuring the Associated Banks into agreeing that on 29 January 1931 they would raise the exchange rate to £1.6s, which they did. (In December 1931 the government set the official rate at £1.5s.)  It should be noted that the resistance to adjusting the exchange rate was totally misplaced. Any classical economist would have strongly advised that the exchange rate adjustment was necessary. With respect to this issue David Ricardo wrote:

I never should advise a government to restore a currency, which was depreciated 30 pc.t, to par; I should recommend… that the currency should be ?xed at the depreciated value by [lowering]  the standard, and that no further deviations should place²¹.

This means that the classical response to the post-WWI monetary situation would have been to the lower the gold content of the monetary unit rather than implement a severe deflationary policy. Therefore, the crowing of some economists that the abandonment of the gold standard and the subsequent devaluations was absolutely necessary in bringing about a recovery from the Great Depression merely reveals their ignorance of classical thinking.

It seems that those economists who firmly believe that the 1931 devaluation triggered the recovery failed to examine the facts. Before accepting any conclusions one needs to know how a devaluation is supposed work. Reducing the value of the currency relative to other currencies reduces the demand for imports by raising their prices while simultaneously increasing the demand for exports by lowing their prices. The result is a rise in domestic prices and an increased demand for labour thereby reducing unemployment and expanding output. Although Australian exports rose so did imports as shown by the table below. One could also argue that prices were basically flat from 1931 to 1936.

What these economists overlook is that it was a deflationary world, meaning that Australia’s major trading partners had also experienced a steep fall in prices, possibly steep enough to largely compensate for the price effects of the devaluation. If so then this suggests that the volume of imports may have also increased.

A closer examination of the facts show that the recovery²² was driven by production and not demand. Perhaps we should call it a remarkably successful example of expansionary austerity that utterly refutes Professor Quiggin’s absurd argument that “[the] most important alternative to the politics of austerity… was Franklin D. Roosevelt’s New Deal²³.” Yet what might also be called a “liquidationist” policy found Australia’s unemployment rate standing at 8 per cent in March 1938. At the same time the unemployment rate in Roosevelt’s US stood at 19 per cent. Unfortunately, a sharp drop in export prices from 1937 to 1938 caused by a sudden contraction in world trade²⁴ combined with the Arbitration court’s decision to raise wages  lifted  Australia’s average unemployment rate to about 9.5 per cent until WWII intervened²⁵.

The fundamental economic policy differences between the two countries is that while Australian governments largely allowed wages and other costs of production to adjust to the new monetary conditions  Roosevelt, on the other hand, engaged in massive political intervention (which Hoover initiated) by meddling in prices, creating a web of destructive regulations and imposing on the economy a dense body of alphabet agencies interfering with production. This is what gave Americans the longest depression in their history²⁶. So much for the New Deal. Yet Roosevelt’s staggering economic failures still leaves Keynesians swooning with admiration.

The astonishing thing is that the correct facts regard Australia and the Great Depression have been completely ignored by Australia’s ‘right-wing”. For some curious reason the same free market advocates who complain about Keynesianism have chosen to turn a blind eye to the one lesson of economic history that firmly puts to rest the Keynesian narrative and the big-spending programmes it spawned that are doing so much harm to the world’s economies.

Footnotes

¹Schedvin calculated a 10.5 per cent contraction in the money supply. Using his own money supply figures we find that M1 peaked in March 1928, after which it rapidly fell until September 1931 by which time it had contracted by 28 per cent. It did not begin to expand again until September 1934.  M1 plus time deposits is used to define the money supply when discussing the American deflation because, as Friedman and Schwartz pointed out, the difference between time deposits and demand deposits in the American banking system was one without a distinction. Whereas an Australian time deposit  involved a genuine transfer of purchasing power and not a creation of purchasing power. This is why during the American deflation ‘time deposits’ collapsed by 50 per cent while Australian time deposits had risen by 14 per cent.

