Did the Federal Reserve Make the Great Depression Worse?

One of the most memorable scenes in Frank Capra's classic film It's a Wonderful Life occurs when George Bailey, played by Jimmy Stewart, confronts a crowd of frightened depositors demanding their money.

The stock market has crashed. Banks are failing. Panic is spreading. Everyone wants to withdraw their savings before it's too late.

Bailey tries to explain that their money isn't sitting in a vault somewhere. It's been lent to their neighbors to build homes and businesses. If everyone demands their money at once, the whole system collapses.

It's a powerful scene because it illustrates something fundamental about how banking liquidity and community economics. Banks depend on trust. When that trust disappears, even a financially sound institution can find itself in serious trouble. 

During the early years of the Great Depression, scenes like this played out across America. Thousands of banks failed, wiping out savings and cutting off the credit that businesses and families depended upon. As lending dried up, businesses closed, workers lost their jobs, and the economic downturn became a national catastrophe.

But here's an interesting question: Was this a failure of capitalism, or was something else going on? Economist Milton Friedman offered a provocative answer.

In his landmark 1963 book, A Monetary History of the United States, co-authored with Anna Jacobson Schwartz, Friedman argued that the Federal Reserve was largely responsible for turning a serious recession into the Great Depression.

1933 run on a bank in New York

The Federal Reserve had been established in 1913, partly to prevent precisely the kind of banking panic depicted in Capra's film. It had the power to provide emergency funds to banks, support the financial system and keep money circulating. Instead, the Fed failed to respond adequately as banks collapsed and the nation's money supply contracted by roughly one-third between 1929 and 1933. 

That was a pretty radical drop. At a time when businesses desperately needed credit and families needed money to survive, the supply of money circulating through the economy was shrinking dramatically.

The result was a downward spiral. Bank failures reduced lending. Reduced lending meant less spending. Less spending meant fewer jobs. And fewer jobs meant more defaults and additional bank failures. Down, down, down it goes, where it stops nobody knows.

Friedman didn't claim that capitalism was perfect or that the stock market crash was insignificant. His argument was that the Federal Reserve failed to prevent a monetary collapse that made an already serious situation vastly worse.

In 2002, future Federal Reserve chairman Ben Bernanke acknowledged this failure while honoring Friedman on his 90th birthday. Addressing Friedman and Schwartz, he said, "Regarding the Great Depression ... we did it. We're very sorry. ... We won't do it again." This was quite an admission.

Economists continue to debate the relative importance of monetary policy, excessive debt, the gold standard and other causes of the Depression. Nevertheless, Friedman fundamentally changed how economists understood the catastrophe.

Sadly, when it comes to economics, very few Americans have had a single class on how economies work or how wealth is generated. As a result, most people are easily manipulated by rhetoric, though I'm sliding off topic and will end with by circling back to George Bailey.

George understood something the Federal Reserve failed to adequately address: When confidence disappears and everyone demands their money at once, an entire community can suffer.

The larger lesson is also worth remembering. When an economic system breaks down, we should be careful about where we assign responsibility. Sometimes what appears to be a failure of free enterprise may also be a failure of the institutions established to keep it functioning.

If interested in taking a deeper dive into the factors that contributed to the Great Depression, check out the Federal Reserve History (from which some of this info was extracted).

A Ground Breaking Analysis of LBJ's War on Poverty: Charles Murray's Losing Ground

There are two ways people fight facts they don't like. Either they say, "Don't read this," or they deny the facts that it presents. It would seem that this has been the territory Charles Murray has chosen to stake out for the entirety of his writing career, choosing controversial themes and speaking truth to power, as in Facts vs. Liberal Ideology. 

When it comes to Washington, well-meaning politicians routinely attempt to address serious problems via programs that are massively expensive. When their theories result in unintended consequences--and there are always unintended consequences--these same politicians have no interest in acknowledging their failures. Instead, they'll go to the wall to abuse their accusers. In the courtroom of public opinion facts are irrelevant.

