The Great Depression was a world wide event and, in America complicated by the Dust Bowl (caused by the unfortunate confluence of drought, years of wheat speculation, and tearing up the very grass that held the soil). A mess way to complicated to lay at the feet of the federal reserve.
The U.S. did not exist in a vacuum - even in 1929. Its markets were world markets. I believe we can lay the blame for the 1929 Stock Market crash (and the Depression it launched) squarely at the feet of the Federal Reserve's inept monetary policy:
"...the Federal Reserve expanded the money supply by more than 60 percent from mid-1921 to mid-1929.[2] The flood of easy money drove interest rates down, pushed the stock market to dizzy heights, and gave birth to the “Roaring Twenties.” By early 1929, the Federal Reserve was taking the punch away from the party. It choked off the money supply, raised interest rates, and for the next three years presided over a money supply that shrank by 30 percent. This deflation following the inflation wrenched the economy from tremendous boom to colossal bust."
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Furthermore, a growing number of historians are coming to the realization that if FDR had taken no action at all, the economy would have rebounded fairly quickly. Instead, his New Deal programs actually prolonged the Great Depression by several years...
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Whether one agrees with this or not, one thing is certain: the Free Market did not cause the Great Depression.
Nothing could be further from the truth. It was government intervention in the market that set the stage for the Great Depression and made it much worse than it would have been otherwise. Here's a brief list of some of the government intervention and regulation in the economy prior to 1929:
The first labor unions, then called federations were active in 1820. National labor union - 1866. American Federation of Labor - 1886. Dept. of Labor, 1913. Dept. of the Interior 1849. Dept. of Agriculture - 1862. Anti-Trust Acts 1902. Dept. of Commerce 1903. Shift from private to state-funded education began in the 1800's. Interstate Commerce Act of 1887. Federal Highway Act of 1916. Air Commerce Act of 1926. The Income Tax and Federal Reserve Act- 1913 (the graduated income tax and centralized bank are both planks of The Communist Manifesto). Also had the estate tax act in 1916. Corporate Tax Act of 1909. Zoning laws and regulations, which the Supreme Court ruled constitutional in 1921. And we had federal ownership of land throughout the history of our country. Contrary to what some might say, this constitutes a heavily regulated and unfree market. This is anything BUT unregulated capitalism.
The Great Depression was caused by government influence in the economy, not unregulated capitalism. Primarily, the Smoot-Hawley Tariff Act - which even a liberal like Al Gore admits was a major factor, the increase of the income tax (the top rate went from 25% to 63%), and the manipulation of credit, specifically the shrinking of the money supply, through the government central bank, the Federal Reserve:
http://www.shambhala.org/business/goldocean/causdep.html
"And, of course, there was the political regime of Franklin D. Roosevelt. To finance government expenditures to pay for his beloved New Deal welfare programs, Roosevelt and his cohorts began printing massive amounts of government notes. To ensure that gold would not expose what they were doing, legal-tender laws were enacted. But that wasn't the worst of it. The Roosevelt people next canceled — nullified — extinguished — every single gold clause in every single contract, public and private.
And even that wasn't the worst of it. Roosevelt and his cronies nationalized — confiscated — the gold coins of the American people and then made it illegal for Americans to own gold. Imagine — after 150 years of the strongest monetary system in history — a system free from government assault — a system that was a bulwark for American liberty — the American people became subject to serving time in a U.S. federal penitentiary for owning a gold coin!
What about the Constitution? What about enumerated powers? Unfortunately, Roosevelt had sufficient cronies on the Court to sustain his policies, especially after his infamous and shameful court-packing scheme."
From:
http://www.fff.org/freedom/0596a.asp