Myths and Facts of the Great Depression

[k-onmmunist]

MYTHS AND FACTS OF THE GREAT DEPRESSION

Myth:
The ‘Roaring Twenties’ from 1921 onwards passed with no halt in growth

Fact:
Actually, the US economy was in recession officially from May 1923 to July 1924, and again from October 1926 to November 1927, the latter being partly from the aftermath of the bursting of the Florida land bubble. What’s more, the housing boom had already passed by 1928, and there were many early warning signs of the coming monetary storm.

If you measure growth by the stock market, the ‘boom’ becomes even more of a myth. The US stock market suffered major downturns in February, March and October 1926, June 1928 and March 1929.

The contractions passed, due to the lack of government interference in the market, and due to tax cuts which helped reinvigorate the market. It was with the election of Herbert Hoover that things began to fall apart.

It is also false to say everyone profited from the boom. Food prices fell consistently throughout the 1920s, and an agricultural recession lasted for much of the decade. Workers in older industries such as coal mining also did badly due to the emergence of oil and natural gas industries.

Myth:
The Great Depression began with the stock market crash

Fact:
Economic expansion continued after the end of the 1926-1927 contraction, up until August 1929, when the US economy began to recede, two months before the crash. By then, housing prices had already fallen since 1928, steel production had fallen since June 1929 and the Federal Reserve index of production had fallen from 126 in June to 117 in October.

Myth:
President Hoover believed in a laissez-faire approach to the economy

Fact:
In fact, Hoover was a staunch interventionist. When running for re-election in 1932, he summed up his term in these words:

We might have done nothing. That would have been utter ruin. Instead we met the situation with proposals to private business and to Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic. We put it into action.... No government in Washington has hitherto considered that it held so broad a responsibility for leadership in such times.... For the first time in the history of depression, dividends, profits, and the cost of living, have been reduced before wages have suffered.... They were maintained until the cost of living had decreased and the profits had practically vanished. They are now the highest real wages in the world.

Creating new jobs and giving to the whole system a new breath of life; nothing has ever been devised in our history which has done more for ... "the common run of men and women." Some of the reactionary economists urged that we should allow the liquidation to take its course until we had found bottom.... We determined that we would not follow the advice of the bitter-end liquidationists and see the whole body of debtors of the United States brought to bankruptcy and the savings of our people brought to destruction.

Hoover also signed the Smoot-Hawley Tariff Act, raising tariffs on foreign goods by 24.1% as well as one of the largest tax rises in history in 1932, with the Revenue Act of 1932, increasing income tax on the rich from 25% to 63%. Both these policies failed to end the Depression.

Hoover even begun the New Deal by signing into being the Reconstruction Finance Corporation (RFC). Yet, his Democrat opponents continued to slam him as ‘doing nothing’.

Myth:
Roosevelt believed fervently in Keynesian economics

Fact:
Roosevelt balked at the idea of heavy deficit spending, as John Keynes suggested to lift a country out of recession. This method had been attempted in Sweden and resulted in a complete recovery from the Depression by 1934. Roosevelt worried about excessive government borrowing, and at the first opportunity, cut government spending, resulting in a second recession in 1937-1938.

Myth:
The New Deal was necessary

Fact:
A far simpler way to fix the economy would have been to cut taxes AND spending, and allow for the market to fix itself and rid itself of the speculation which had built up during the 1920s, due to the inflationary boom. Attempts to hold up artificial levels of growth will always result in failure; it is as pointless as attempting to fight gravity.

Myth:
World War II ended the Great Depression

Fact:
While it is true that industry recovered during WWII, finance did not. The United States grew economically during the war, but the economy still suffered; the end of the war resulted in a post-war recession from February to October 1945, and further recessions occurred in 1948-1949 and 1953, by which point many New Deal programs were being brought to their end. The stock market also took time to recover. It was not until November 23rd 1954 that stocks finally surpassed their pre-crash peak of 381.17 on the Dow Jones Industrial Average.

------------------------------------------------------------------

The Great Depression remains, and will remain a major event in human history, a tragedy of modern times, for the end of an era of growth and non-regulation, to the modern interventionist economy, under which the current recession is being fought. Much can be learned from the lessons of the Great Depression. Whether those lessons are interpreted correctly remains open to debate.

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http://www.mackinac.org/article.aspx?ID=4013

You should put that in your post.

[Tetro Kornbluth]

Most of this - like all economics - is rubbishy speculation. We just don't know what have would happened if for example the New Deal did not take place. We can make reasonably educated guesses, but history does not operate to some machine like logic. Anyone who says otherwise is a fraud and a charalatan and should be ignored.

[Mechaman]

MYTHS AND FACTS OF THE GREAT DEPRESSION

Myth:
The ‘Roaring Twenties’ from 1921 onwards passed with no halt in growth

Fact:
Actually, the US economy was in recession officially from May 1923 to July 1924, and again from October 1926 to November 1927, the latter being partly from the aftermath of the bursting of the Florida land bubble. What’s more, the housing boom had already passed by 1928, and there were many early warning signs of the coming monetary storm.

If you measure growth by the stock market, the ‘boom’ becomes even more of a myth. The US stock market suffered major downturns in February, March and October 1926, June 1928 and March 1929.

The contractions passed, due to the lack of government interference in the market, and due to tax cuts which helped reinvigorate the market. It was with the election of Herbert Hoover that things began to fall apart.