I first became aware of the failings of President Johnson's Great Society programs in 1984 through a two issue in-depth analysis of the problems in a four square mile section of South Chicago. The big surprise was not the details unearthed in the article(s). Rather, it was the vocal outcry by black and liberal leaders against the plain facts. Statistics have shown that kids in single parent households become juvenile delinquents at a higher rate than kids in homes with two parents. To many black leaders (cited in the article), expecting a father to stay home and help raise his children was an imposition of "white values." If I remember correctly, 70% of the children in South Chicago were being raised in one-parent homes.

This is not to say that one-parent homes guarantee delinquency. It does, however, point to a problem, one of the unintended consequences of American welfare policies.

The book is Charles Murray’s Losing Ground: American Social Policy, 1950–1980 (1984). It's a data-driven critique of U.S. social welfare policy, particularly the Great Society programs of the 1960s.

Murray's core thesis was that the expansion of welfare and related policies in the mid-1960s and afterward changed the incentives facing the poor in ways that increased dependency, family breakdown, crime, and related social problems—rather than reducing poverty. He contended that policymakers altered “the rules of the game” for the disadvantaged, making short-term behaviors (such as single motherhood, non-work, or crime) less costly while masking their long-term harms. In his words, efforts to provide more for the poor (in this manner) produced more poor people and built a trap instead of an escape.

Murray contrasted pre-1960s trends (when poverty declined steadily amid limited federal welfare) with post-1960s outcomes, when large increases in spending coincided with stalled or reversed progress on key indicators, especially among the black underclass and young people. [EdNote: Thomas Sowell has frequently pointed out that blacks were improving economically every decade of the 20th century until LBJ's Great Society interference.]

Key Evidence and Arguments
Poverty and spending: Official poverty rates fell sharply before the War on Poverty but stalled or worsened in some measures afterward, despite a major expansion of transfer programs (AFDC, food stamps, Medicaid, housing subsidies, etc.).

Labor force and unemployment: Participation rates and employment among young black men deteriorated relative to earlier decades and relative to whites, even as job-training and other programs expanded.

Family structure: Rising rates of out-of-wedlock births and single-parent households are linked to welfare rules that often made marriage or work financially less attractive for low-income women than remaining single and relying on benefits. 

Crime and other indicators: Increases in crime, dropout from the labor force, and related problems are presented as responses to softened consequences (more lenient justice policies, reduced stigma, and subsidized alternatives to work and family).

Incentive analysis: Using data on benefit levels relative to wages, Murray showed how, in many cases, a single mother could receive more in combined benefits than by taking a low-wage job, reducing the payoff to work and marriage. [EdNote: The same thinking occurred during Covid where workers made more more for not working than working. I spoke with one woman who went back to work because she was bored to death after four months of not working.]

Murray emphasized that the poor respond rationally to the incentives they face. The policy shift, he argued, was rooted in a changed elite consensus that viewed poverty primarily as the fault of “the system” (racism, lack of opportunity) rather than individual behavior or choices, leading to programs that subsidized destructive short-term decisions.

Proposals

Murray advocated rolling back the federal welfare and income-support system for working-age adults (with limited exceptions for the truly needy), returning more responsibility to states and localities, promoting education choice (such as vouchers), and restoring emphasis on personal responsibility, work, and family. He also supported core civil rights protections from the 1964 Act but opposed later race-preferential policies.

Context and Reception

The book was influential among conservatives and helped shape debates that later contributed to 1990s welfare reform. But the critics and liberal analysts generally disputed Murray’s causal claims, data interpretations, and the extent to which welfare rules alone explain the trends, arguing that economic shifts, discrimination, and other factors were more important. 

Murray’s later works--The Bell Curve and Coming Apart--developed related themes around cognitive ability, culture, and class divergence. The reaction from the Left against these books was even more shrill. 

In essence, Losing Ground maintained that well-intentioned anti-poverty policies of the 1960s–1970s inadvertently worsened outcomes for the people they were meant to help by distorting incentives. The lesson for us today: Government leaders--Left and Right--often have good intentions but we need to hold them accountable for the outcomes they produce. 

