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By Capitalism.org

Critique by Punkerslut

Image from Wikipedia
Image: The Great Depression of 1929, from Wikipedia

Start Date: Wednesday, March 14, 2007
Finish Date: Wednesday, March 14, 2007

     The following is a letter sent to www.capitalism.org. It was undeliverable. It was in response to the piece, "Depressions," available here: http://capitalism.org/faq/depressions.htm.


     In the website's FAQ, there's a section on depressions and the fluctuation of "booms" and "busts." In the first part, it states, "'Doesn't capitalism cause depressions?' No. The nationwide cycle of 'booms' (major bull markets) followed by 'busts' (major depressions), are the result of the only agency that has the power to act on a nationwide scale: the government." Okay, so the government is responsible then. The very next part reads, "'What is a depression?' A depression is a major nationwide decline in production, and is the result of capital mal-investments into unprofitable industries on a major scale." Hhhmmmm, so, those who make those capital 'mal-investments' -- ahem... capitalists -- would actually be responsible? A further explanation of the government's responsibility is provided: "'What causes these mal-investments?' These capital mal-investments can occur on such a large nationwide scale only by the government over-riding the checks and balances provided by the free market, i.e., making money 'cheap' (forcing banks to lower the rate of interest) by 'expanding the money supply'. This 'cheap' money results in irrational investment into industries that would appear unprofitable if the government did not intervene into the money supply."

     Or put more explicitly, the government is responsible for effecting the judgment of investors by shifting nominal market prices with inflation or other methods. Like any other theory, an economic one is responsible for explaining history and predicting the future. Before the Great Depression, America's economy was marked with extremely low rates of inflation. In 1928, the annual inflation was negative 1.202%, and in 1927, the annual inflation was negative 2.083%. [inflationdata.com] If this theory of depressions is accurate, then shouldn't the years preceding the Great Depression have been marked with extremely high rates of inflation -- predicting the great collapse? Contrast this with another time period. The Roaring Twenties article at Wikipedia describes the era as "...unprecedented industrial boom and accelerated consumer demand and aspirations..." When we look at the rates of inflation for those years, we find more facts that have a discrepancy with this theory of a depression. In 1920, the annual rate of inflation was positive 17.224% and the next year followed by negative 11.755%. The rate of inflation declined for 1922, but it rose again in 1923. This rise fluctuated in 1924, but slowly rose until late 1926, where it remained decreasing until two months prior to Black Thursday. For the two months before, the inflation rate increased only 1.17%.

     A monthly inflation rate fluctuating from 10% to 20% wasn't enough to throw investors off their course in maintaining a vibrant, thriving economy, but two months of just about 1%, and the biggest catastrophe occurs in American economy? The market did not return to its 1929 levels until 1954, and in 1932, the market was lower than it had been in the 1800's. [DJIA 1929 to Present (Yahoo! Finance), Dow Jones 1900-2000.] If your theory of a depression is accurate, if a depression is truly caused by federal interference in the monetary value of the currency, then there should have been the consistent indicators. Instead, the rate of inflation didn't have any effect at all on the economic situation. From the years of 1930 to 1933, inflation decreased at historic levels, but the economy remained at the bitterest low. Again, blaming government for the depressions, as a theory, fails to explain what has happened and is unable to predict what will happen.

     Did the work force of the United States increase or decrease with the depression? No, it did not. The working class was just as capable and skilled in 1929 as they were in any other period of their history. The ability of labor to produce did not increase or decrease. That was one of the problems. There were still people to feed, but no opportunities for employment. In 1929, did any of the farms or factories simultaneously explode or fall in on themselves? Did the land cease to be fertile? Was there no longer housing for the workers to live? All of these questions are answered with a no. Through the established methods of exchanges (i.e. Capitalism), the American economy allowed there to be a starving people and unused farmland. Profit, that great motivator of self-interest, wasn't enough to move the investing class to hire people to work those lands -- or, an even more insane theory, maybe let those people live from the land as their own, rather than to die in the streets.

     The Capitalist class, as the directors and the guides of the economy, are the sole entity responsible for underemployment of the masses. With absolute total control of all land and all the means of production, on what ground would you completely ignore this class when seeking an explanation for a depression, or what may better be defined as, a sudden lack of production and business operation of the economy?


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