 C. B. Schedvin, Australia and the Great Depression: Study of Economic Development and Policy in the 1920s and 1930s, Sydney University Press in association with Oxford University Press Sydney, 1988, p. 215.

Milton Friedman and Anna Jacobson Schwartz, A Monetary History of the United States 1867-1960, Princeton University Press, 1971, p. 4.

²Schedvin called the spending cuts deflationary and that they reduced aggregate demand. Although Commonwealth spending for the financial years 1931-32 to 1934-35 fell by 12 per cent the unemployment rate fell by 33 per cent during the same period. Moreover, factory employment rose by 33 per cent. The evidence contradicts Schedvin’s Keynesian assertion.

Australia and the Great Depression,  pp. 252, 373.

³Quiggin and modern monetary theorists’ argument that large cuts to governments spending create recessions is refuted by economic history. For the fiscal year ending in 1944 federal spending was $89 billion. It was $15.8 billion in 1947, an 82.2 per cent cut. Yet there were no soup kitchens or lengthy queues of despondent unemployed workers even though by January 1947  fourteen million servicemen had been demobilised. The Keynesian contention that a run down in private savings averted a recession does not hold water.

The Eisenhower administration provides another striking instance of budget policies that refute Keynesian thinking. The table shows that though federal spending was cut by 21.5 per cent from 1953 to 1955 private spending increased by $33.8 billion. These facts, along with the Australian episode, should dispel the belief that the government spending drives private economic activity.

The experience of the Eisenhower administration’s ‘austerity’ budgets also refutes MMT. In the second quarter of 1953 total federal spending peaked at $61.2 billion or 16.7 per cent of GNP. By the fourth quarter of 1954 federal spending had been cut by a whopping 27.3 per cent  to $45.7 billion or 4.3 per cent of GNP as it stood in 1953.

Keynesians of all stripes seem to ascribe almost magical powers to deficits and government spending. Modern monetary theorists are by far the worst, arguing that money creation by the central bank to finance deficits “will increase our wealth and collective savings.”  Stephanie Kelton. The Deficit Myth: How to Build a Better Economy, John Murray, 2020, p. 101.

All the figures come from the 1957 Economic Report of the President, United States   Government Printing Office Washington, p.123.

⁴Frederic C. Benham, The Prosperity of Australia, P. S. King & Son Ltd, Orchard House, Westminster, 1928, p. 206.

⁵Ibid. pp. 210. Marginal productivity theory is normally used to explain wage rate determination. However, post-Keynesians reject the theory in favour of power relations. Bill Mitchell denounced the “marginal productivity theory of labour demand” outright, opting for indeterminacy. But if he and his fellow post-Keynesians were right then Australian unemployment would not have fallen in response to the fall in the ratio of the factory wage to the value of the factory output. Benham is right and the post-Keynesians are wrong.

Mitchell, William, L. Randall Wray, Martin Watts, Macroeconomics, Red Globe Press, 2019, pp. 242-43.

⁶The determining factor for an employer is the change in the money wage relative to the money value of the product. The price level and hence the real wage is irrelevant in this respect, although under certain circumstances it could indicate that wage rates were exceeding their market clearing rates. Richard Vedder and Lowell Gallaway used what they called a productivity adjusted real wage (the real wage divided by productivity) to explain changes in the demand for labour.  They produced some interesting results that were immediately attacked by Keynesians. If they had used the annual value of manufacturing output instead of consumer prices they may very well have got a more accurate finding.

Richard K. Vedder & Lowell E. Gallaway,  Out of Work: Unemployment and Government in Twentieth Century America, New York University Press 1997.

⁷John Quiggin, Zombie Economics: How Dead Ideas Still Walk Among Us, Princeton University Press, Princeton and Oxford, 2010, p. 33.

⁸Tim Harcourt is Professor and Chief Economist at the Institute for Public Policy and Governance (IPPG) at the University of Technology Sydney (UTS). He wrote an atrocious article for the ABC that made the astounding claim that the policies responsible for Australia’s recovery actually caused the depression to be “longer and deeper than it should have been…” This beggars belief, as does the fact that not one member of Australia’s free market club was able to contradict him.

