My talk is going to be about the characteristics of intellectuals in a financial crisis and
more specifically a much shorter title would have been Popular Economist of the Great Depression
as Hayekian Intellectuals and I'll start with this.
See Finnegem is my firm, I'm a trader, I've been a trader for about a decade and a half
and over time I've become sort of a buff of economic history and more specifically financial
market history and so I found that everything I read about the Great Depression, there was
There was some reference to popular economists. For example, Townsend, Francis Townsend,
Huey Long, all those fellows, Father Coughlin. And the thing was that even in Rothbard's
America's Great Depression or in Ray Moley's After Seven Years and Many Others, they allude
to those few, but they say that there were many more. They say that there were, in some
in some cases they say there were dozens. So, what I did was I essentially set out to try and find as many of those as I could. I wanted to first kind of catalog them and summarize them and then what I wanted to do was I wanted to look for the high level trends and recurring themes and then finally using some analytical framework which I hadn't yet determined, look for even deeper significance kind of analysis. And I did so and it took over
The criteria I set from the beginning was that I wanted books, pamphlets, transcripts of speeches, all that sort of thing, magazine articles that were published between 1930 and the end of 1939, that were American, and more specifically that had two distinct elements.
They had to both posit a cause for the Great Depression and then offer a specific solution, whatever it was.
It took me about two years and I came up with 171 specific plans.
So then I had to determine essentially what framework I was going to look at these folks
from.
And I determined right away that I needed something to kind of analyze intellectuals.
So there are three, now there's four, but at the time, two years ago, there were three
competing, I consider three competing approaches for analysis.
One was Julian Benda, who some of you are familiar with, The Treason of the Learned,
which was written in 1928.
The second, of course, is Hayek, his article in 1949 about the intellectuals and socialism.
And the last was a book published in 1969 by a guy named John Gross.
The only picture I could find of him was him drinking wine, so I might have to choose that
guy.
His book was called The Rise and Fall of the Man of Letters, and all three look at intellectuals,
Hayek and his article mentions, if you read it, you can figure out about nine or ten characteristics
of intellectuals. I've looked at all of them and I've chosen four. The four are the most
interesting to talk about this afternoon.
So here's the first one. The first one is that Hayek's first point is that intellectuals
tend to be people who understand nothing in particular really well. Their knowledge intends
in fact to be rather superficial. They're not in possession of any special wisdom. And
that is much to their credit for no other reason than because what their job really
is is to take disparate information out. They take a concept from a textbook, a personal
and Financial Anecdote Articles and what they do is they craft that into a narrative which they then put out through articles and all that sort of thing and this was certainly the case in the Great Depression and their lack of expertise was much to their credit and it made their message that much more I guess attractive because economists had been so wrong so people started to say well what do these guys have to say and so I have a few examples well first first this slide here shows the breakdown of that 171 individuals dominated by
by writers and activists, academics, business people, all the way down to a couple of actors,
a soldier and a poet. And a few that I couldn't even tell. Some people wrote on their pseudonyms
and stuff, so that was hard to figure out. And by the way, I have an asterisk by academics.
Those were mostly economics and sociological professors with a couple of psychologists
as well.
Here's one. This was Alfred Jones' book. It's called His Fascism, The Answer. This is interesting
because throughout the book, Jones says very clearly, he's impressed with the value, this
is like 1932 or so, he says, I'm impressed with the value of fascism. Space doesn't permit
a detail of their marvelous progress under Mussolini. He praises the fact that they've
imposed a shorter working day, which he believes is responsible for the lower levels of unemployment
and Employment at that time.
It's a system of marvelous simplicity of economy, and he insists throughout the book that Mussolini's
planned economy provides the essentials to economic recovery.
But in the last couple pages of the book, he says, well, you know, I have no real training
in finance or economics, and I presume to cover no such topics.
So you get that at the end.
This is a picture, and then, of course, one of the caveats that Hayek adds is it'd be
a fatal mistake to underestimate their power for this reason.
Goldie Ladon wrote a book called Distributism in the early 1930s and she offers not only
a cause and solution for the depression but also a key to permanent prosperity and that
key is of course to take women out of the workplace.
