bitcoin_mises on Nostr: This is a classic divergence between the Austrian school and the Chicago school, The ...

This is a classic divergence between the Austrian school and the Chicago school, The Austrian school argues (I believe correctly) that the great depression was an example of artificial Monetary expansion by the federal reserve causing mal investment in the market, eventually this mal investment was realized and the market crashed. An adjustment period is needed to learn from this systemic investment problem before the market can recover, this really can only take place if the government stays out of it, which is exactly the opposite what the federal government did during the great depression.

The Chicago school has a very different perspective, one that is almost exactly Keynsian, they believe the great depression was heavily influenced by excessive savings, and that if people spent more, and the federal reserve increased liquity aka injected more money into the system the great depression wouldn't have happened.

This is a classic fallacy though, spending more doesn't just randomly improve an economy, two steps are needed to do so, savings and correct capital allocation. Essentially when people save, they’re delaying consumption, which frees up resources to be invest in long-term, productive projects, the savings part is extremely important, without it there is no efficient capital allocation.