Cicero, Dylan, and Nothing Human Is Alien

Dylan's English teacher's desk is for sale.

Marcus Tullius Cicero (106 BC – 7 December 43 BC) was a Roman statesman, orator, lawyer, and philosopher who served as consul in 63 BC. He came from a wealthy municipal family of the equestrian order and is still counted among Rome’s greatest orators and prose stylists. I came across his name again last weekend in my reading and, along with this week's news about Nobel Prizes, it triggered some old thoughts. (See links at the end.)

This connection to Cicero runs through Richard F. Thomas’s Why Bob Dylan Matters, reviewed by Thomas Palaima for Bryn Mawr Classical Review. The gold Nobel medallion Dylan received in 2016 carries an image and inscription linked to Virgil’s Aeneid 6.660–665 and Eclogues 1. Thomas sets those lines beside T. S. Eliot’s 1945 essay “What Is a Classic?” and Cicero’s De Officiis, then against Dylan’s “Desolation Row” and Eliot’s “The Love Song of J. Alfred Prufrock.” 

Dylan, Thomas argues, absorbed the Virgilian words and scene on the medal as both painter and songster. The book follows one of the many “roadmaps for the soul” that show the empathy for the human condition at the center of Dylan’s work. Hence the nod to Cicero. Thomas renders the idea this way: “I am a human. I consider nothing connected to humanity to be alien to me.”

David Gaines made a related point in the John Bushey Lecture Series during Duluth Dylan Fest several years back. He stressed the lasting influence of teachers and noted that Dylan took two years of Latin in high school—then a normal course of study, and a direct encounter with the ancient classics. Like Thomas, who had spoken in the series the year before, Gaines observed that Dylan belonged to the Latin Club. The detail is small, but it places the later allusions inside an ordinary classroom rather than a later affectation.

It is to Dylan’s credit, and to Cicero’s, and now to Thomas’s, that they keep returning to the need for human empathy. Cicero does it by argument. Dylan does it by redeploying passages from texts that have grown obscure—classical authors, or the Civil War poet Henry Timrod—so that readers and listeners see, think, and feel what it is to be a struggling human being in any time or place, inside what Dylan calls “this weary world of woe.” The ideas are recognizable. The clothing of those ideas is also beautiful; the prose itself--and his style of delivery when recording or performing--carries moral weight.

That combination of thought and style is why Cicero kept being recovered. 

The 14th century Italian scholar and poet Petrarch is often credited with the rediscovery of Cicero’s letters, thus helping open the fourteenth-century Renaissance in public affairs, humanism, and classical Roman culture. Cicero’s authority peaked again in the eighteenth-century Enlightenment. His impact on Locke, Hume, Montesquieu, and Burke was substantial. America's founding fathers were likewise acquainted with Cicero as well. George Washington purportedly had two books on his nightstand, the Bible and Cicero.

Cicero's works remain among the most influential in European culture and still supply primary material for the history of the late Roman Republic. Augustine, who was living and writing as Rome fell, read him closely and argued with him while valuing his insights and contributions to beautiful writing. 

It's interesting to find that these ancient writers and philosophers continue to speak to us today. In our modern/post-modern era, we see that people are pretty much the same as they have always been, wrestling with issues of meaning, power, powerlessness, greed, envy, deceit, pride, ambition, freedom and injustice. 

The Old Testament prophets seemed to specialize in confronting kings and powerful entities with honest, often critical facts about their abuses or mistakes. Today we call it, "Speaking truth to power."

When I Googled the origin of that phrase, I was surprised at its recent vintage, though we well know the idea behind it goes far back in time. The phrase was broadly popularized by the American Friends Service Committee (AFSC) in the 1955 pacifist publication, Speak Truth To Power: A Quaker Search for an Alternative to Violence.

"In the land of An Eye for an Eye, all men are blind.

Related Link
More Thoughts from Cicero: On Life, Death and Philosophy

Photo Source:

https://x.com/Matt_Stike/status/2108940566037967181

Lessons from a Pet Rock

MARKETING MATTERS
Business North, 2026

The year was 1975. In January, Bob Dylan’s Blood on the Tracks was released. In February, Margaret Thatcher became the first woman to be elected leader of a major political party in Britain. In March, the husband of Jacqueline Kennedy, Greek shipping magnate Aristotle Onassis, died in France at age 69. 