So what she says is that all women should be forced to stay at home or they should be
to be pensioned out of work. And her logic is, first of all, that women are taking men's jobs and also that women not being at home, and this is the 1930s, I mean, how many women were there in the workplace as a percentage, I don't even know, but the one thing that she says is that it's also women being in the workplace has taken away that sort of home economic instinct of women, so budgets are all screwed up and that's one reason why we're in the depression. And she, by the way, is the poet, so I should mention that. She was called the female poet laureate of America.
The thing that's interesting about this is that this picture added here is of a group
that was called the Farmers National Holiday Association.
And they were kind of a militant, left-leaning group, which actually, for the simplicity
of her view and for the fact that she's a poet, they adopted her as one of their pet
economists.
And they were fully on board with her, and this was several thousand people, tens of
thousands I imagine, who adopted her as one of their pet economists.
And they were responsible for a number of violent attacks, including one death across
the Midwest in the early 1930s, and in one case pulled a judge out of a car who had upheld
creditors' rights and threatened to lynch him.
Not being credible doesn't necessarily mean being dismissable.
Here's a few others.
Top left is the Ham and Eggs Plan.
I don't know if any of you have heard of that.
That was proposed as a plan in California, but the backers of the plan had every inclination
to make it a national plan eventually.
And it was run by a guy whose name was Roy Owens, and Roy Owens billed himself as an
engineer economist, which is an interesting title because it recurs constantly throughout
this period.
And Roy Owens, it turned out, there's a sociological law, I don't know what it is, maybe I can
posit it here, and that is that when organizations reach a certain size, they get investigated.
I don't know what the size is, but there are people who do exposés and things.
Anyway, when Ham and Eggs got big enough, an investigation showed that not only was
Roy Owens not an engineer and not an economist, he didn't even graduate high school and he
was an ex-felon.
Even knowing this, a few years later this organization had 330,000 members and it was
on a proposition in 1928 to become either a new branch of government or to occupy some
government positions and they only lost 1.14 million to 1.39 million.
So, once again, having a lack of credibility and no official credentials doesn't in any
way dampen the message of a lot of these groups.
In the middle, the utopians are coming.
That was a group of, it was kind of like a technocratic group, if you're familiar with
the technical alliance and all those guys, but it also had some mystical elements about
business cycles and all that sort of thing.
And despite the fact that the guys who met it were actors who professed from the very
beginning no economic experience or financial knowledge.
On June 23, 1935, over 30,000 people came to the Hollywood Bowl to listen to their speeches.
And then the last I mentioned here, of course, is Townsend.
It was only when Francis Townsend got in front of Congress and was confronted by a few congressmen
that it turned out that his plan, which involved what he built as a very small tax to kind
of pension people at that age, I guess it was over 60, would have cost half of the national
and Financial Income.
So it would have in some cases multiplied final retail prices by a certain amount.
And another personal aside is that I love the response that they had when they were
trounced in front of Congress.
They went back to the drawing board and they came out with a new motto and the motto was
honor thy father and mother.
So they tried to appeal to your, if we can't do math we can at least respect the elderly.
So, the second point of Hayek is that intellectuals generally judge all particular issues exclusively
in the light of certain very general ideas. And this point I thought was interesting because
it kind of ties, and it ties a little bit to some things that Rothbard said in his World
War I intellectuals in power, World War I as fulfillment, because this was really the
generation behind, this is really the generation after those. Those folks like Richard T. Eli
The average age here of these folks was roughly, the average age of this 171 person was roughly,
they were in their late 40s. They tended to be born about 1882, which if you look at the
events in their life, it's sort of telling. They were in their early teens during the
panic of 1893. They were going to college and school during the entire progressive era.
Their students tended to be, their teachers tended to be those people like Eli and Woodrow
Wilson and a lot of the progressivists, Dewey and all those guys.
Once again, I'm not going to go through all these, but they're dominant themes. Some of
the dominant themes are, of course, Darwinism and scientism, which they just called science,
but it's truly scientism. That fellow in the middle you see up here, that's Taylor, the
scientific management idea. Of course, Edward Bellamy's Looking Backward, that's the Warren
The War Industries Board, roughly 20% that I could count, at least of those who mentioned it,
roughly 20% of these 171 individuals served in some capacity with the War Industries Board.
The personification of Wall Street as the embodiment of all evil.
There's a lot of revisionist history, what taxes have done for America, everything.
The railroads, things like that. Those are some of the recurring themes.
