Over the past several weeks, several 'myths' surrounding the Great Depression have been debunked. These myths are;
- The Fed caused the Great Depression by being too passive. Instead, the Fed, along with the Bank of England actively manipulated credit markets to benefit the British pound (1)
- Public spending is a great salve and helps an ailing economy heal. Instead, it was the huge overhang from all the unproductive war debt that greatly increased economic imbalances throughout the 1920s. (2)
- The Fed snuffed out a nascent recovery in 1937 (the Ray Dalio thesis). Instead, it was shown the Fed didn't raise rates at all in 1937 and the banking system was awash in excess reserves. (3)
- The New Deal worked and returned the economy to health. Instead, it was shown the economy suffered a more violent collapse in 1937 than it did in 1929, and the New Deal parties lost almost as many seats in 1938 as the Republicans had in 1932. (4)
- FDR's platform called for a radical overhaul of the US economy and the government's role in it. Instead, it was shown that FDR excoriated Hoover for Hoover's radical and unprecedented intervention in the economy, the huge increase in government spending in particular. (5)
Of all the myths surrounding the Great Depression, the most enduring is likely the one that holds President Hoover was a lassiez-faire capitalist who did nothing while the economy collapsed and relied on the economy to heal itself. That this myth is the most enduring should surprise no one because of the two consequences of this myth. First, it undermines the notion of free market capitalism and a federal government bound by its clearly defined constitutional limits. Second, it justifies a constantly bigger and more powerful central government and central bank. After 90-years of incrementalism, both the federal government and the Federal Reserve are both leviathans that even their most ardent Depression-era backers never could have envisioned.
Because of its importance to the contemporary justification for the enormous federal (and state) governments today as well as an all-powerful Fed, a brief review of just some of the actions Hoover took - all in direct contrast to laissez-faire capitalsim - will be reviewed. As a preface to this, it is good to review the speech FDR gave just before the 1932 election that was discussed in last week's blog post. Here are some excerpts from this speech (6);
- "In the first place, what used to be analogous to an old-fashioned account book that all the family could understand has become in Washington a maze of intricate double-entry bookkeeping which only a few highly trained technical expert accountants could possibly understand." (page 4)
- "For over two years, my friends, our Federal Government has experienced unprecedented deficits in spite of increased taxes." (page 5)
- "...That means my friends that it (the cost of government) has risen from 14% to 33-1/3% of our national income...Can we stand that? I don't believe it." (Applause, loud cheering) (page 6)
- "...And when you do this (account for interest on the national debt) you find that the expenditure for the business of government in 1927 was $2,187,000,000 and in 1931 $3,168,000,000. That my friends....is the most reckless and extravagant past that I have been able to discover in the statistical record of any peacetime history of government in any part of the world." (page 9)
As this speech makes clear, FDR clearly saw the radical nature of the Hoover presidency. What exactly was it about the Hoover presidency that made it so radical? Instead of digging up some dusty tome, we can simply take Hoover at his own words, specifically a speech from October 1930;
"At that time (October 1929) I determined that it was my duty, even without precedent, to call upon the business of this country for cooperation and coordinated and constructive action to resist the forces of disintegration. The business community, the bankers, labor, and the government have cooperated in wider spread of measures of mitigation than have ever been attempted before. Our bankers and the reserve system have carried the country through the credit storm without impairment. Our leading business concerns have sustained wages, have distributed employment, have expedited heavy construction. The government has expanded public works, assisted in credit to agriculture and restricted immigration. The measures have maintained a higher degree of consumption than would otherwise have been the case. They have thus prevented a large measure of unemployment." (7)
What follows below is merely a list of some of the actions that Hoover took that were not only 'unprecedented' but completely at odds with the notion of Hoover as a laissez-faire capitalist.
- Conference to Maintain Wages, subsequently endorsed by the AFL (DEC 1929)
- Establishes the Grain Stabilization Corporation, (GSC) a cartel to fix grain prices (FEB 1930, #18)
- The 'crowning folly' of the Depression era, the Smoot-Hawley Tariff (JUN 1930, #19)
- Massive Public Works package passed, includes what will become Hoover Dam (JUL 1930)
- GSC purchases hundreds of millions of wheat bushels to keep prices high (NOV 1930) (eventually all the bushels the government purchased are dumped on foreign markets and wheat prices plummet)
- Employment Stabilization Act - a huge public works package to (supposedly) create jobs (FEB 1931)
- The Revenue Act of 1932, the largest tax increase in US history (JUN 1932, #25)
George Orwell correctly said, "whoever controls the past, controls the future and whoever controls the present controls the past." This completely correct insight completely explains how so many easily debunked myths around the Great Depression have emerged and endure. Of all these myths, the one most important to all that is going on today and the one most easily debunked, is the one that claims Hoover was a laissez-faire capitalist.
I will be taking the next two weeks off. While there won't be any new blog posts, I will remain active on Twitter. Until then, best wishes for a Merry Christmas, a Happy Hannukkah and a Happy 2020.
Sugar Land, TX
December 22, 2019
PS - As always, if you like what you read, please register with the site. It just takes an e-mail address and I don't share this e-mail address with anyone. The more people who register with the site, the better case I can make to a publisher to press on with publishing my book. Registering with the site will give you access to the entire Confederacy of Dunces list as well as the financial crisis timeline.
Help spread the word to anyone you know who might be interested in the site or my Twitter account. I can be found on Twitter @The92ers
6. Address of Governor Franklin D. Roosevelt, Forbes Field, Pittsburgh, Pennsylvania, October 19, 1932 https://www.fdrlibrary.org/documents/356632/390886/smCampaign_10-19-1932.pdf/eda3f690-4176-4d1f-8fbf-7b432964f34f
7. Herbert Hoover, 'Speech to the American Bankers Association, October 02, 1930 https://millercenter.org/the-presidency/presidential-speeches/october-2-1930-address-american-bankers-association