Speaking at Milton Friedman's 90th birthday party, Federal Reserve Chairman Ben Bernanke admitted that the government caused the Great Depression:
Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again.
This is not an apology. This is arrogance. The federal government and Federal Reserve are doing exactly the same things that brought about and prolonged the Great Depression.
What are those policies?
While Milton and Ben are taking credit for explaining why the Great Depression occurred, there was one economist who predicted it in advance.
The Prophet of the Great Depression
Ludwig von Mises predicted both the destruction of the German Mark and the market crash of 1929. The two events are related by the act of government inflation. When the government inflates the money supply, it distorts the price signals of "the Invisible Hand" of the Free Market. Investors use the money created by the government to invest in projects that the Free Market had rejected. Either the government continues to support this malinvestment with repeated inflation of the money supply (Germany), or it contracts the money supply and causes all those bad investments to collapse (America's Great Depression).
The way to avoid another depression is simple: stop the government printing presses. Stop government bailouts of bad investments. Let profit and loss perform its magic.
- America's Founding Fathers called America "an Experiment in Liberty."
- The "experiment" succeeded. America became the most prosperous and admired nation in history.
- A century later, America tried a different experiment: an experiment in government "central planning."
- That experiment failed. Repeated around the world in the 20th century, has brought poverty, misery, and death. America is no longer prosperous and admired, but bankrupt and despised.
- While the Free Market allows individuals and individual businesses to fail, and puts the resources they weren't using well into the hands of those who will do a better job, government central planning causes the entire economy to fail.