Thorstein Veblen's Engineers in the Price System, Herbert Crowley's The Promise of American Life, Teddy Roosevelt, Karl Marx.
There's probably like 15 themes which occur over and over in these writings.
And that's somewhat reflected in their attribution.
This is the overall attribution among these individuals for the causes of the Great Depression.
Fully one in three attributed to planlessness. In other words, there's no more coordination between production and consumption,
between the various stages of production, and we need the government to sort of oversee that. This is the implication.
Overproduction, largely because a few years before the Great Depression, two fellows, I guess it was Waddle and Catchings, wrote a book
where they posited the possibility of over-production and under-consumption and causing economic
disconnects, a lack of purchase power, those guys down on Wall Street, et cetera, et cetera.
Interestingly, five attributed the cause of Great Depression to government, and two of
those said the government wasn't vigilant enough.
We need much more government, otherwise this will keep happening.
Let's go on here.
A third point that Hayek made was that the power of their ideas grows in proportion to
their generality, abstractness and vagueness. There are huge dividends to be paid by not
being specific. Even if you are familiar with your subject, it is in their interest to be
as vague as possible. Second, that the climate of opinion of any period determines the importance
of new facts and opinions. In other words, if your message is going to be derailed by
by New Information, you need to integrate it. If it's not, just pretend it's not there.
Or more specifically, as Huey Long said, never explain details by the mother of sectarianism.
So this fellow here, I'm sure some of you have heard of him, this guy's called, he was
named Stuart Chase. And Chase was an intellectual. In many ways, he is kind of the quintessential
Popular Economist, in that he was an engineer, trained at MIT, became an accountant, served
in the war industries board, made a trip to Russia in the late 20s to kind of see how
their experiment was going, wrote some articles, and throughout the 1920s he was a pretty
prominent member of a technocratic group. He studied with Thorson Veblen and all those
fellows. And so he was in a prominent position and he was highly visible during the Great
Depression.
And what he first said in 1930 when the crash occurred and when the depression started was
he predicted, he said he attributed the cause to psychology, just negative psychology, it'll
be over in about a year, everything will be fine, and he made some light references to
a need maybe for more regulation, he was kind of non-committal about all that.
And in 1931, as unemployment grew and as businesses started floundering, he changed his attribution
of the Crash to Overproduction. He cited a need for more coordination, whether voluntary
or coerced among business and the government. And in 1932, as we move on, he took a pretty
sharp turn to the left, called Marks for Profit, endorsed the nationalization of industry and
an inflationary campaign to spur spending. Further still, in 1933 he wrote an article
for Harper is called If I Were a Dictator. And in that article, he not only advocated
complete control of industry and finance, but also nationally enforced birth control
policies and sunbathing resorts all across the country. You could see how that would
help the economic environment as well.
Then like that boomerang, he came right back to the middle in 1934 and endorsed FDR, saying
The road to recovery would be through functionalism, which he never defined, but whatever functionalism
is, this guy had it.
By 1935, Chase decided that Roosevelt's commitment to change was highly questionable and called
him an economic royalist who had made too many concessions to big business and finance.
There's not that many years left, so he's running out of them.
In 1937, he advocated a complete scrapping of the Constitution, a rewrite.
He said, you know, it's time to start from scratch, none of this stuff is working.
And he said, it's time to start over.
Even the amendment mechanisms weren't enough, and it was time to start from scratch.
And in 1939, I'm not sure exactly what happened, but he made a sort of a sheepish admission
that maybe freer competition and prices being set by markets was a better idea.
So he traveled the full circle.
That illustrates Hayek's point that what's important is relevance and not consistency.
In fact, when I was reading on this, I thought, if they say that the first casualty of war
is truth, the first casualty of economic ideas is consistency, something like that.
So another example of this kind of shift is seen in the very far left, the communist and
socialist literature of the era, which was consistent throughout the entire Great Depression.
In the beginning to the end, they were sounding the clarion for revolution, but the change
came in mid-1935. Until then, all the literature was this kind of thing. It was rife with the
language of class warfareism, violent revolution, all that kind of thing. There was a writer
from New York named Akiva Liu who wrote a book where he basically said, to arms, everybody
get your rifles, go down to Wall Street and start killing traders and brokers, and he
be likened the victims of the crash and unemployment to the victims of the Lusitania, the main.
