WEBVTT NOTE Authors Forum: A Primer on the Great Depression 1 00:00:00.000 --> 00:00:17.000 Thank you, ladies and gentlemen. I am thrilled to be here for a lot of reasons, and one is that I was privileged to have the opportunity a moment ago to tell Tom Woods, in person, that his book, Meltdown, was the first that I bought and read on my new Kindle 2. 2 00:00:17.000 --> 00:00:27.000 It was fantastic. And the other reason is it gave me an opportunity to reminisce with my old friend Jeff Tucker about things that we did 20-some years ago. 3 00:00:27.000 --> 00:00:44.000 I think I was the first person that Jeff Tucker was ever arrested with in 1986 in Managua, Nicaragua. 4 00:00:44.000 --> 00:00:48.000 We were briefly detained, arrested, our film confiscated. 5 00:00:48.000 --> 00:00:55.000 For all I know, he's been arrested many times since, but I was the first person to be arrested with him. 6 00:00:55.000 --> 00:01:01.000 I'm probably the only person here today who is promoting not a book, but rather a pamphlet. 7 00:01:01.000 --> 00:01:08.000 And in fact, I'm not sure exactly where it is, but we shipped enough, I think, to give to everybody. 8 00:01:08.000 --> 00:01:12.000 I hope I'm not incorrect about that. At most, it may be a dollar. 9 00:01:12.000 --> 00:01:20.000 So if any of you want to file an anti-dumping lawsuit against me, we are, if not giving it away, at least selling it below cost. 10 00:01:20.000 --> 00:01:25.000 or you can go online at fee.org and find Great Myths of the Great Depression 11 00:01:25.000 --> 00:01:29.000 that's actually the title of it and see it there and buy it for a dollar 12 00:01:29.000 --> 00:01:33.000 and even if you only want to read a few pages you have to buy the whole thing 13 00:01:33.000 --> 00:01:37.000 so I suppose you could file an anti-bundling lawsuit against me too 14 00:01:37.000 --> 00:01:42.000 but the purpose of that little essay now in its I think seventh or eighth edition 15 00:01:42.000 --> 00:01:46.000 is not really to reveal startling new original insights 16 00:01:46.000 --> 00:01:54.720 to convey to a broad lay public what I think are the real explanations of the Great Depression. 17 00:01:54.720 --> 00:01:59.520 To counter the conventional view that what happened in 1929 and persisted through the 18 00:01:59.520 --> 00:02:03.080 thirties was somehow the failure of laissez-faire. 19 00:02:03.080 --> 00:02:07.480 I felt for a long time that there are a lot of great scholarship, a lot of great books 20 00:02:07.480 --> 00:02:12.100 out there that need to be more widely disseminated, but there also needed to be something short 21 00:02:12.100 --> 00:02:18.500 and Sweet that a person from the broad lay public could connect with and understand the 22 00:02:18.500 --> 00:02:20.980 true origins of this crisis. 23 00:02:20.980 --> 00:02:25.860 It's especially important right now in light of what we're going through and so many allusions 24 00:02:25.860 --> 00:02:28.960 to the 1930s being made these days. 25 00:02:28.960 --> 00:02:33.700 So I'll summarize at least 12 years of our history into the next roughly 12 minutes by 26 00:02:33.700 --> 00:02:40.460 saying that the Great Depression is best understood not as one big giant lump of an event but 27 00:02:40.460 --> 00:02:44.540 rather as an event that has some distinct phases. 28 00:02:44.540 --> 00:02:49.900 And my former professor at Grove City College, Dr. Hans Senholtz, used to talk about the 29 00:02:49.900 --> 00:02:54.780 four phases of the Great Depression, but the first one being the financial or the monetary 30 00:02:54.780 --> 00:02:56.220 phase. 31 00:02:56.220 --> 00:03:01.940 This is what explains why it began, began first in fact as a recession. 32 00:03:01.940 --> 00:03:07.860 It's the later elements, the later phases that explain why a recession became much worse 33 00:03:07.860 --> 00:03:10.380 and persisted for as long as it did. 34 00:03:10.380 --> 00:03:40.380 The financial or monetary phase explains that the crisis had its roots in improvident monetary policy of the 1920s, from the newly minted 35 00:03:40.380 --> 00:03:45.580 Federal Reserve System that had been created just a few years before. 