The Great Depression, Yesterday and Today

I was three years old when the stock market crashed in 1929. I am told my father speculated wildly in stocks in the 1920s. He lost. He also lost his membership in the Dayton Country Club, his career as heir to the family laundry business (which went bankrupt), and our house when he was forced into personal bankruptcy.

As a child I don’t remember suffering that much during the Great Depression. My father and mother no doubt did. They were both high school graduates but neither had any college. My grandfathers thought college was for eastern snobs.

After the Crash my father scrambled to find jobs—school bus sales, trucking company dispatcher, used-car sales, Elks Club secretary, General Motors buyer—you name it, he did it.  We had to move every year or so in a middle class neighborhood of Dayton, Ohio. Each house we chose had been foreclosed on, taken over by the bank, and was for sale. We never had money to buy. When someone else did we had to find another foreclosed one to rent.

I think my parents were Roosevelt Democrats but I am not sure since there was little talk of politics at our dinner table. Actually there was little adult talk at our dinner table since my father was seldom there. I did eavesdrop on many arguments about money behind closed doors.

We always had enough to eat, but little money left for vacations or luxuries. We had fun though—sports, riding our bikes, school outings, double-feature movies, listening to Bob Hope, Fibber McGee and Molly, or Joe Louis fights on the radio. In contrast to the usual horror stories of crushing poverty and terrible suffering, we probably were typical of the vast majority of middle class families during the Great Depression.

What, if anything, does this personal story have to do with today?

My hunch is that the vast majority of middle class families today are not suffering that much. There are exceptions I’m sure (there were more exceptions then) but for the most part the middle class today is pretty well off. The poor are also better off than the poor were at any previous time or place in human history.

Free-market capitalist economies have always had booms and busts. There have been 47 recessions or depressions since the country was founded. During the 19th and early 20th century the busts were brief (typically a year or two) and boom times were the norm. The twelve recessions since the Second World War have been shorter, measured in months rather than years (present one excepted). In each case (present one excepted) the recoveries have been rapid and have more than made up for losses during the busts.

In all of the 47 cases (Great Depression and the current recession excepted) the government’s role in recovery has been minimal. In other words, free-market economies do have busts, but like homeostatic systems they tend to right themselves given a fair chance. In the long run we all end up winners. Over the long period of my adult life, for instance, the economy has grown massively so that today just about everybody is better off than they were in 1945. This is so even though there are almost three times as many of us as there were in 1945.

The same story has been repeated in many other countries on all continents where free-market capitalism has been dominant. This is in sharp contrast to government-dominated authoritarian regimes of the left or of the right, which have brought economic misery and terrible brutality.

The 1920s were a time of exceptional economic growth. Automobiles, electricity and industrial growth changed the pace and quality of life everywhere in the United States. In the final decades of the 20th century computers, high-tech industries and the Internet changed the pace and quality of life everywhere in the world. The 1920s were, like today, a time of great inequality in income and wealth. Like today, however, the educated and the skilled grew steadily richer.

Many educated intellectuals in the 1920s and 1930s were sympathetic to command-economy solutions (socialist, fascist or communist). The muckraking journalist Lincoln Steffens, for instance, was a passionate supporter of “Fighting Bob” Lafollette in his attacks on corporate malfeasance. After a three-week visit to the Soviet Union Steffens wrote, “I have seen the future, and it works.”

Stuart Chase (the influential economist and engineer from MIT who coined the title “New Deal”) visited the new Soviet Union and greatly admired their “attempt to do away with wastes and frictions that do such dreadful damage in Western countries.” He wholeheartedly approved when he observed, “Sixteen men in Moscow today are attempting one of the most audacious economic experiments in history … they are laying down the industrial future of 146 million.”

Chase and Steffens were not alone. Many other intellectuals, professors, scientists, writers, artists, journalists, and high-level bureaucrats in the Roosevelt administration believed strongly that the command-economy of the Soviet Union was the future. Popular movements, like Upton Sinclair’s End Poverty in California (EPIC), Huey Long’s promise to share the wealth and make every man a King, and Francis Townsend’s Plan to give more money to the elderly in order to increase demand and consumption were eerily similar to today’s OWS protests, “soak the rich” taxes, and barter schemes.

FDR saw himself as a savior of our “democratic way of life” but, like many contemporary leftists, was a severe critic of the free market part. Roosevelt heaped scorn and blame on Coolidge, Hoover and the boom times of the 20s. So Obama heaps scorn and blame on Bush and the Republicans for our problems today.

Roosevelt, like Obama, was very likeable and a master communicator. His speech running for his second term in 1936 could be used as a template for the left today.

“We had to struggle with the old enemies of peace—business and financial monopoly, speculation, reckless banking, class antagonism, sectionalism, war profiteering. They had begun to consider the Government of the United States as a mere appendage to their own affairs. We know now that Government by organized money is just as dangerous as Government by organized mob. Never before in all our history have these forces been so united against one candidate as they stand today. They are unanimous in their hate for me—and I welcome their hatred.”

It worked. He won election in a landslide!

Today we seem mired in the same kind of slump (though not nearly as bad) we had in the 1930s. And our government is following a similar Keynesian “demand” theory in hopes of recovery. As in the 1930s it is not working very well. Keynesians today, like the popular Paul Krugman of the NY Times, disagree. They claim that FDR made solid progress in repairing the damage done by the previous decade of growth, greed and speculation. Unfortunately in his second term he tried to prematurely cut spending to balance the budget. This sent us into more depression, only to be rescued by the huge spending splurge in the Second World War.

Is that Keynesian argument valid though? I doubt it.

The 47 recessions and depressions in our past (with the two exceptions) did not use Keynesian spending to recover. The serious recession of 1920-21, for instance, took eighteen months of non-action by President Harding to bring an unemployment rate of 11.7% down to 2.4%. The solid progress of the New Deal took eight years to bring an unemployment rate of 21.5% down to 17.1%.

Roosevelt was an effective wartime leader. Social security proved to be popular and useful. His basic idea that we are rich enough now to provide a safety net for all our citizens makes sense. However, his opposition to free-market businesses, his hatred of what he saw as “organized money,” and his championing of command economy solutions like NRA were reactionary then and still are today.

Freedom works, command-economies not so much.

Bill Stonebarger, Owner/President Hawkhill

P.S. Out of 764,448 self-published titles (in 2009, probably over a million in 2011), 52 got full reviews last month in Publisher’s Weekly Select. The 52 included, Twilight or Dawn: A Traveller’s Guide to Liberal Free-Market Democracy by Bill Stonebarger. Give it a try.

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