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- The Great Depression wasn’t a failure of free markets
- False beliefs about the past distort our reaction to policies today
- America’s middle class has not been ‘hollowed out’ by globalisation
I distinctly recall the first time I encountered the names Adam Smith and John Maynard Keynes. It was during my years as a high-school student. My teacher, with a degree of certainty akin to scientific law, declared that the Great Depression stemmed from the laissez-faire teachings of Smith. Redemption, according to him, emerged through the astute, scientific insights of Keynes, implemented with skill by Franklin Roosevelt.
With youthful naivety, I thought, “How marvellous!” My teacher assured us Keynesian wisdom banished depressions to the annals of history.
By university graduation, armed with an economics degree, I discovered my teacher’s history was defective. The Great Depression wasn’t capitalism’s downfall. Rather, it was the Federal Reserve’s blunder, allowing a massive monetary contraction. The prolonged economic suffering owed much to unwarranted interventions by Hoover and FDR. Ironically, Keynes opposed many such measures.
Fortuitously, I stumbled into an economics course under a marvellous professor. Without this luck, I might still cling to misconceptions, believing Smith misguided and government intervention critical. Political candidates advocating otherwise wouldn’t merit my vote.
Our beliefs about history greatly colour our views on current economic events and policies. Former US Senator Phil Gramm, an accomplished economist, and I wrote our book, ‘The Triumph of Economic Freedom,’ to challenge what we see as the seven most perilous myths in American economic history.
Our scepticism of these myths is grounded in historical fact. These myths don’t stem from nuanced interpretations. They arise from a startling ignorance of verifiable truths.
Consider ‘the Genesis myth’, proposing the industrial revolution in 18th-century Britain enriched factory owners while impoverishing workers. Most economic historians agree that by the 1840s, real wages soared. Evidence suggests this upward trend began earlier, despite the grim perception of 19th-century factory roles. For many in Britain, these positions offered allure.
Returning to America’s industrial revolution, the ‘Gilded Age’, children are often taught that figures like John D. Rockefeller exploited consumers and workers. Prices soared, products’ safety was suspect, and wages were driven to poverty levels.
However, data presents a different narrative. The period saw monumental growth shared among Americans. Even with the population doubling from 1865 to 1900, real per-capita GDP rose by 83%, and nonfarm workers’ earnings ticked up 62%. Particularly striking is the manufacturing wage jump of 158% between 1865 and 1905, as detailed by economist Lawrence Officer.
Entering the 20th century, everyday Americans enjoyed improved food, housing, and leisure.
Today, perhaps the most pervasive myth is that globalisation has gutted America’s middle class and industry. Allegedly, post-1970s, US industry exited, expedited by NAFTA and China’s WTO entry.
However, evidence undermines this narrative. Presently, US industrial output and capacity are unparalleled. Real wages and average household net worth have never been higher.
In ‘The Triumph of Economic Freedom,’ Senator Gramm and I highlight facts challenging such popular narratives. We believe dispelling these myths is crucial to avoiding harmful policies.
Donald J. Boudreaux is Professor of Economics at George Mason University in Fairfax, Virginia, and Senior Fellow at George Mason’s Mercatus Center. His views are his own and not necessarily those of CapX.
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‘The Triumph of Economic Freedom’ is published by Rowman & Littlefield.
