America's Great Depression

Rothbard applies Austrian business cycle theory to the American Depression. His argument has two parts. First, the boom of the 1920s was created by credit expansion, specifically by Federal Reserve open market operations and by the inflation of bank reserves undertaken partly to help Britain return to and hold the gold standard. That credit expansion, in the Mises-Hayek framework he uses, distorted the structure of production by lowering interest rates below the natural rate and directing investment into capital goods that consumer demand would not support.

Second, and more distinctively, he argues that the Depression was made long and deep by intervention rather than by laissez-faire. He documents Herbert Hoover's actions in detail, including the pressure on employers to maintain nominal wages, public works spending, the Reconstruction Finance Corporation, agricultural support and the Smoot-Hawley tariff, and argues that Hoover was an interventionist whose programme Roosevelt extended. The claim that the liquidation was prevented rather than allowed is the core of the book and it directly contradicts the conventional account of Hoover as a do-nothing president.

The book is polemical and openly ideological, published by the Mises Institute, and it makes no attempt at balance. Its treatment of the monetary data has been criticised, particularly its definition of the money supply and the claim that the 1920s were inflationary when consumer prices were roughly flat. Mainstream monetary historians reject the central thesis, and the empirical support for Austrian cycle theory remains weak. It is worth reading as the strongest statement of the Austrian position and for the Hoover documentation, which is genuinely useful and is now accepted by many historians who reject Rothbard's theory.