The Bubble that Broke the World
This book blows away the conventional interpretations of the crash of 1929, not only in its contents but that this book exists at all. It was written in 1931. He ascribes the crash to the pile of up debt, which in turn was made possible by the Fed printing machine. This created distorations in the production structure that cried out for correction. So what is the answer? Let the correction happen and learn from our mistakes.
Such is the thesis of the great Garet Garrett. But take note: this book was a big seller in 1931. In other words, two years before FDR arrived with his destructive New Deal, ascribing the depression to captialism and spectulation, Garrett had already explained what was really behind the correction.
It took Murray Rothbard to resurrect these truths decades later, and when he wrote this in 1963, it was a shock and we are still fighting an uphill battle to explain the true causes of the crash and following depression. But here in this wonderful book is an actual contemporary account that spelled it out plainly for the world to see.
No more can we say that people back then could not have understood. Garrett told them. And thanks to this new edition of this classic and important work, he is telling us again today.
Comments (2)
eric lansing
this is great stuff; i'm really enjoying this book. from Anatomy of the Bubble:
"Well, then, this daily increase of "Demand Deposits"
from the "Teller" windows is tossed into the safe, along
with those "Time Deposits" from the window marked
"Savings." Thus the bank accumulates deposits—that is
to say, money. What does it do with the money? A bank
pays interest; therefore, a bank must earn interest. It
must earn more interest than it pays out, else it cannot
make a profit for itself. So the bank must lend its deposits.
To receive money on which it pays interest and to lend
money on which it receives interest—that is a bank's
whole business.
Now, what proportion of its total deposits do you suppose
a bank lends? How much would you think it was
safe to lend? The half? Three quarters? All? The fact is
—and even those who know it well and take it for granted
are astonished in those moments when they stop to reflect
on it—the fabulous fact is that a bank may lend ten times
its deposits. That is to say, for each actual dollar of other
people's money it has received and locked up in its safe,
it may lend or sell ten dollars of credit money.
Not every bank does lend ten to one—ten dollars of
credit to one of cash in the vault; but if you take the
banking system entire it has the potential power to erect
credit in that ratio to cash. Ten to one was the formula
adopted by the United States Treasury and other Federal
Government agencies in their campaign against hoarding.
In official messages broadcast over the country people
were exhorted to stop hoarding and bring their money
back to the banks on the ground that each dollar of actual
money in hiding represented a loss of ten in the credit
resources of the country, and that each dollar of money
brought back to the banks represented an increase of ten
dollars in credit for the common benefit of trade, commerce
and industry.
The beginning of all modern credit phenomena is in
this act of multiplication, performed by the banker. How
can a bank lend credit to the amount of ten times its cash
deposits ?
Perhaps the easiest way to explain it will be to tell
the story of the old goldsmiths who received gold for safe
keeping and issued receipts for it. These receipts, representing
the gold, began to pass from hand to hand as
money. Seeing this, and that people seldom touched the
gold itself or wanted it back, so long as they thought it
was safe, the goldsmiths began to issue paper redeemable
in gold, without having the gold in hand to redeem it
with."
Published: September 26, 2007 1:40 PM
Tory
Back then they were economically reckless and ignorant. More people got rich off others ignorance. We still have this habit and addiction for gambling (that's what it was back then.)
Politicians have learned nothing from our past economic mistakes.
Published: September 26, 2007 6:10 PM