And I did a little background research, and this could be completely off, but I attribute
the change, which I'll give into a 1935, in the 6th Congress, which took place in July
and August of 1928. That's the common turn, kind of a global jamboree for communists where
they talk about the party line and they argue about the inaugural, I guess. They said that
They predicted that the end of capitalism was growing near, and so kind of the word
that went out from the organelles of whoever was saying doctrine for communism was, you've
got to push as hard as you can.
And when the crash came the very next year, it became an all-out, you know, this was their
opportunity to push as hard as they could to get the great revolution going.
This was the end of capitalism.
The seventh congress took place in 1935, about halfway through the Great Depression.
And the tone changed completely.
And the reason why the tone changed, I attribute two reasons for the tone changing.
The first being that a lot of the plans that were put in place, the real plans, not the
proposed ones like the New Deal and such, were starting to show some traction.
They started to see some recovery.
And on top of that, the rise of fascism greatly worried a lot of the communists.
So they specifically went out and tried to soften their message.
And they took a highly conciliatory turn and toned down their rhetoric starting in 1935.
So what you started to see is things like this.
This plan is called democratic distribution.
The word democracy is all over these things.
And this fellow's name was Lewis Waldman, who had previously been a really hardcore
communist in this country.
And in 1936 or so, what he did was he broke from the hardliners and he actually converted
and several hundred thousand communist voters to FDR.
Just two quick charts.
I know charts are not...
This has to do with the climate of opinion, and what I wanted to demonstrate here was
I charted basically changes in the Dow Jones Industrial Average with the number of plans
that were issued within the following six months.
You can see a very strong relationship here, and this has to do with that climate of opinion.
As the market gets worse, as that sort of...
If you look at the market as I do in some context, as a sort of great voting mechanism,
as the environment gets worse, as the economic outlook gets poorer, there's a rush to judgment
and there's a whole bunch of this rush to introduce alternatives and that sort of thing.
That's all I meant to show here.
And then this isn't going to come out really well, but what I sought to show here were
The colors, the bands, are, with each planet that came out during the Great Depression,
what they attributed the cause of the depression to.
And those were pretty homogenous across.
There's no real consistent trend in that case of intellectual opinion.
On the other hand, the attribution of solutions was traveling in very distinct, discrete sort
of waves of opinion.
Early on it was government-business partnerships.
And there was more of like a coercive element to it, cartelization, forcing the businesses
together and then make programs and all that.
Finally, you know, in the 1930s, there was anything goes, just everything, which I'll
talk about in a few minutes, some of those more interesting ones there.
National planning, and then of course you had FDR come in, and then you've got more,
it went from a business to a more monetary, and then finally to a more fiscal basis.
Fiscal policy, setting wages, taxes, pensioning people out of the workforce, constitutional revisionism, of course, was an area of interest with the court-tacking decisions and such.
And then finally, what I call reconciliationism. All the books there had titles like The New Government, The New Frontier, you know, it was kind of like almost cathartic in the way they treated the changes that had been made in the New Deal.
And there's two very high-level memes that I detected here. In the early part of the
Great Depression, everything was about coordination. It was coordinating production, coordinating
people's interests, coordinating just every element of economic discourse you could imagine.
And later, everything was about democracy. It was almost as if the meme was to sort of
of Comfort, those who questioned where we were and what the changes had been, you know,
sort of the, it was almost, again, it was almost cathartic, it was almost like they
were saying, don't worry, this is, what we have here is real democracy now, which is
arguable.
Okay, and this is the last point I have, and that is that Hayek wrote that speculations
about the possible entire reconstruction of society, rather than practical and short-run
Give public intellectuals a visionary character.
It's really not fun to talk about free markets and all that.
I mean, I think it is, but most people don't.
Because it is conservative, not in a political sense,
but it involves adhering to what got us where we are.
It's more fun to talk about radically recreating the world in interesting ways.
And it gives them an opportunity for the play of the imagination.
Those who are unencumbered by much knowledge of facts,
Tax. They tend to be disinterested in technical details or practical difficulties. If you
haven't thought any of this stuff was funny yet, you might now. Here's an example of something
that occurs regularly, a pretty frequent proposal was that somewhere out there there was a mathematical
equation which if we just followed it, everything would be okay. In this case, this is the prosperity
and Formula.
It is actually, this author says, in seventh commandment of God, in economic matters, thou
shall not steal.
