The Great Depression

The American Republic we have described existed for 144 years. In the 22 years since 1933 it has been subjected to a profound change, accomplished without any change in the actual words of the Constitution. It has been done by a sheer usurpation of power by the federal government. This could not, of course, have been brought about without certain favoring circumstances. The chief influence was what has come to be known as the Great Depression of 1929.

Our system is geared to be a society for free men. It is not a machine that can be operated by pulling levers from a central control tower. It is composed of moving parts—human beings—each operating on its own power and with its own steering gear. It cannot be supposed that this vast nation of free men will move mechanically around a common orbit without encountering occasional interruptions. The socialist supposes that this immense aggregation of human beings can be made to function with the highest efficiency if all men will surrender themselves to the direction of an all-wise and all-powerful central State ordered and steered by the all-wise and benevolent men who control it.

The causes of depressions in a free society are not far to seek. This economic society is a collection of producing and distributing operations involving raw materials moving from mines and farms and from across seas through a multitudinous succession of processes into the shops of merchants and thence to the homes of consumers. All these agencies are directed by free men. All mixed up in this complex succession of activities at every turn are investors, workers, producers, merchants and consumers endowed with differing tastes and abilities, and with freedom of choice. Does any rational mind suppose that such a system will move around in a smooth orbit, without occasional jerks and interruptions arising from the frailties of men and the limitations of machines? There is another force called Progress, continuously discarding old materials and processes for new and more dynamic ones.
The inevitable consequence of these influences must be an occasional slowing down here and there. These pauses will be ordinarily local in area—little depressions here and there, confined to some industry or locality. It may happen at certain times that these individual depressions will assault some larger area of the economic system, when the resulting inertia will be far more serious. And it can also happen that at longer intervals a concurrence of individual and local depressions, arising out of the greed or folly or just plain ignorance of enterprisers may spread its evil effects over a whole nation.
Of course we must recognize that the chief causes of serious depressions are booms, which are created by enormous and unhealthy expansion of credit, particularly bank credit. The depression is the headache after the spree. The depression of 1929 was due to several causes which ordinarily would have forced business into a moderate decline. But the extraordinary energy of the boom of 1923 to 1929 was created chiefly by a wild orgy of speculation of every sort, superimposed on a group of more or less normal activities—and ending in a disorderly crash. Here are the factors which were responsible for the boom:
(1) Making up the grave shortages in peacetime goods after World War I. (2) A building boom on credit following the cessation of building during the war. (3) The automobile boom—new models following each other in dizzy succession and sold on credit. (4) Wide and epochal changes in our habits, brought about by the automobile, such as immense road building on bond issues, and new communities in the suburbs along with the building of community necessities—all on mortgage money. (5) The erection of some 26,000 moving picture theatres on credit, to accommodate the rising movie industry. (6) With this went a wild expansion of installment credit on everything—autos, furniture, new radio sets, even clothes. (7) Devastated Europe added to the orgy through buying here of all sorts of raw materials, mostly on credit.

There were two other very serious sources of the boom. One was a wild witches’ dance of security speculation on credit. The other was the unhealthy development of new and dangerous experiments in banking, largely through what was called “holding company” and “affiliate” banking. The ownership of almost every kind of industry was being converted into stocks and bonds, listed on exchanges and distributed in bold selling drives to millions of new and uninformed investors and speculators. A theory got around that we were in a New Era—some sort of new-fangled world of endless plenty, no longer subject to the laws of arithmetic and gravity. It had its philosophers and prophets just as did the New Deal which succeeded it. Farmers, clerks, school teachers who had never seen a stock certificate, swarmed into the big and little stock markets all over the country. Banks, corporation treasuries, foreign fiscal agents emptied their cash balances into these blazing infernos of speculation on margin loans, thus pumping more oil on the flames. The most explosive element in this situation was the blow delivered our banking system through the use of the newly popular bank affiliate, by which a bank could create a kind of satellite corporation through which it could engage in all those dangerous and dizzy adventures forbidden by law to the bank directly.

