Reading today’s entry from the 1930 blog that I mentioned yesterday revealed an interesting editorial from 1930 regarding price fixing and easy credit and how these factors DISTORT the functions of the market:
Editorial by T. Woodlock: Hits price-support schemes, which have perhaps never been so widely deplored yet so much in use. “Capital must have the discipline of pressure. Ease the pressure in the slightest and capital rushes in like a storm into an area of low barometer.” Price fixing systems merely prolong the agony of inefficient producers, with no advantage to anyone; relief, if necessary, should be given by means other than price fixing, even by the dole if we must, rather than “valorization” or “stabilization.” The US has some trouble accepting these ideas, possibly due to generally soft living conditions compared to the Old World. In fact, the US harbors a set of ideas that “together make a most incongruous mess.” We want abundant and cheap credit for all, especially the “little fellow,” but safety and high interest for our bank deposits; everyone is entitled to go into any line of business and succeed, and if he doesn’t, it’s the fault of a “big fellow”; and so forth. “We could do with a little more hardness of head in our economic thinking.”
Interestingly, many wise investment pros fault Easy Al Greenspan’s policies of super low rates (cheap money) for fueling the artificial boom and causing the bust over the last decade. It also stands to reason that excessive credit was a big cause of the Great Depression. See Benjamin Anderson’s work for great analysis of this.