hat was Different? As we'll see, there were a number of policies enacted over the next few years that, from both a free market and a Keynesian perspective, would do nothing to help America recover and do everything to exacerbate the depression. Over the next few years, the Federal Government would allow the money supply to contract by a third. A free market advocate's response would be to do nothing and let the market work itself out. Ideally, what would happen is that businesses would realize that no one was buying and lower prices accordingly until people started buying again. The same thing would happen with labor and capital. Prices would be lowered until they reached the market-clearing price and the economy would recover. Keynesians claim that some prices or wages will be "sticky" and may take a long time to reach their market clearing price thus, causing needless suffering along the way. The Keynesian prescription is two-fold. First, the Federal Government should inflate the money supply. Keynes even whimsically suggested leaving jars of money around where enterprising young boys could find them. However, this may not work if the depression is severe enough to enter what is called a liquidity trap. Under this scenario, no amount of running the treasury's printing press will restore order. In this case, the government should simply start spending money itself, thus "priming the pump" so to speak. As we'll see, Hoover (and later FDR) implemented a mixture of policies, some of which were Keynesian (increased government spending) and some of which were not (price supports and other attempts to keep prices and wages high). Herbert Hoover has been accused of being a do-nothing president who allowed the country to continue to slide into its worst depression ever. Some will grudgingly admit that Hoover did take some action, but that it was too little, too late. But the truth is far more complex. Hoover did intervene after the Stock Marke...
