Berkeley economist Brad DeLong has written a good article for The Guardian, detailing the steps of the United States Treasury's reactions to the credit crisis and the impending recession. In the article DeLong mentions the many competing theories of how the Depression started, why it lasted so long and how we might be able to end it. The competing theories include John Maynard Keynes', Milton Friedman's and Ben Bernanke's. But every single one of these theories are reactionary in nature. The one theory strangely absent from DeLong's article is the Austrian School Theory best highlighted by Murray Rothbard in his book, America's Great Depression:
THE LESSONS OF MR. HOOVER'S RECORD:
Mr. Hoover met the challenge of the Great Depression by acting quickly and decisively, indeed almost continuously throughout his term of office, putting into effect "the greatest program of offense and defense" against depression ever attempted in America. Bravely he used every modern economic "tool," every device of progressive and "enlightened" economics, every facet of government planning, to combat the depression. For the first time, laissez-faire was boldly thrown overboard and every governmental weapon thrown into the breach. America had awakened, and was now ready to use the State to the hilt, unhampered by the supposed shibboleths of laissez-faire. President Hoover was a bold and audacious leader in this awakening. By every "progressive" tenet of our day, he should have ended his term a conquering hero; instead he left America in utter and complete ruin—a ruin unprecedented in length and intensity.What was the trouble? Economic theory demonstrates that only governmental inflation can generate a boom-and-bust cycle, and that the depression will be prolonged and aggravated by inflationist and other interventionary measures. In contrast to the myth of laissez-faire, we have shown in this book how government intervention generated the unsound boom of the 1920s, and how Hoover's new departure aggravated the Great Depression by massive measures of interference. The guilt for the Great Depression must, at long last, be lifted from the shoulders of the free-market economy, and placed where it properly belongs: at the doors of politicians, bureaucrats, and the mass of "enlightened" economists. And in any other depression, past or future, the story will be the same.
Looks more likely, with each passing day, that Rothbard was right.
EDIT: To clarify what Rothbard is talking about when he says "government intervention generated the unsound boom of the 1920s" he means the Fed's actions to lower interest rates and the resulting ease to obtain available credit. He doesn't mean government intervention as we see it today -- regulations, monitoring etc.
Rothbard was stating that laissez-faire government policy doesn't really exist since laissez-faire would mean the Fed enacted policy of lowering interesting rates in the '20s. Which is active government interference in the market. By lowering interest rates, and cheapening credit, the government affected the market and this led to the roaring twenties, at which point the Great Depression was inevitable.
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