In doing so, Murphy was furthering a line of thought developed by Murray Rothbard in his seminal America's Great Depression. While recently working through a section of Rothbard's discussion of the Great Depression in his A History of Money and Banking in the United States, I was struck that not only was Hoover not a laissez-faire liquidationist; he was a pre-Keynes Keynesian. Note the following excerpts from page 271-73 of Rothbard's History:
Like Keynes, Hoover thought that only investment in physical production was economically sound, while investment in financial instruments such as stocks and bonds were wasteful (Keynes would view them as leakages).
Hoover suffered from the fallacious view that industrial credit was productive and “legitimate” while financial, stock market credit was “unproductive.” Moreover, he believed that valuable capital funds somehow got lost, or “absorbed,” in the stock market and therefore became lost to productive credit. . .
For a decade, Herbert Hoover had urged that the United States break its age-old policy of not intervening in cyclical recessions. During the postwar 1920–1921 recession, Hoover, as secretary of commerce, had unsuccessfully urged President Harding to intervene massively in the recession, to “do something” to cure the depression, in particular to expand credit and to engage in a massive public-works program. Although the United States got out of the recession on its own, without massive intervention, Hoover vowed that next time it would be different. In late 1928, after he was elected president, Hoover presented a public works scheme, the “Hoover Plan” for “permanent prosperity,” for a pact to “outlaw depression,” to the Conference of Governors. Hoover had adopted the scheme of the well-known inflationists Foster and Catchings, for a mammoth $3 billion public-works plan to “stabilize” business cycles. . .
When the stock market crash came in October 1929, therefore, President Hoover was ready for massive intervention to attempt to raise wage rates, expand credit, and embark on public works. Hoover himself recalls that he was the very first president to consider himself responsible for economic prosperity: “therefore, we had to pioneer a new field.” Hoover’s admiring biographers correctly state that “President Hoover was the first president in our history to offer federal leadership in mobilizing the economic resources of the people.” Hoover recalls it was a “program unparalleled in the history of depressions.”
Again like Keynes, Hoover advocated credit expansion and public works programs to ameliorate recessions. It makes one ask, from Krugman's perspective, what's not to like?