I actually agree with that, but anyway, it's an extreme beauty, not only those who are
able to think, but will discover.
So this book is full of equations, which of course, if you follow those, we would never
have gotten into that situation in the first place.
Here's another one.
This guy, what was his name?
I can't remember his name.
The idea is planned obsolescence.
So what happens in this system?
Well, the way to spur consumption, which some authors attribute as the way to get the economy
back on track, was to...
The problem was that people were holding on to things for too long.
So what they recommended is if the shoe manufacturer is having a bad quarter, he tells the government,
my sales are down.
And what the government then does is require you to turn in your shoes.
You turn in your shoes and you get a ticket, and that ticket has a certain amount of money
that you can use to offset the price of buying new shoes.
You can only imagine how this would be abused.
Every time I think about it, I think this is the government that couldn't run the cash
for clunkers, something that every junkyard does anyway.
They're going to do this to the entire economy?
There are two here.
The one on the left is the New Market Cities Plan.
It will create permanent mass consumption.
It's got to be true because it's all capitalized.
And basically, what they proposed was that they take two million people and build more
cities.
Who's going to live in them?
What's going to happen there?
That's all.
Those are later details.
We're just going to build them.
We're going to build cities.
And this guy, Adolf Gang, recommended essentially that all savings be in the hand of the government
because the notion of hoarding, that if you're not spending, you're not consuming, and that's
keeping the economy down so that the government would essentially take control of all savings.
A couple more.
The one on the left is one of the ones here placing one of seven of our present charitable
family cases on farms, just relocating people out to the countryside.
And the interesting thing here is this was in some sense realized through the Resettlement
Administration, which was run by Rexford Tugwell.
I actually tried some of this.
Also Eleanor Roosevelt's Pet Project, Arthordale.
All of these were notions of resettlement of individuals out to the countryside, thinking,
and I guess that they had to more evenly distribute the populace or something like that.
And on the left is, this book is called Capitalism and Communism and Reconciliation.
This is a great one.
So this guy, this guy's a professor and he said, you know, there's really no way of determining
whether communism or capitalism, which one is better.
So why don't we have a great, a huge contest?
So what he proposed was that there would be metrics proposed such as, you know, longevity and GDP
and that the two governments would agree to not compete with each other, would compete
over a period of 10 years, and then a winner would be declared.
I can't even measure the levels of naivety it takes to think that one government would
say, you're right, we lost, we'll step down.
The loser's state would amicably just step to the side and say, it was a good contest,
but that was his proposal.
And, of course, no financial crisis would be complete without an appearance by the Malthusians
and the Eugenicists, where this book has a chapter called Eugenics and Industry, and
in one sense he agrees with all the other planners and popular economists of the Great
Depression that the problem is overproduction, but he's overproduction of people in his case.
So he certainly, he seeks to dampen that. And is this the two more? Meritism. Here's
another good one. No more money. Let's get rid of money. It's a problem. Instead what
we do is the government decides what you do, or rather what the point value is of what
you do. So if you, you know, if you're a, if you're a doctor, you get a hundred points
And here's the last one. There's a lot of talk and many references are made to war being
a solution for a bad economy. And I was able to find one in this group of, in this universe
of popular economists. This is a kind of mysterious army officer who recommended in 1935 that
The best way to get out of the Great Depression would be to essentially wage war against
Canada, Mexico and take control of the hemisphere from the North Pole to Panama.
In case you think this is a bad idea, first of all, he says, a real American doesn't
shudder and shrink at the notion of blood spilled on the sands of time, especially when
great affairs are in the offing.
But hopefully that comforts you, hopefully that will get you where you're going.
It's also interesting that a huge part of this book is dedicated to fighting communism, but
one of the core beliefs that communists hold about capitalism is the necessity of imperialism.
So he's sort of playing right into their hands with this proposal.
And just in closing, I was just going to say, I mean, today, these are all recent images
and such. These ideas are live and well. The professional thinkers are going to be with
us in every economic environment. And you can see echoes of all these guys. For example,
I don't know if any of you are familiar with Larry Kudlow on CNBC. Well, for years, Larry
has been saying that he's a free marketeer and all that. In September, maybe the week
before Lehman fell down, he threw his weight behind Paulson, saying, you know, echoing
are effectively the battle for ideas. Thank you.