36 00:03:45.580 --> 00:03:51.660 I can hardly think of another federal agency that has more fully failed at least its public 37 00:03:51.660 --> 00:03:55.380 mandate or mandates over the years than the Fed. 38 00:03:55.380 --> 00:03:59.120 When you think of the things that we were told over the years that this agency would 39 00:03:59.120 --> 00:04:05.240 do for us, they include such things as providing just the right amount of currency, ironing 40 00:04:05.240 --> 00:04:22.240 nd yet in the years since we've had one Great Depression, at least a dozen recessions, now we have a dollar that's worth about a nickel of what it was worth when the Fed first started, that screams manifest failure to me. 41 00:04:22.240 --> 00:04:28.240 And you see this in the policies that preceded the Depression and were coincident with it. 42 00:04:28.240 --> 00:04:42.240 You see it in what Murray Rothbard thoroughly documented as a very substantial, by some measure, 66% roughly, expansion of money and credit from 1924 to late 28, early 29, 43 00:04:42.240 --> 00:04:49.240 followed by a contraction of the money supply that the Fed presided over and helped to engineer by some one-third. 44 00:04:49.240 --> 00:04:55.040 So I like to tell audiences, if you're ever wondering about why the economy seems to go through this rollercoaster, 45 00:04:55.040 --> 00:05:00.840 take a look at what they're doing with the money and credit supply. It too looks like a rollercoaster. 46 00:05:00.840 --> 00:05:10.640 You can't have a 66% expansion of the money supply and then a 33% contraction and expect a flat economy or good outcomes. 47 00:05:10.640 --> 00:05:17.040 And those who argue that the deflation was the proper prescription to remedy the ills of the inflation, 48 00:05:17.040 --> 00:05:22.040 Remember Dr. Senholtz saying, well that's a little like running over a man with a truck 49 00:05:22.040 --> 00:05:27.040 and then deciding that the way to help him out is to put it in reverse and back up over it. 50 00:05:27.040 --> 00:05:32.040 That explains 1924 to the late 1930s. 51 00:05:32.040 --> 00:05:40.040 Some people mistakenly look at October 24, 1929 and say, well that's what caused the depression, Black Thursday, the collapse of the stock market. 52 00:05:40.040 --> 00:05:46.040 But they're looking at a mere symptom. The market had already turned around and peaked out in August. 53 00:05:46.040 --> 00:05:51.400 in August. We had many bad days by late October, and that's in great measure because the smarter 54 00:05:51.400 --> 00:05:56.480 folks who look at things like monetary policy and trade flows and what Congress is doing 55 00:05:56.480 --> 00:06:01.500 and what have you, they saw that the Fed had changed its policy dramatically, were jacking 56 00:06:01.500 --> 00:06:06.080 up interest rates, contracting the money supply, and the pressure of their selling causes the 57 00:06:06.080 --> 00:06:11.600 market to begin to turn down. It's not until the masses of people stampede and see the 58 00:06:11.600 --> 00:06:14.180 and the handwriting on the wall that you have to crash. 59 00:06:14.180 --> 00:06:18.120 It's explained best by the rollercoaster monetary policy. 60 00:06:18.120 --> 00:06:21.880 If nothing else had happened, 1930 might have been a year of recovery, 61 00:06:21.880 --> 00:06:23.640 might have been a year of mere recession. 62 00:06:23.640 --> 00:06:28.520 In fact, in the spring of 30, unemployment was only about where it is today, 63 00:06:28.520 --> 00:06:30.920 8% or so, not yet a depression. 64 00:06:30.920 --> 00:06:35.880 The stock market had regained half the ground that it had lost since the big crash. 65 00:06:35.880 --> 00:06:40.360 But something else happened to take a bad situation and make it far worse. 66 00:06:40.360 --> 00:06:47.360 and that is the second phase of the depression we call the disintegration of the world economy. 67 00:06:47.360 --> 00:06:54.360 The passage of the Smoot-Hawley Tariff in June of 1930 that raised tariffs to an all-time high and virtually closed the borders. 68 00:06:54.360 --> 00:07:01.360 Even if foreigners hadn't responded by raising their barriers by retaliation, which you must expect, 69 00:07:01.360 --> 00:07:08.360 even if they hadn't, this would have been crushing to world trade because you cannot close the door to imports 70 00:07:08.360 --> 00:07:12.360 without, sooner or later, closing the door to exports. 