 

And in April, while drinking in a Los Gatos, California bar with friends, copy editor Gary Dahl came up with the idea of selling rocks as low-maintenance pets. No vet bills, no messing in the house. 

They probably all shared some good laughs, but Dahl took it further. In two weeks, he completed a booklet titled The Care and Training of Your Pet Rock, a deadpan parody of a dog-training manual. Here’s the opening:

 

Initial care: Leave the rock in its box for a few days to recover from shipping trauma; place the box in a “special place.” After ~72 hours, remove it. If it seems “excited,” put it on newspapers (it will stay put).

 

It was hilarious, treating the ordinary rock as a real, sensitive, pedigreed pet with a long lifespan. At one point he even gets into details on how to train your pet rock to do tricks like “Sit” and “Play Dead.” Thus was born the Pet Rock.

 

As I dug into the details it became apparent that Dahl had some advantages going for him that will come out below.  He was already embedded in the advertising and marketing industry. He had enough experience to know the 4 P’s of marketing—product, price, place and promotion. Nevertheless, there are still a number of noteworthy takeaways that I’ve extracted from the Pet Rock story that we can apply today. 

 

Upfront Costs

Though Dahl sourced his rocks in Baja, Mexico for a penny apiece, there were additional costs including packaging, and printing the 32-page booklet. Even so, he made nearly a dollar profit on each rock sold and within a year became a millionaire.

 

Risk

Every new product launch involves an element of risk. The key is how to minimize risk and maximize reward. In Dahl’s case, he had two backers who helped fund the startup costs, essentially packaging and printing. By August Dahl was in business.

 

Execution

What started as a zany concept ended up becoming a cultural phenomenon because of first-rate execution. The primary difference between Dahl and 100 other folks who may have shared laughs about the same idea is that Dahl was an advertising executive and freelance copywriter. He understood how packaging, design and distribution worked. And he knew who to call to get things done.   

 

Price

The price point was perfect. At $3.95, the novelty item was easily affordable and provided twenty dollars worth of laughs when shared with co-workers or friends. The stores that carried Pet Rocks were able to make a profit as well, thus expanding distribution possibilities.

 

Trade Shows                          

Dahl unveiled his novelty item at gift and toy shows in San Francisco and New York. Again, his ad agency experience no doubt helped him identify which shows would give the most bang for his buck. Buyers at these shows are always looking for “what’s new” and this certainly fit the bill. Orders began pouring in, including purchases from several major department store chains.

 

PR

Dahl began selling the rocks in August and within two months was selling 10,000 a day. It was such an unusual story—and he knew how to leverage it—that he himself became a celebrity, which led to his being on Johnny Carson’s Tonight Show, twice. I can imagine Johnny laughing and saying something like “Does it bite?” as he opened the box. Being covered in Newsweek didn’t hurt any either.

 

Timing

The product launch coincided with the first waves of the Christmas shopping season. Dahl had no time to do product testing if he was going to be part of it. The feedback from buyers at the trade shows (“We can sell this!”) confirmed his hunches. He was “all in.”

Takeaway: Watch broader cultural or seasonal moods (stress, nostalgia, humor trends). Launch simple novelty or mood-matching products quickly rather than over-engineering. Trade shows or gift markets can validate demand fast. Novelty items like this are impulse buys, especially as gifts.

 

Packaging

The key is finding Aristotle’s Golden Mean. I don’t believe a ten-dollar box would have sold more rocks. 

 

Knowing When to Stop

It was a fad. Fads are here today, gone tomorrow. (Ask me about the year of the Hula Hoop.) Pet Rock sales dropped like a rock by February 1976. In the aftermath Dahl did try to float a few new novelty products like “Sand Breeding Kits” and “Red China Dirt.”   

