is excerpted from a letter to the William Volker Fund, dated November
Great Depression (Macmillan, 1934) is one of the great economic
works of our time. Its greatness lies not so much in originality
of economic thought, as in the application of the best economic
thought to the explanation of the cataclysmic phenomena of the Great
Depression. This is unquestionably the best work published on the
At the time
that Robbins wrote this work, he was perhaps the second most eminent
follower of Ludwig von Mises (Hayek being the first). To his work,
Robbins brought a clarity and polish of style that I believe to
be unequalled among any economists, past or present. Robbins is
the premier economic stylist.
In this brief,
clear, but extremely meaty book, Robbins sets forth first the Misesian
theory of business cycles, and then applies it to the events of
the 1920s and 1930s. We see how bank credit expansion in the United
States, Great Britain, and other countries (in Britain generated
because of the rigid wage structure caused by unions and the unemployment
insurance system, as well as a return to the gold standard at too
high a par; and in the United States generated by a desire to inflate
in order to help Britain as well as an absurd devotion to the ideal
of a stable price level) drove the civilized world into a great
Robbins shows how the various nations took measures to counteract
and cushion the depression that could only make it worse: propping
up unsound, shaky business positions; inflating credit; expanding
public works; keeping up wage rates (e.g., Hoover and his White
House conferences) – all things that prolonged the necessary
depression adjustments, and profoundly aggravated the catastrophe.
Robbins is particularly bitter about the wave of tariffs, exchange
controls, quotas, etc. that prolonged crises, set nation against
nation, and fragmented the international division of labor.
And this is
not all. Robbins also sets the European scene in the context of
the disruptions of the largely free market brought about by World
War I; the statization, unionization, and cartelization of the economy
that the war brought about; the dislocation of industrial investment
and agricultural overproduction brought about by war demand, etc.
And above all, the gold standard of pre–World War I, that truly
international money, was disrupted and never really brought back
again. Robbins shows the tragedy of this, and defends the gold standard
vigorously against charges that it "broke down" in 1929.
He shows that the US inflation in 1927 and 1928 when it was losing
gold, and Britain’s cavalierly going off gold when its bank discount
rate was a low 4.5%, was in flagrant violation of the "rules"
of the gold standard (as was Britain’s persistent inflationism in
also has excellent sections demonstrating the Misesian point that
one intervention leads inexorably to another intervention or else
repeal of the original policy. He also has a critique of the idea
of central planning and a fine summation of the Misesian demonstration
that socialist economies cannot calculate. Almost every important
relevant point is touched upon and handled in unexceptionable fashion.
Thus, Robbins, touching on the monopoly question, shows that the
only really important monopolies are those created and fostered
by governments. He has not the time for a rigorous demonstration
of this, but his apercus are important, stimulating, and sound.
Robbins sums up his book in this superb passage:
It has been
the object … to show that if recovery is to be maintained
and future progress assured, there must be a more or less complete
reversal of contemporary tendencies of governmental regulation
of enterprise. The aim of governmental policy in regard to industry
must be to create a field in which the forces of enterprise and
the disposal of resources are once more allowed to be governed
by the market.
But what is this but the restoration of capitalism? And is not
the restoration of capitalism the restoration of the causes of
If the analysis
of this essay is correct, the answer is unequivocal. The conditions
of recovery which have been stated do indeed involve the restoration
of what has been called capitalism. But the slump was not due
to these conditions. On the contrary, it was due to their negation.
It was due to monetary mismanagement and State intervention operating
in a milieu in which the essential strength of capitalism had
already been sapped by war and by policy. Ever since the outbreak
of war in 1914, the whole tendency of policy has been away from
that system, which in spite of the persistence of feudal obstacles
and the unprecedented multiplication of the people, produced that
enormous increase of wealth per head…. Whether that increase
will be resumed, or whether, after perhaps some recovery, we shall
be plunged anew into depression and the chaos of planning and
restrictionism – that is the issue which depends on our willingness
to reverse this tendency.
Great Depression, in short, is a brilliant work that should
be read by every economist. It is not at all outdated. It deserves
the widest possible distribution, and would be indeed a fitting
companion to Hazlitt’s The
Failure of the New Economics – that refutation of the
other great explanation of the Depression – the Keynesian.
N. Rothbard (1926–1995) was the author of Man,
Economy, and State, Conceived
in Liberty, What
Has Government Done to Our Money, For
a New Liberty, The
Case Against the Fed, and many
other books and articles. He was
also the editor – with Lew Rockwell – of The