71 00:07:12.360 --> 00:07:15.360 And American export industries were crushed, 72 00:07:15.360 --> 00:07:19.360 particularly agriculture, because if forerunners can't sell here, 73 00:07:19.360 --> 00:07:22.360 how can they earn the dollars that they need to buy here? 74 00:07:22.360 --> 00:07:24.360 Thousands walked off American farms, 75 00:07:24.360 --> 00:07:29.360 which had a very negative spiraling downward effect on rural banks. 76 00:07:29.360 --> 00:07:36.360 And by 1932, we were in full-scale, deep, double-digit unemployment depression. 77 00:07:36.360 --> 00:07:47.160 But even before we get to the third phase, I like to throw this other event in here because chronologically it happens before the third phase, even though it's not a world trade matter. 78 00:07:47.160 --> 00:08:00.660 In 1932, we had this yawning federal budget deficit, obviously, because people weren't working, businesses are closing their doors, not paying taxes, and government spending was not retreating to meet the shortfall. 79 00:08:00.660 --> 00:08:05.260 So you had this yawning deficit, and Hoover and the Republicans decided we've got to close that. 80 00:08:05.260 --> 00:08:08.360 Let's try it by raising taxes. 81 00:08:08.360 --> 00:08:13.260 They passed the Revenue Act of 1932, which doubled the income tax. 82 00:08:13.260 --> 00:08:20.660 In the midst of depression, the top rate went from about 23% to something like 63%, 64%, 65%. 83 00:08:20.660 --> 00:08:22.260 More than doubling at the top rate. 84 00:08:22.260 --> 00:08:27.460 Other taxes as well, excise and some others, were raised as part of that bill. 85 00:08:27.460 --> 00:08:28.960 Then you had an election. 86 00:08:28.960 --> 00:08:33.480 Herbert Hoover gets re-nominated, couldn't possibly win in that kind of circumstance. 87 00:08:33.480 --> 00:08:38.880 He runs against the charismatic, silver-tongued orator, Governor of New York, Franklin Roosevelt, 88 00:08:38.880 --> 00:08:44.900 who promises that if elected, he's going to reduce the intrusions of government. 89 00:08:44.900 --> 00:08:48.340 One of the virtues of this little pamphlet, I think, it kind of draws out so that the 90 00:08:48.340 --> 00:08:54.280 ordinary citizen can understand that Franklin Roosevelt properly assailed Herbert Hoover, 91 00:08:54.280 --> 00:09:00.560 Not for being a laissez-faire president, as the history texts do, but for being an interventionist. 92 00:09:00.560 --> 00:09:06.680 Do you know that in the Democratic platform of 1932, it actually called for a 25% reduction 93 00:09:06.680 --> 00:09:08.640 in federal spending? 94 00:09:08.640 --> 00:09:14.360 John Nance Garner, Roosevelt's running mate, accused Hoover of, quote, taking the country 95 00:09:14.360 --> 00:09:18.120 down the path to socialism. 96 00:09:18.120 --> 00:09:22.200 They assailed him for raising tariffs, raising taxes, properly so. 97 00:09:22.200 --> 00:09:28.040 If I had been around in 32 and a voter, I probably would have voted for Franklin Roosevelt, thinking 98 00:09:28.040 --> 00:09:33.140 that he meant what he said, but of course upon election he did precisely the opposite. 99 00:09:33.140 --> 00:09:38.860 The third phase of the Great Depression we call the phase of the New Deal, and there's 100 00:09:38.860 --> 00:09:43.100 a lot about that phase we could talk about, I'll just cite two of the landmark New Deal 101 00:09:43.100 --> 00:09:46.980 laws that had an incredibly depressing effect on the economy. 102 00:09:46.980 --> 00:09:52.180 The National Industrial Recovery Act, motivated by the notion that there was too much competition 103 00:09:52.180 --> 00:10:00.180 Competition in the economy. You've got plummeting prices, of course. You've closed markets with a high tariff. You're contracting the money supply. 104 00:10:00.180 --> 00:10:11.180 So you've got plummeting prices. Competition's the culprit. If only we can crush competition, then we can stimulate higher prices and that'll spread prosperity into ever-widening circles. 105 00:10:11.180 --> 00:10:21.180 So this was a law attempting to organize or cartelize American industry around federally issued codes and price controls. 