Architect of the Roaring '20s

“Liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate. It will purge the rottenness out of the system...and enterprising people will pick up the wrecks from less competent people.”

Andrew Mellon

US Secretary of the Treasury during the Republican administrations of Harding, Coolidge and Hoover administrations



In the darkest days of the Depression, Treasury Secretary Andrew Mellon, one of the richest men in the United States, opposed any government action to stem the tide of plunging business activity and soaring unemployment. Instead, he urged a policy of supreme indifference.

John Maynard Keynes, for one, thought that prescriptions like Mellon's were preposterous. The economist called those who held such views "austere and puritanical souls" who believed that it would "be a victory for the mammon of unrighteousness" if general prosperity were not "subsequently balanced by universal bankruptcy." Keynes perceived too much good in prosperity to treat it as the enemy, and he revolutionized economic theory to prove his point.

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"One of the prevailing theories at the time of the Depression was the so-called "liquidationist thesis" - which said basically "let's let the system return to normal. Let's liquidate banks; let's liquidate labor." This was Andrew Mellon, the Treasury secretary [from 1921 to 1932]. It was partly on the basis of that theory that the Federal Reserve stood by and let a third of the banks in the country fail, which caused the money supply to drop sharply, and prices to fall rather sharply, and led ultimately to the severity of the financial crisis.

I think financial instability, which was not addressed by government or anyone else, was a major contributor, both to the Depression in the US and abroad. I believe the difference today is that we will address financial issues and try to maintain the integrity and stability of our financial system. We will not let prices fall at 10% a year. We will act as needed to keep the economy growing and stable. So, I think there are some very significant differences between the thirties and today, and we learned a great deal from that episode."

Ben Bernanke
April 2, 2008
before Congress' Joint Economic Committee

Liquidation is the only answer.