 

Reality Check

Dahl sold hard, banked the money, and largely moved on rather than heavily extending the line into accessories like collars, leashes or tags. For novelty or trend-driven products, prioritize quick inventory turns, control costs, and plan an exit or pivot. Avoid over-investing in permanent infrastructure or inventory for something that may peak and fade.

 

Timing and cultural mood often matter more than perfect product development. I have a friend who rented a kiosk at Mall of America in which they sold a novelty item during the Christmas season. All that he did all day was run back and forth to the truck in order to keep the items in stock while his partner worked the crowd. For an entrepreneur, the right item at the right time and place is a joy to behold.

 

The Pet Rock launched when people needed an inexpensive laugh amid heavier cultural news. Christmas timing amplified gift sales. If you’ve got something up your sleeve, this might be a good time to show your cards.

My Favorite Mike Ditka Story

Ditka playing for Pitt in 1960

Today the NY Times announced that Mike Ditka has died. You might say he had a charmed career, but as everyone in the sports world knows, success is not handed to you on a silver platter. You have to earn it through hard work and discipline.

Ditka's nickname was "Iron Mike," in part because his father was a welder in the steel country outside Pittsburgh. In reviewing his story I was unaware that in high school and college he was a three-sport athlete playing baseball and basketball in addition to football. His goal in high school was to get a collegescholarship and use it to escape the small town where he grew up by becoming a dentist. Well his hard work paid off, providing him an education and a career, though not the one he imagined. 

The real lesson, from my perspective, is that excellence opens doors. In college he excelled (later being elected to the college football Hall of Fame) so that pro scouts noticed him.  The Chicago Bears scooped him up and he became Rookie of the Year that first season. Five years he was selected for the Pro Bowl and in 1963 the Bears won the league championship. Ditka ranks first among tight ends and fourth in Bears history with 4,503 yards, fifth in both receptions (316) and touchdown catches. 

All these experiences were stepping stones, each of them preparing him for the next level in his career. After eight years with the Bears he was then traded to the Philadelphia Eagles where he pounded out two years.

Though I can't recall which year it was, perhaps 2006 or so, Mike Ditka was the motivational  speaker at an AOCA Convention I attended. In telling this part of his story, he said that at the end of that second season and final loss with the Eagles, it seemed like his career was over. It was Christmastime and he was beat up and blue. Until the phone rang that following day. 

"Mike, this is Tom Landry."

When you give it your all, people notice. Landry believed the veteran tight end would be an asset, so he invited Ditka to Dallas where he played five years. Ditka began his playing career under the legendary George Halas in Chicago, and had the privilege of being part of the legendary Hall of Fame coach Tom Landry's squad at the end of his playing days. 

Landry something more than just an old veteran player. For the next nine years Ditka served as an assistant coach helping the Cowboys reach eight playoff appearances, six division titles, three NFC Championships, and a victory in Super Bowl XII.

Well, if you're going to have a mentor, you can't do much better than Landry. And when the Bears reached out to recruit him as head coach, he leveraged everything he'd learned from his own experiences and the masters he'd served under. From 1982 to 1992 Ditka compiled a 106-62 regular season record over 11 seasons. 

As a public speaker Ditka was incredibly down-to-earth. Just a guy telling it like it was. And his story about the 1985 Chicago Bears dream season (15-1) capped by a Super Bowl XX victory is what I wrote all the above in order to share.

He'd coached the Bears for three years, but each one begins with a new cast of characters. That is, you have the guys who have been around and the new faces acquired by trades or the college draft. Ditka was aware that this team had what it would take, and the time was now to make it happen.

So on the first day of Training Camp, in his first meeting with the team, he announced, "This is ur year. This year we're going to win the Super Bowl." 

Ditka said there were two kinds of responses to this proclamation. Some of the players smiled big, "Yeah, sweet," "Woohoo" and "Hot dog!" (And some other colorful language.) But the veteran players--Walter Payt0n, Dan Hampton, Mike Singletary, Jim McMahon--none of these guys hooted or hollered or even smiled. They slowly lifted their heads and looked Ditka in the eye as if to say, "If you're serious, we're all in." 

