Regulated Monopolies
Hoover, however, thought exactly the opposite way, that a “government-supervised monopoly power” would be more efficient than the invisible hand Adam Smith (1723-1790), the Scottish economist that is often called the “Father of Economics”, is talking about in his book “The Wealth of Nations”. This is the theory that the system of supply and demand is the only one that is able to guide a modern and innovative economy with all its complex and dynamic structures.
Among other industries Hoover strongly regulated broadcasting, which, he thought, couldn’t develop well enough without the hand of the state. Besides, he wanted to see less commercial ads, which, of course, made radio stations less profitable. He forced the corporations of this industry to share their technological information and granted subsidies to the giants in this business. Furthermore, he expanded his department’s influence on the program and other decisions and reduced the amount of advertisements. With all this he more or less created a broadcasting monopoly, which through the Anti-Trust law is actually forbidden to every industry and which neglected the smaller competitors. These then had no chance to survive and the employment rate of this industry decreased drasticly. This is only one example of a monopoly created by Hoover in order to eliminate “destructive competition” but the same style of interventionism Hoover employed in a bunch of other industries like the oil industry, the farming industry, airlines, railroads and so on.
Too much goverment interference
Besides, Hoover interfered with labor relations to a high degree by means of different laws “in favor of the working class”. For example, he got through the time-and-a-half pay for overtime, which again doesn’t have to do anything with capitalism. Naturally companies try to avoid having anyone work longer under these circumstances and those who favor the Austrian school of economics would argue that this takes away the opportunity to increase one’s own wealth by voluntarily working longer from those who are very ambitious. Consequently the economic potential is reduced. Another regulation that opposes the ideas of capitalism is the Railway Labor Act passed in 1926, which says that the government plays a big role in solving disputes between employers and worker’s unions through the newly created National Mediation Board.
Up to now, I described several factors that certainly slowed down the economic growth but probably could never cause such a breakdown of the economy. The main cause of the Great Depression surely was the Federal Reserve System and its monetary policy, which I will come to in a later chapter.
Although this was only a slight glance at the policy before and during the Great Depression, we can now answer the question whether it was caused by capitalism or not. Paul Johnson summarized the answer to this question in one perfectly adequate sentence:
The Great Depression was a failure not of capitalism but of the hyperactive state
Since there was no capitalism it is simply impossible that it could have caused the Great Depression.