America's Great Depression by Murray N. Rothbard

Author:Murray N. Rothbard [Rothbard, Murray N.]
Language: eng
Format: epub, pdf
Publisher: The Ludwig von Mises Institute

Hoover was not alone in celebrating the “new economics.” The National Industrial Conference Board reported that, while during the 1920–1921 depression, wage rates fell by 19 percent in one year, the high wage theory had taken hold from then on. More and more people adopted the theory that wage-cutting would dry up purchasing-power and thus prolong the depression, while wage rates held high would quickly cure business doldrums. This doctrine, allied with the theory that high wage rates cause prosperity, was preached by many industrialists, economists, and labor leaders throughout the 1920s.40 The Conference Board reported that “Much was heard of the dawn of a new era in which major business depressions could have no place.” And Professor Leo Wolman has stated that the prevailing theory during the 1920s was that “high and rising wages were necessary to a full flow of purchasing power and, therefore, to good business.”41

As the final outgrowth of the famous conference of 1921, Hoover’s Committee on Recent Economic Changes issued a general multi-volume report on the American economy in 1929. Once again, the basic investigations were made by the National Bureau. The Committee did not at all foresee the great depression. Instead, it hailed the price stability of the 1920s and the higher wages. It celebrated the boom, little realizing that this was instead its swan song: “with rising wages and relatively stable prices we have become consumers of what we produce to an extent never before realized.” In the early postwar period, the Committee opined, there were reactionary calls for the “liquidation” of labor back to prewar standards. But, soon, the “leaders of industrial thought” came to see that high wages sustained purchasing power, which in turn sustained prosperity.

They began consciously to propound the principle of high wages and low costs as a policy of enlightened industrial practice. This principle has since attracted the attention of economists all over the world—its application on a broad scale is so novel.42

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