Ditka then told us that every one of those guys who laughed and hooted were traded by the start of the season. Ditka was dead serious. He knew he had a potentially great team, but he knew what's required to reach the pinnacle they all dreamed of. He only wanted men who were seriously on board for that.

Much more can be said, but that's the story I wanted to tell. 
If you have a Ditka story, share it in the comments.

Nobel Dreams: Gary Taubes Pulls Back the Curtain

"I will give you my priority: to be first and to be correct is the most important. To be first but to be wrong I think is not as good." -- Sam Ting

In the event that you've not heard, because so many other news stories are splattering against the media fan, Nobel Prizes are being distributed this week. By week's end prizes for Medicine, Physics, Chemistry, Literature and the Nobel Peace Prize will be given. When I saw the Physics prize in the news I immediate thought about the maneuvering that takes place behind the scenes when Nobel Prizes are doled out. 

I'll confess that my "education" on this topic is limited due to having only read this one book, but it was still pretty enlightening, even if some critics call it somewhat flawed.

The book, which I still have, is titled Nobel Dreams: Power, Deceit, and the Ultimate Experiment (1986/1987). In it the author, Gary Taubes, gives account of the race to discover the W and Z bosons at CERN, research that resulted in a shared 1984 Nobel Prize in Physics between Carlo Rubbia and Simon van der Meer.

[EdNote: A boson is a type of subatomic particle that has an integer spin (0, 1, 2) and acts as a force carrier in the universe.]

The book focuses on Rubbia, the Italian experimental physicist who pushed CERN to convert its Super Proton Synchrotron into a proton–antiproton collider and who led the UA1 collaboration that detected the particles. Those bosons carry the weak nuclear force and finding them confirmed the electroweak theory that unifies the weak force with electromagnetism. Van der Meer’s contribution was the stochastic cooling technique that made it possible to accumulate enough antiprotons for the collisions to succeed. 

Taubes spent months at CERN interviewing physicists. In the book he explains the accelerator physics and detector work clearly enough for a general reader while spending most of his attention on the people. 

What set the book apart, and made it controversial, is the portrait of Rubbia. Taubes presents him as brilliant, relentless, and often abrasive: skilled at politics and fundraising, willing to drive a large international team hard, and, in Taubes’s narrative, prone to overstating or rushing results. 

The book follows both the successful W and Z discoveries and later, less successful claims—including an early top-quark announcement and “monojet” events that Rubbia suggested might point to new physics—that did not hold up. 

Contemporary reviews in the Los Angeles Times and Time described the book as unusually good at showing big science as a human enterprise of ambition, rivalry, and luck, not only as a search for particles. Rubbia, however, called much of it rubbish, or more accurately, "Terrible," and that Taubes had not understood how discovery works in large collaborations. Some colleagues defended Rubbias integrity while still acknowledging the force of his overbearing personality.

As for me the biggest takeaway was how competitive things get when a Nobel Prize is at stake. And the amount of money involved. Carlo Rubbia’s role was to conceive the project, force it through CERN, and run the UA1 detector collaboration that claimed the signals. The 1984 Nobel was for that work, and hundreds of people were involved. The prize was not for a mad scientist holed up in his laboratory beneath the clock tower.

The book is now dated in its physics—the top quark and Higgs boson came later—but it remains a sharp early example of investigative science writing about how Nobel-level experimental particle physics is actually done: huge machines, large collaborations, and careers shaped as much by persuasion and competition as by data.

TRIVIA: Alfred Nobel, for whom the prizes are name, made his fortune from explosives patents and the companies that manufactured them. At his death in 1896 he had 355 patents and a large international industrial estate. That estate continues to fund the Nobel Prizes.

Almost Wordless Wednesday: Reds

Red is the heartbeat of the visible world.

"I want a red to be sonorous, to sound like a bell."
— Pierre-Auguste Renoir

"A thimbleful of red is more potent than a bucketful."
— Henri Matisse

"Red is the color of life. It's blood, passion, rage."
— Mary Hogan

 

Related Link:

Renegade Theater's RED Proves Worthy of John Logan's Masterful Play