Blinded to one of Australia’s finest moments

⁹John Maynard Keynes’ The General Theory of Employment, Interest and Money, Macmillan, St Martin’s Press for the Royal Economic Society, 1973,

¹⁰Ibid. p. 9.

¹¹Ibid. p. 14.

¹²Ibid. p. 264.

¹³Henry Thornton, An Enquiry into the Nature and Effects of the Paper Credit of Great Britain, Printed for J. Hatchard, Bookseller to the Queen, 1802, pp. 189-90

¹⁴Robert Torrens, An Essay on the Production of Wealth, Longman, Hurst, Rees, Orme, and Brown, Paternoster Row, 1821, pp. 326-27.

¹⁵Henry Thornton  An Enquiry into the Nature and Effects of the Paper Credit of Great Britain, pp. 233-241

¹⁶According to Quiggin the “standard classical theory suggested that depressions should not occur and, if they did, would rapidly fix themselves.” This is absolute nonsense. The “standard classical theory” was the currency school monetary theory was Thornton’s theory. Unfortunately it was eclipsed in the late 1840s by the fallacious banking school theory. Neither school was guilty of the

Professor John Quigg, Zombie Economics, Princeton University Press, 2010, p. 21.

¹⁷Marxian economics MIA?

johnquiggin.com/2010/01/06/marxian-economics-mia

¹⁸Mill’s 1826 essay Paper Currency and Commercial Distress laid the foundations for the banking school theory of the trade cycle. According to Mill “[t]he proximate cause of the commercial crisis was speculation” and the cause of speculation and the consequent “mercantile miscalculations” was the “universal propensity of mankind to over-estimate the chances in their own favour.” This is essentially a psychological theory that, without any basis in fact, assumes that the problem is one of so-called “animal spirits” getting out of control. Chapter XII, V. II of his Principles of Political Economy, are given over to this so-called theory.

It is an odd coincidence that in 1826 Thomas Tooke, founder of the banking school, wrote a book (Consideration on the State of the Currency) whose explanation of the 1825 crisis mirrors Thornton’s theory. Then again, that was when Tooke was still a bullionist. It was not until 1840 that he underwent a full transformation. In 1826 Robert Mushet also published a book on the 1825 crisis (An Attempt to Explain from The Facts the Effects of the Issues of the Bank of England upon Its Own Interests, Public Credit and Country Banks) that detailed the course of the preceding boom and then the crash. He too appears to have adopted Thornton’s theory.

¹⁹The Institute for New Economic Thinking posted an article by Professor Laurent Le Maux, a post-Keynesian economist, in which he claimed that “Tooke together with John Stuart Mill and John Fullarton built a unified theoretical framework of money and banking.” This is preposterous. In 1848 Colonel Torrens eviscerated the monetary views of  Tooke and Fullarton in his Principles and Practical Operation of Sir Robert Peel’s bill of 1844. But it was in 1857 that Colonel Torrens, in an enlarged version of his book, fired an intellectual barrage at the banking school from which it should never have recovered.

However, Fullarton was dead and Tooke was 84 and only had a year to live while Mill was 51 and physically up to the task of confronting the indomitable 77-year-old Colonel.  To say that Mill suffered an intellectual savaging at the pen of Torrens would be an understatement and yet he still refused to defend the banking school. How the banking school survived while the currency school ended up in the shadows is another story. It’s curious that Le Maux omitted James Wilson, found of The Economist. He was the Banking School’s most effective advocate and the most dogmatic.

The Institute for New Economic Thinking is a post-Keynesian organisation that was co-founded by George Soros who donated AU$85 million to its founding.