Thus our economic system was plunging forward on a raging sea of debt resting on a thin foundation of cash and a towering structure of credit, stocks floating around the exchanges in a hurricane of paper, while turbulent streams of income poured through all the shops on Main Street.

A new school of economists told us that the bleak old world had at last floated out upon a warm and  happy sea called the New Era. Then, on October 29, 1929, the stock market crashed in Wall Street and the Great Depression was on. I can speak with some frankness about it because I attempted at the time, against the advice of unwilling editors, to call attention to this dizzy boom and its inevitable end.
I do not minimize the severity of the depression which followed. Essentially it was an ordinary recession blown into disastrous dimensions by the immensity of the indefensible boom which preceded it. It must be said, in all honesty, that this depression would have run its course perhaps in a year or two were it not for some unfortunate contributing factors. One was the economic crack-up of Europe which preceded our own. The other was the weakness of so many banks because of their bad banking practices. Still another was the magnificent opportunity it gave the Democratic politicians who had been roaming the wilderness since 1920. They went to work with the zeal of crusaders to heap coals upon the depression fires by keeping the alarm bells sounding and whistles blowing over the rising crisis. One dark aspect was that Franklin D. Roosevelt, in 1933 as he took over from Mr. Hoover, had no plans whatever for dealing with the crisis. He appeared as a Saint George in shining armor with his sword uplifted to slay the Dragon Depression—a subject about which he was totally ignorant.
The psychological effect of this depression cannot be overstated. It had something of the appearance of that long-predicted capitalist catastrophe dear to the socialist creed. The frustration of business was almost complete. And into Washington poured evangelists of every known revolutionary philosophy, including some new ones.

It is not necessary to review here Mr. Roosevelt’s first term. It was certainly not animated by any coherent economic philosophy. Socialists, communists, fascists and just plain crackpots poured into Washington in 1933, and each got a little something. Mr. Roosevelt himself staked his hopes on two plans. One was spending money. The other was the NRA—the National Recovery Administration—which was in no sense socialistic. It was almost pure fascism. It organized industry under federal auspices—in total defiance of the Constitution—into great guilds or syndicates, in which employers and employees joined in legislating for each organized industry. Uninformed critics called it socialism. It was a crude form of syndicalism. But in the end it blew up in a disorderly explosion of futility without any help from anybody. The Supreme Court unanimously declared it unconstitutional, to the relief of Roosevelt and his advisers and almost everyone else.

The other plan of the first New Deal was to spend money—both tax money and borrowed money. The federal government spent in Roosevelt’s first term 25 billion dollars compared with Hoover’s expenditures of 14 billions which Roosevelt had denounced. Roosevelt collected only half of his spendings in taxes.

It would not be true to credit the communists or the orthodox socialists with any important part in the confused circus known as the first New Deal. But as the President’s first term moved to an end, various radical groups began to get their bearings. The collapse of the NRA—which they heartily despised, correctly branding it as fascistic—played into their hands. It left Roosevelt in a vacuum without any clear policy.

However, there was present in Washington the pink penumbra of the socialist philosophy—politically angry and frustrated reformers, displaced and poorly paid teachers from schools and universities who were disposed to question the eternal fitness of private enterprise, most of them because they resented the low salary scales on which they existed. And there was that swarm of professional and journalistic critics of capitalism of the smart-alec variety who embraced no other philosophy but poured out their scorn on the “bloated bondholder,” the “trust magnate,”the Wall Street speculator and the crooked politician—all of whom were dramatized, with some justice, in the press as the villains of the depression.

On the outer rim of the aroused proletarians and their bourgeois apostles there was a whole menagerie of new and fantastic preachers of strange cults of every sort. These were neither socialists nor communists. There was Dr. Townsend and his $200 a month for all over 60, Upton Sinclair and his EPIC plan, Sheridan Downey with his Ham and Eggs Every Thursday—who got elected to the Senate in California—Huey Long with his “Every Man a King,”Howard Scott and his cult of Technocracy, and many others. All these apostles of change were doing the work of the real socialist revolutionaries, who realized that these wacky groups were promoting a definitive renunciation of capitalism and hastening the arrival of the capitalist catastrophe, which was a necessary prelude to the coming socialist revolution.

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