[tylerboyd49]

I’m reading Rothbard’s America’s Great Depression and in Chapter 8 it explains Hoover’s farm policies of 1929 and 1930. If I understand it correctly, he cartelized the farmers in an effort to prevent keep prices up (bad for depression resolution) by subsidizing their production. But this resulted in INCREASED production and, with the government owning a huge amount of surplus dangling over the market, prices were driven DOWN as an unintended consequence…

So if prices were driven down (which is necessary for depression resolution), production increased, etc. did this policy inadvertently help the depression resolve among farmers? (although my the New Dealers’ views it did the opposite since they wanted prices to stay up; also point about increased taxation to fund subsidy laid aside)

[swalsh81]

One of the characteristics of depressions is that they are caused by a misallocation of resources. By buying up what he believed to be surplus, he created a higher demand for the goods of farm production there by increasing production. When farmers knew that they would be sure to have a buyer there was no reason for them to curb their production, causing the surplus. So, what he was ultimately doing was exacerbating the misallocation problem by tying up resources in farm production that would have been better used elsewhere.

The goal in a depression is not to get or force prices down so the depression can be resolved, the goal is to allow the market to clear itself and reallocate resources to their most productive uses. Lower prices during this process is a byproduct of the reallocation, but by simply lowering prices by any means necessary is not the answer. You cannot for the process to go faster by artificially causing one of its side effects.

So, yes lower prices are a part of the reallocation process, but forcing prices lower (which of course wasnt his goal) doesnt help, rather it further encourages misallocation and prolongs the reallocation process, i.e. it prolongs the depression.

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