How bad was the Great Depression? Over the four years from 1929 to 1933, production at the nation’s factories, mines and utilities fell by more than half. People’s real disposable incomes dropped 28 percent. Stock prices collapsed to one-tenth of their pre-crash height. The number of unemployed Americans rose from 1.6 million in 1929 to 12.8 million in 1933. One of every four workers was out of a job at the Depression’s nadir, and ugly rumors of revolt simmered for the first time since the Civil War.
The Great Depression was not the country’s first depression, though it proved to be the longest. Several others preceded it.
A common thread woven through all of those earlier debacles was disastrous intervention by government, often in the form of political mismanagement of the money and credit supply. None of these depressions, however, lasted more than four years and most of them were over in two. The calamity that began in 1929 lasted at least three times longer than any of the country’s previous depressions because the government compounded its initial errors with a series of additional and harmful interventions.
Though modern myth claims that the free market “self-destructed” in 1929, government policy was the debacle’s principal culprit. If this crash had been like previous ones, the hard times would have ended in two or three years at the most, and likely sooner than that. But unprecedented political bungling instead prolonged the misery for over 10 years.
Unemployment in 1930 averaged a mildly recessionary 8.9 percent, up from 3.2 percent in 1929. It shot up rapidly until peaking out at more than 25 percent in 1933. Until March 1933, these were the years of President Herbert Hoover — a man often depicted as a champion of noninterventionist, laissez-faire economics.
Did Hoover really subscribe to a “hands-off-the-economy,” free-market philosophy? His opponent in the 1932 election, Franklin Roosevelt, didn’t think so. During the campaign, Roosevelt blasted Hoover for spending and taxing too much, boosting the national debt, choking off trade, and putting millions on the dole. He accused the president of “reckless and extravagant” spending, of thinking “that we ought to center control of everything in Washington as rapidly as possible,” and of presiding over “the greatest spending administration in peacetime in all of history.” Roosevelt’s running mate, of socialism.”1 Contrary to the conventional view about Hoover, Roosevelt and Garner were absolutely right.
The platform of the Democratic Party, whose ticket Roosevelt headed, declared, “We believe that a party platform is a covenant with the people to be faithfully kept by the party entrusted with power.” It called for a 25 percent reduction in federal spending, a balanced federal budget, a sound gold currency “to be preserved at all hazards,” the removal of government from areas that belonged more appropriately to private enterprise and an end to the “extravagance” of Hoover’s farm programs.2 This is what candidate Roosevelt promised, but it bears no resemblance to what President Roosevelt actually delivered.
Roosevelt did indeed make a difference, though probably not the sort of difference for which the country had hoped. He started of on the wrong foot when, in his inaugural address, he blamed the Depression on “unscrupulous money changers.” He said nothing about the role of the Fed’s mismanagement and little about the follies of Congress that had contributed to the problem.
Crisis gripped the banking system when the new president assumed office on March 4, 1933. Roosevelt’s action to close the banks and declare a nationwide “banking holiday” on March 6 (which did not completely end until nine days later) is still hailed as a decisive and necessary action by Roosevelt apologists.3
The Smoot-Hawley tariff and the Fed’s unconscionable monetary mischief were primary culprits in producing the conditions that gave Roosevelt his excuse to temporarily deprive depositors of their money, and the bank holiday did nothing to alter those fundamentals. “More than 5,000 banks still in operation when the holiday was declared did not reopen their doors when it ended, and of these, over 2,000 never did thereafter,” report Friedman and Schwartz.
One morning, as Roosevelt ate eggs in bed, he and Secretary of the Treasury Henry Morgenthau decided to change the ratio between gold and paper dollars. After weighing his options, Roosevelt settled on a 21 cent price hike because “it’s a lucky number.” 4
The minimum wage law prices many of the inexperienced, the young, the unskilled and the disadvantaged out of the labor market. (For example, the minimum wage provisions passed as part of another act in 1933 threw an estimated 500,000 Current blacks out of work).
Roosevelt secured passage of the Agricultural Adjustment Act, which levied a new tax on agricultural processors and used the revenue to supervise the wholesale destruction of valuable crops and cattle. Secretary of Agriculture Henry Wallace personally gave the order to slaughter 6 million baby pigs before they grew to full size. The administration also paid farmers for the first time for not working at all.
From the White House on the heels of the Wagner Act came a thunderous barrage of insults against business. Businessmen, Roosevelt fumed, were obstacles on the road to recovery. He blasted them as “economic royalists” and said that businessmen as a class were “stupid.”5 He followed up the insults with a rash of new punitive measures. New strictures on the stock market were imposed. A tax on corporate retained earnings, called the “undistributed profits tax,” was levied. “these soak-the rich efforts,” writes economist Robert Higgs, “left little doubt that the president and his administration intended to push through Congress everything they could to extract wealth from the high-income earners responsible for making the bulk of the nation’s decisions about private investment.”
During a period of barely two months during late 1937, the market for steel — a key economic barometer — plummeted from 83 percent of capacity to 35 percent. When that news emblazoned headlines, Roosevelt took an ill-timed nine-day fishing trip. The New York Herald Tribune implored him to get back to work to stem the tide of the renewed Depression. What was needed, said the newspaper’s editors, was a reversal of the Roosevelt policy “of bitterness and hate, of setting class against class and punishing all who disagreed with him.” 6
The genesis of the Great Depression lay in the irresponsible monetary and fiscal policies of the U. S. government in the late 1920s and early 1930s. These policies included a litany of political missteps: central bank mismanagement, trade-crushing tariffs, incentive-sapping taxes, mind-numbing controls on production and competition, senseless destruction of crops and cattle and coercive labor laws, to recount just a few. It was not the free market that produced 12 years of agony; rather, it was political bungling on a grand scale.
Source: Great Myths of the Great Depression (1981) by Lawrence W. Reed.
The notes below are my own comments.
1 See, espousing conservative themes really do work even if you don’t mean them. Evidently, FDR and his running mate never had RINO republicans advising them.
2 More faking to the right. Then again FDR lied about getting America into WWII. But that’s another story for another time…
3 Does this scenario sound familiar? Think: Cyprus. And the so-called “experts” say this could not happen in America. It did already. When leaders don’t trust the free-market system will resolve its issues in its own time this over-reaction happens. Then again these kind of interventionist actions happen when leaders don’t trust the population over all.
4 I wonder if this how the minimum wage amount is created. Something to think about.
5 Obama anyone? Just like Obama FDR never had any businessmen as his advisors. Go figure.
6 Obama again.
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