Doug French: Failure and Prosperity

The Cobden Centre has reproduced a speech given by Doug French on 26 February for the Mises Institute's conference "The Birth and Death of the Fed" at Jekyll Island, Georgia.

It's long, but well worth your while. Here's a taste:

If you watch any of the financial channels for any length of time, you’ll eventually hear someone going on about how grateful we should be for government intervention: “thank goodness the government stepped in or the world financial system would have collapsed.” I’m afraid this kind of talk is going to go on longer than the war on terror.

If the bailouts are questioned at all, the TV talking-head will reply, “yes but everyone was worried in the fall of 2008 that they would go to the ATM and wonder whether any money would come out.”

“Look how rocky the markets were after Lehman Brothers filed bankruptcy,” they say. “Imagine if other big firms were left to fail!”

“If there had been no bailout and no stimulus, it would have been a depression for sure. Hey, it’s been bad, but if not for the wise men at Treasury and the Fed, we’d all be standing in soup lines or selling apples on street corners. Prices would plummet, we’d all be doomed.”
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Many historians describe the period after the crash of 1873 to 1896 as a deflationary dark age. M. John Lubetkin in his book Jay Cooke’s Gamble: The Northern Pacific Railroad, The Sioux, and the Panic of 1873 writes that the damage from the Panic of 1873 lasted for five years “and its economic damage was second only to the past century’s Great Depression.”

However as Jim Grant of Grant’s Interest Rate Observer writes, “you can look far and wide without finding a decade so ebullient, prosperous and — in so many ways —so modern as that of the 1880s.”

The US economy in the 1880s moved from agriculture to manufacturing; and even then global trade was controversial. But while prices fell, the US economy prospered. Industry expanded; the railroads expanded; physical output, net national product, and real per capita income all roared ahead. For the decade from 1869 to 1879, the real national product grew 6.8% per year and real-product-per-capita growth was described by Murray Rothbard, in his History of Money and Banking in the United States: The Colonial Era to World War II as “phenomenal” at 4.5% per year.

So the period that Wikipedia describes as “a severe nationwide economic depression that lasted until 1879,” was really a period of prosperity. This “great depression” was a myth, as Rothbard explains “a myth brought about by misinterpretation of the fact that prices in general fell sharply during the entire period,” Sure, prices fell, by 3.8% per annum according to Milton Friedman and Anna Schwartz, but what’s so bad about that?