²⁰The classical economists’ concept of purchasing power parity (a term they did not use) was very different from the one used today. It was only those goods that entered into international trade that mattered, not goods produced for home consumption regardless of their prices. Ricardo made the classical position clear when he wrote:

When each country has precisely the quantity of money which it ought to have, money will not indeed be of the same value in each, for with respect to many commodities it may differ 5, 10, or even 20 per cent., but the exchange will be at par. P (Principles of Political Economy and Taxation)

The key to international trade was keeping the exchange at par, meaning that the exchange had to be kept between the gold points in order to maintain stability, ensuring that trade would take place according to the theory of comparative advantage. This could only done on a specie standard.  Without specie there is “no standard whatever, which to regulate the quantity or value of our money” was Ricardo’s plaintive response to the 1797 suspension of gold payments. (On Protection to Agriculture 1822)

Therefore, when Philip Pilkington, a post-Keynesian, thought he had struck a lethal blow against the theory of purchasing power parity he had made a serious error. In doing so he revealed the fact that he had never read any classical economists.

Purchasing Power Parity (PPP) and the Exchange Rate

²¹In a letter to John Wheatley of September 18, 1821, published in Letters of David Ricardo to Hutches Trower and others 1811–1823, ed. James Bonar and J.H.  Hollander,  Oxford:  Clarendon  Press,  1899.

²²The recovery also refutes modern monetary theory according to which it is impossible for an economy to  have budget surpluses, a trade surplus, falling unemployment and the private sector accumulating net assets all at the same time. But this is exactly what Australia did.

²³Blogging the Zombies: Expansionary Austerity – Life 
Not only does Quiggin refuse to admit that the New Deal was a total failure he uses it to justify the left’s anti-growth Green New Deal.

²⁴By 1938 trade in manufactured goods had dropped by 6 percent while raw material prices fell by more than 12 per cent. For Australia the value of exports contracted by 17.5 per cent.

Official Year Book of the Commonwealth of Australia, No.  36, 1944 and 1945, p. 346.

²⁵Australia’s arbitration court had in fact put a floor under real wages. From 1922 to 1929 Australia’s estimated average unemployment rate was 8.75 per cent while for Canada and the US it averaged 5 per cent and 3.7 per cent respectively. During WWI unemployment in Australia averaged 6.6 per cent while in Canada and the UK it virtually disappeared.

Benham pointed that during the 1920s in “the United States and Canada where there is relatively little wage-fixing, average real wages have risen more than in Australia.”

Frederic C. Benham, The Prosperity of Australia, P. S. King & Son, LTD, Orchard House, Westminster, 1928, p. 207.

²⁶That there could be the slightest connection with the length of the depression and extensive political meddling in the economy is not something that Keynesians are likely to consider. Nevertheless, it was the first depression in which there was massive political interference with the result that it became the longest depression on record.

Suggested reading material:

Roos, Charles Frederick. NRA Economic Planning, Principia Press 1937. This book is a devastating critique of the National Recovery Act by a man who served in the Roosevelt administration. He relates one particular incident where the administration implemented a minimum wage knowing it would price and estimated 500,000 blacks out of work, pp. 172-173.

Morgenthau’s diary, 1939:

Now,  gentlemen,  we have  tried spending money. We are spending more than we have ever spent before and it does not work.  And I have Just one interest, and if I a wrong,  as far as am concerned,  somebody else can have my jobs. I want to see this country prosperous. I want to see people get a job.

And yet Professor Quiggin writes in all seriousness that it is thanks to “President Franklin D. Roosevelt that the economy recovered, [if only] only partially.”

Moley, Raymond.  After Seven Years: A Political Analysis of the New Deal, Published by Bison, University of Nebraska Press, Lincoln, 1971. (First published 1939.) The book is a detailed insider’s accounts of the Roosevelt administration’s grossly mismanaged approach to the depression. The striking thing is the utter economic illiteracy, including Moley’s, of those involved in the decision-making process. Moley notes that Roosevelt would only listen to those who agreed with him. (p. 13). In brief, yes men.

