Ghastly Victories: The United States in the World Wars
A TL by RamscoopRaider
Part IV: Dark Depression
Wherever there is excess, an Axe remedies it-Sumerian Proverb, 3rd Millennium BC
Accursed thirst for Gold! What dost thou not compel mortals to do?-Virgil, the Aeneid
The illustration that solves one difficulty by raising another settles nothing- Horace, Satires, II.3.103
Idle Hands are the Devils Workshop-Proverb derived from St. Jerome
It is necessity and not pleasure that compels us-Dante Alighieri, the Inferno
Nothing has more strength than dire necessity-Euripedes, Helen
Necessity Dominates Inclination, Will and Right-Napoleon Bonaparte
…The Great Depression arguably began on April 1st 1929 with Black Monday. No exact trigger has been found, though a common belief is that numerous investors were liquidating stock to pay for taxes that were due in two weeks. Whatever happened there was heavy trading in the early part of the day that saw the market drop 9% at the opening bell, and overwhelmed stock tickers across the country, blinding those outside Wall Street to the true price of stocks.
A coalition of bankers attempted to stem the panic with a major infusion of cash purchasing blue chip stocks in mass. This worked and on average the market only fell 1% on April first as measured by the Dow Jones Average. However the next day something similar happened and there was not a coalition of major investors willing to try to bail out the market, leading to mass liquidation of stocks as investors facing margin calls sold to balance their accounts. This saw the market drop 10% on the 2nd.
By the 3rd people were selling in mass, and those facing margin calls were being increasing wiped out as the prices fell too low to pay back the money borrowed. Despite an effort by the Rockefellers and other hyper rich to rescue the market, the Dow fell 11% on the 3rd. Thing rebounded slightly on the Fourth, but then fell even more on the fifth, leaving the Dow down 25% since the opening bell on the 1st. This was the start of a long low slide that on May 9th 1932 saw the Dow down 81% compared to its April 1st opening. Recovery would only begin in earnest in December 1932 and only reach its pre-crash value in the late 50’s.
The stock market crash itself did not directly cause the Great Depression. What caused it was the crash wiping out billions of dollars of bank reserves when investors could not pay back the loans they used to buy stocks. This caused a severe contraction in the supply of money. This was made much worse by the Federal Reserve having shifted in 1928 from a policy of price stability to one of Real Bills only, which led the Fed to only lend to banks which could offer commercial paper backed by in process inventory, and the 1929 policy of requiring bankers wishing for loans to submit to interrogation that they never offered speculative loans for stock purchases. As a result banks either could not or would not borrow money from the Federal Reserve, which often meant they did not possess the reserves to cover withdrawals, especially given the increased demands for such withdrawals. As a result banks failed en masse, roughly 7500 over the next four years, shrinking the money supply further.
The bank failures had knock on effects. Even as Banks curtailed their new lending to maintain reserves against withdrawals, they also called back existing loans, further shrinking the money supply. All of these factors led to a massive credit crunch as banks had very little money to lend. This is what hurt the real economy, as businesses who needed to borrow money in the normal course of their business found that they could not do so. This led to business failures and layoffs, which reduced demand, leading to further business failures and layoffs in a cycle that resulted in slightly over 20% unemployment by the beginning of 1933…
…The Black Monday Stock Market crash spread into the overseas financial markets almost instantly. Panic selling started almost as soon as word of Wall Streets misfortune reached the international markets, with only Tokyo avoiding a major crash. While the misfortunes of the international stock markets were largely lesser than those of Wall Street, they were still significant. What was perhaps more significant was a cessation in the flow of American capital. Since WWI the United States had become the primary, if not only, major source of international lending capital. With the credit crunch at home American financial institution were no longer lending abroad. This saw much of the rest of the world enter the same feedback loop as the United States, with ever increasing unemployment as business failures due to lack of credit spiraled out of control…
…One of the factors that truly made the Great Depression great was part of the American response. Namely to protect employment in manufacturing and agriculture the US passed the enormously restrictive Hawley-Smoot Tariff in 1930, which made importing almost anything into the United States both expensive and difficult. Other countries attempted to do the same thing with tariffs of their own and international trade plummeted, making an already bad situation even worse…
-Excerpt from Unfinished Business: The Making of the Second World War, New American Press, Chicago, 2007
…The reaction of President Curtis to the Great Depression in often mischaracterized, with Curtis portrayed as a heartless do nothing willing to let people starve. Those who know more generally blame him for raising taxes to allow a balanced budget and not vetoing the Hawley-Smoot Tariff, which has a far better claim to the moniker of Tariff of Abominations that the 1828 one.
Curtis however was merely acting on the advice of his cabinet members and then accepted economic theory. Raising taxes, maintaining a balanced budget and placing a protective tariff up was right out of the dominant American School of economics that was the orthodoxy of the day. The primary alternative advice Curtis got from his advisors early in the crisis was to let things be completely and do nothing, saying that intervening would only make things worse. Recovery would come on its own and anything they did would merely make things worse.
Curtis being a lawyer rather than an economist, listened to his advisers. While he got advice from economists to veto the Hawley-Smoot Tariff, he also received advice from those with agricultural interests that the agricultural component of the tariff was necessary to make sure the $100 million a year agricultural relief package he signed and supported was not in vain. That the agricultural tariffs came bundled with other tariffs was a reality of getting them through the senate and Curtis thought it a needed compromise.
It is to Curtis’s credit that he eventually recognized that he was receiving bad advice and turned to better advisers…
-Excerpt from Why did they do THAT!?! Historical Madness in Context: Volume III, Harper & Brothers, New York, 2015
…While public perception and pop history places the beginning of the great depression at April 1st 1929, there are arguments that can be made that the depression began even earlier. The Stock Market Crash of April 1st 1929 while portrayed as the single defining cause of the Depression is arguably not.
Sales of automobiles and other major manufactured goods had fallen in the first quarter of 1929 relative to the same time in 1928. Profits had similarly peaked in 1928 compared to 1929. Bank failures were already occurring at a rate of 1 per day or greater even before the Stock Market crash. These and other indicators show that the economic decline began before the Stock Market crash and that a significant part of the depression cannot be laid on the Stock Market Crash itself…
-Excerpt from Revisionist Viewpoints in History Volume X, University of California Press: Berkley, 2000