106 00:10:21.180 --> 00:10:36.180 The famous case involving a guy named Jack Magid, who was a tailor, and he pressed a suit of clothes for the price of 35 cents, he was prosecuted because the New Deal NRA code price was 40 cents. 107 00:10:36.180 --> 00:10:48.180 Now think of it, midst of depression, you're lucky if you have anything to pay to have your clothes pressed, here's a guy willing to do it for 35 cents, he gets prosecuted because he didn't charge you 40 cents. 108 00:10:48.180 --> 00:10:53.180 ...incredibly depressing, raising the cost of doing business across the board. 109 00:10:53.180 --> 00:10:58.180 But if that's something, what do you hear? The AAA, the Agricultural Adjustment Act, 110 00:10:58.180 --> 00:11:04.180 it's motivated by the notion that we have too much supply, prices are too low, let's get prices up. 111 00:11:04.180 --> 00:11:10.180 It levies a new tax on agricultural processors, okay, on an industry already deeply depressed, 112 00:11:10.180 --> 00:11:16.180 and uses the revenue to supervise a program to destroy perfectly healthy cattle, sheep and pigs, 113 00:11:16.180 --> 00:11:21.180 and Pigs and plow under perfectly good fields of corn, wheat, cotton and other crops. 114 00:11:21.180 --> 00:11:26.180 The idea is restrict the supply, raise the price, improve the economy. 115 00:11:26.180 --> 00:11:31.180 Never mind that those who sell at the higher price maybe have less to sell 116 00:11:31.180 --> 00:11:36.180 or that even if this could have helped them, it could only have done so at the expense of everybody else. 117 00:11:36.180 --> 00:11:43.180 This is redistribution by gunpoint, this is by destruction, this is hardly a prescription for recovery, but that's what we did. 118 00:11:43.180 --> 00:12:00.180 We were freed of the worst of FDR when the Supreme Court threw both of those things out in the middle part of the decade and the economy showed some signs of life until 1937 when we had another very swift collapse, unemployment soaring again to the neighborhood of 20%. 119 00:12:00.180 --> 00:12:07.180 That's explained by things like Roosevelt's high taxes, the undistributed profits tax he got through Congress on corporate retained earnings. 120 00:12:07.180 --> 00:12:10.180 In the meantime, he was pushing up taxes everywhere he could. 121 00:12:10.180 --> 00:12:16.180 He inherited a top income tax rate in the 70s, but he takes it to 91, ultimately. 122 00:12:16.180 --> 00:12:21.180 And the typical history text will not tell you that he proposed one of 98 percent. 123 00:12:21.180 --> 00:12:27.180 Didn't get that because some congressman said, wait a minute, I come from a state that has a 3 or 4 percent income tax. 124 00:12:27.180 --> 00:12:30.180 How are we going to get ours if he gets 98? 125 00:12:30.180 --> 00:12:37.820 But also, but then Roosevelt came back and then by executive order imposed a 100 percent 126 00:12:37.820 --> 00:12:42.380 income tax rate on all incomes over $25,000. 127 00:12:42.380 --> 00:12:47.120 It was only there briefly, Congress overrode it, but that's what he attempted to do. 128 00:12:47.120 --> 00:12:54.400 And also the monetary policy of the late 30s became once again restrictive and in the face 129 00:12:54.400 --> 00:12:57.100 of previous inflation of money and credit. 130 00:12:57.100 --> 00:13:02.740 Then you have the Wagner Act, by far the most depressing factor that explains 1937, 131 00:13:02.740 --> 00:13:07.380 granting of enormous new powers to labor unions, taking labor out of the ordinary courts of 132 00:13:07.380 --> 00:13:13.020 law, creating the National Labor Relations Board and bestowing upon us ever since this 133 00:13:13.020 --> 00:13:21.620 unbelievably, incredibly stupid system of federal involvement in labor matters and imbuing 134 00:13:21.620 --> 00:13:27.020 labor unions with a new militancy that dramatically raised the cost of business and scared away 135 00:13:27.020 --> 00:13:32.020 and by the way, many investors who might have given us a lift in 1937. 136 00:13:32.020 --> 00:13:36.020 Well, I hope I've said enough about that little essay to make you want to get a copy, 137 00:13:36.020 --> 00:13:41.020 whether it's free or a dollar, I can't remember, but it's goodbye in any case. 138 00:13:41.020 --> 00:13:44.020 Thank you very much.