Home > political-economy > The Golden Grimace (Part Two: A closer look at the Great Depression)

The Golden Grimace (Part Two: A closer look at the Great Depression)

Below is a breakout from the chart we showed you previously, which focuses on U.S. Gross Domestic Product from 1929 to 1940 – the Great Depression period.

The Great Depression of the 1930s

The Great Depression, we have always been told, was ultimately overcome by Franklin Delano Roosevelt’s Keynesian-style government economic policy. The narrative goes some thing like this: Lord John Maynard Keynes rewrote the book on Economics; and, as governments like FDR’s New Deal adopted his prescription, a marvelous economic recovery began to take hold.

As you can see from the chart, however, this is not a completely accurate portrayal of the events. By 1940 the economy of the United State did indeed seem to recover to its 1929 level, but only when measured in dollar terms. When measured in ounces of gold, it was still 40 percent off of its 1929 peak.

You can actually see where the two measures of economic activity begin to diverge in 1933 – the first year of FDR’s administration. This divergence occurred because Washington, to create a false prosperity, debased the dollar from the gold standard that year and began flooding the economy with fiat money, i.e., paper money printed on a press and required by law to be accepted in the place of real (gold based) money.

This debasement resulted in an outbreak of massive inflation in the middle of an ongoing depression! Absolutely unprecedented!!! For the first time in history, prices rose despite the near complete collapse of economic activity. This inflation created the false perception that economic recovery was underway, but its real effect was to sharply reduce the real value of the wages of working families and fatten corporate profits.

This was the goal explicitly suggested by Keynes, who argued that you could either drastically cut wages and get in a pissing contest with the unions – as Greece, Spain and many U.S. states are doing today – or, you could simply inflate the value of those wages away by printing a ton of paper money and injecting it into the economy. Faced with this inflation, the natural choice for working people would be to work harder and longer in a vain attempt to keep up with rising prices.

Says Keynes:

… it is fortunate that the workers … resist reductions of money-wages … whereas they do not resist reductions of real wages … Every trade union will put up some resistance to a cut in money-wages, however small. But since no trade union would dream of striking on every occasion of a rise in the cost of living, they do not raise the obstacle to any increase in aggregate employment which is attributed to them by the classical school.

Despite this ugly reality of government-corporate collusion, people who would otherwise be opposed to such fascistic predatory behavior nevertheless embrace the New Deal as an example of what the Messiah should be doing in our present crisis.

Stupidity has no bounds.

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