It is also false to say everyone profited from the boom. Food prices fell consistently throughout the 1920s, and an agricultural recession lasted for much of the decade. Workers in older industries such as coal mining also did badly due to the emergence of oil and natural gas industries.

Myth:
The Great Depression began with the stock market crash

Fact:
Economic expansion continued after the end of the 1926-1927 contraction, up until August 1929, when the US economy began to recede, two months before the crash. By then, housing prices had already fallen since 1928, steel production had fallen since June 1929 and the Federal Reserve index of production had fallen from 126 in June to 117 in October.

Myth:
President Hoover believed in a laissez-faire approach to the economy

Fact:
In fact, Hoover was a staunch interventionist. When running for re-election in 1932, he summed up his term in these words:

We might have done nothing. That would have been utter ruin. Instead we met the situation with proposals to private business and to Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic. We put it into action.... No government in Washington has hitherto considered that it held so broad a responsibility for leadership in such times.... For the first time in the history of depression, dividends, profits, and the cost of living, have been reduced before wages have suffered.... They were maintained until the cost of living had decreased and the profits had practically vanished. They are now the highest real wages in the world.

Creating new jobs and giving to the whole system a new breath of life; nothing has ever been devised in our history which has done more for ... "the common run of men and women." Some of the reactionary economists urged that we should allow the liquidation to take its course until we had found bottom.... We determined that we would not follow the advice of the bitter-end liquidationists and see the whole body of debtors of the United States brought to bankruptcy and the savings of our people brought to destruction.

Hoover also signed the Smoot-Hawley Tariff Act, raising tariffs on foreign goods by 24.1% as well as one of the largest tax rises in history in 1932, with the Revenue Act of 1932, increasing income tax on the rich from 25% to 63%. Both these policies failed to end the Depression.

Hoover even begun the New Deal by signing into being the Reconstruction Finance Corporation (RFC). Yet, his Democrat opponents continued to slam him as ‘doing nothing’.

Myth:
Roosevelt believed fervently in Keynesian economics

Fact:
Roosevelt balked at the idea of heavy deficit spending, as John Keynes suggested to lift a country out of recession. This method had been attempted in Sweden and resulted in a complete recovery from the Depression by 1934. Roosevelt worried about excessive government borrowing, and at the first opportunity, cut government spending, resulting in a second recession in 1937-1938.

Myth:
The New Deal was necessary

Fact:
A far simpler way to fix the economy would have been to cut taxes AND spending, and allow for the market to fix itself and rid itself of the speculation which had built up during the 1920s, due to the inflationary boom. Attempts to hold up artificial levels of growth will always result in failure; it is as pointless as attempting to fight gravity.

Myth:
World War II ended the Great Depression

Fact:
While it is true that industry recovered during WWII, finance did not. The United States grew economically during the war, but the economy still suffered; the end of the war resulted in a post-war recession from February to October 1945, and further recessions occurred in 1948-1949 and 1953, by which point many New Deal programs were being brought to their end. The stock market also took time to recover. It was not until November 23rd 1954 that stocks finally surpassed their pre-crash peak of 381.17 on the Dow Jones Industrial Average.

------------------------------------------------------------------

The Great Depression remains, and will remain a major event in human history, a tragedy of modern times, for the end of an era of growth and non-regulation, to the modern interventionist economy, under which the current recession is being fought. Much can be learned from the lessons of the Great Depression. Whether those lessons are interpreted correctly remains open to debate.

It's about time somebody set the record straight on this.

[Beet]

The right wing has spent the past 50 years trying to revise the history of the Great Depression, beginning with Milton Friedman and his now discredited monetarist theories in the 1960s. Regardless of how stark the facts are, they will never accept them. This particular article is a mixture of some facts, some speculation (like what would have happened if we cut spending), some things that depend on definitions (like whether World War II 'exited' us from the Depression), and some revisionism.

One clear, undeniable fact is that the economy began to recover dramatically in March 1933, on every possible measure from production to consumption to employment, when the U.S. exited the gold standard and FDR began to pass the New Deal. Up to that point it had experienced continual decline, except for the stock market which bottomed in July 1932. Growth accelerated during World War II and continued after World War II.

At which particular time you choose to mark 'the real end of the Depression' is totally subjective. One could argue that the economy did not really recover form the Depression until 1968, because it was not until 1968 that daily volume on the NYSE broke its 1929 record.

Hoover's voluntarism was a failure, and his attempted claim to having action taken is belied by the fact that the magnitude of his actions were insufficient. For example, he consistently opposed unemployment insurance, even to the end. This caused a great deal of hardship and suffering and was a huge reason why he was seen as lassiez-faire.

The Federal government in 1929 was simply not large enough to have had a rescusitating effect on the economy, even if Hoover had been more aggressive than he was. It look years to build up the federal government to be a significant percentage of the overall economy. The RFC, for example, was not implemented until the summer of 1932, (after the failure of the typically Hooverian private National Credit Corporation) when it did begin to have a positive effect (the stock market bottomed in July of that year), but the publication of the names of institutions that received support from it undermined it.

[Tetro Kornbluth]

Most of this - like all economics - is rubbishy speculation. We just don't know what have would happened if for example the New Deal did not take place. We can make reasonably educated guesses, but history does not operate to some machine like logic. Anyone who says otherwise is a fraud and a charalatan and should be ignored.

This can not be repeated enough.

[Badger]

It's about time somebody set the record straight on this.

Beet did just below your post.

[Psychic Octopus]

Winston Disareli = Massive Freedom Fighter and Champion of the Right.