What does Laissez-faire have to do with the Great Depression?

Answer 1

The Great Depression happened because of a failure to follow laissez-faire policies. First of all, the whole business cycle is caused by central banking, imposed by government, and other means by which the government interferes with interest rates and the supply of money and credit. In particular, in 1927, England tried to return to pre-WWI gold exchange rates instead of leaving prices where they were. This caused a loss of gold from England, which America's Federal Reserve tried to help prevent by lowering interest rates. This is what set off the speculative boom of the late 20's.

It is said that Hoover's policies after the crash were laissez-faire, but nothing could be further from the truth. As far back as the early 1920's, Hoover had written that the best way to deal with a recession is to institute public works projects. He did so, starting many public works, including the Hoover Dam. He increased government spending and taxes, encouraged the Fed to extend another $300 million to try to re-inflate the economy, and started poverty relief programs. Hoover's policies so closely resemble FDR's that some writers call it "Hoover's New Deal". The only difference between the policies of Hoover and FDR was the scale. FDR simply did more of what Hoover was already doing.

The worst hit to the economy from Hoover's policies was when he called business leaders from all over the country to Washington to "persuade" them to keep wages high. To do this, he used the threat of pro-union legislation, or promises to protect businesses from union legislation. Professor Lee Ohanian of UCLA has calculated that this policy accounts for over 2/3 of the unemployment of the early years of the Great Depression and prolonged it for 7 years.

The answer to the question is that laissez-faire had nothing to do with the Great Depression, except that maybe it would have been a good idea that was not used.