Folsom Jr., W. Burton. New Deal or Raw Deal?: How FDR’s Economic Legacy Has Damaged America, Threshold Editions, 2008, Professor Folsom is an economic historian who took a critical to the Roosevelt legend and that it economic policies were a disaster for the country. He notes on how these policies resulted in the jailing of businessmen, outright thuggery by NRA officials, and appalling corruption by the Roosevelt administration.

Powell, Jim. FDR’s Folly: How Roosevelt and His New Deal Prolonged the Great Depression, Three Rivers Press, 2003. The explains why Roosevelt’s big-spending progammes failed. He takes particular note of the destructive role that intensive meddling by NRA in preventing a recovery, something most writers ignore.

Smiley, Gene. Rethinking the Great Depression, Ivan R. Dee Chicago, 2002. This is an interesting introduction to the Great Recession. However, like nearly all authors on the subject he failed to grasp the vital role that artificially low interest rates played in deranging (as a classical economist would say) the capital structure. He is right to point out that a significant deflation would have been necessary to restore the British pound to its pre-war par. However, like so many others, he does not know that the classical teaching on the problem would have been to lower the gold content of the pound and not to deflate. A deflation could only be justified if there has been only a small depreciation of the currency.

Rosen, A. Elliot. Roosevelt, the Great Depression, and the Economics of Recovery, ? University of Virginia Press, 2005. The late Professor Rosen was an historian. Unfortunately, like so many historians and economists, he did not know how the gold standard worked. He argued that while the gold standard

 provided stability of external exchanges, it had sacrificed stability of internal prices leading to an irreversible worldwide deflationary spiral.” (p. 37)

The gold standard never caused a deflation. However, Rosen’s book is worth reading as it too reveals the confusion, contradictions, and economic illiteracy of the Roosevelt administration.

Phillips, C. A., McManus, T.F., Nelson, R. W. Banking and the Business Cycle: A Study of the Great Depression in the United States, The MacMillan Company 1937. I think this little-known work ranks as one of the best books ever written on the Great Depression and thus should be on the shelf of every person interested in the subject. It is a highly detailed work that also explains how  the preceding boom laid the foundations of the depression. The authors also refute a number of fallacious theories that were popular at the time that purported to explain the disaster. The authors were clearly influenced by the Austrian School.

Anderson, M. Benjamen. Economic and the Public Welfare, LibertyPress 1979. (First publish in 1949) This is the economic history of the United States from 1914 to 1946 and an invaluable aid in helping to explain the Great Depression and the damage Roosevelt’s policies did to the economy. He is particularly scathing about the role of the NRA in retarding an economic recovery.

Lewis, W. Arthur. Economic Survey 1919-1939, George Allen and Unwin LTD 1970. This small book was first published in 1949 and provides a short economic survey of the leading industrial countries of the period. The section on the United States is of particular interest because Lewis calculates that from 1929 to 38 net annual capital formation plunged by minus 15.2 per cent, telling us that the period was marked by capital consumption.

Schivelbusch, Wolfgang. The New Deals: Reflections on Roosevelt’s America, Mussolini’s Italy, and Hitler’s German, 1933-1939, Metropolitan Books 2006. The author examines the similarities of these regimes without equating their political systems. Nevertheless, drawing  similarities between the economic policies of these regimes is bound to unsettle Roosevelt supporters. But if we are serious about the 1930s then these comparisons must be examined.

Shlaes, Amity, The Forgotten Man, HarperCollins 2007.  The author provides an interesting read, including character sketches of people most of us would rather not associate with. Shlaes’ book received a well-deserved praise while simultaneously being the target of a great deal of leftist bile, a sure sign she was over the target. Nevertheless, being over the target does not mean you are not dropping duds. If the ultimate aim was to finally lower the boom on the legend of Roosevelt and the Great Depression then she failed, as have all the others. The only way to destroy this myth is to draw a comparison with Australia. It is the Australian experience that destroys the myth.