WEBVTT NOTE The Great Depression 1 00:00:00.000 --> 00:00:04.000 The Great Depression 2 00:00:04.000 --> 00:00:14.000 Perhaps the most used idea that is expressed by those who have an anti-capitalistic point of view 3 00:00:14.000 --> 00:00:21.000 is that whenever we have a free market, some type of economic disaster ensues. 4 00:00:21.000 --> 00:00:29.000 And to bolster this argument, the Great Depression of the 1930s is usually trotted out and dusted off. 5 00:00:29.000 --> 00:00:40.000 The Great Depression, so called, is only one of a number of recessions, depressions, and panics that we have had in this country from the beginning. 6 00:00:40.000 --> 00:00:51.000 But because it is the one that occurred most recently that had a very, very serious effect upon the economy, it becomes a cause celebe. 7 00:00:51.000 --> 00:01:06.000 Many people are aware of it, many people have lived through it, and they constantly refer back to the Great Depression to point out that if you have a free market, something of this sort will ensue. 8 00:01:06.000 --> 00:01:14.000 As a matter of fact, most people tend to avoid a commitment relating to the free market because of the Depression. 9 00:01:14.000 --> 00:01:24.000 And what they usually say is this, that the Great Depression was caused, on the one hand, by an overproduction on the part of business. 10 00:01:24.000 --> 00:01:32.000 That is to say, businessmen, because they had found out how to mass produce and how to produce cheaply, 11 00:01:32.000 --> 00:01:38.000 simply had created a stockpile of goods that could not be sold quickly. 12 00:01:38.000 --> 00:01:44.200 and thus the inventories were large and the turnover was not as rapid as it 13 00:01:44.200 --> 00:01:49.640 should have been and the consequence was that these businessmen rather than 14 00:01:49.640 --> 00:01:56.760 lowering their prices preferred to close their factories and then work to reduce 15 00:01:56.760 --> 00:02:00.520 their inventories but this meant that many thousands of men were thrown out of 16 00:02:00.520 --> 00:02:06.680 work simply during the process of using up the overproduction that had ensued. 17 00:02:06.680 --> 00:02:21.680 Now, currently we don't hear that argument quite as much as we once did, though at the time of the depression it was a constant argument that was brought out that the depression had in fact occurred because of overproduction. 18 00:02:21.680 --> 00:02:33.680 The second presumed cause of the Great Depression is the idea that the government had failed to carry out its proper function in this instance. 19 00:02:33.680 --> 00:02:40.960 In other words, that the government had stood idly by, as the economy sort of came unglued, 20 00:02:40.960 --> 00:02:46.000 and no intervention had occurred, and therefore the government was at fault, because it did 21 00:02:46.000 --> 00:02:47.680 not do enough. 22 00:02:47.680 --> 00:02:52.560 Notably, what it should have done, according to this belief, it should have provided a 23 00:02:52.560 --> 00:02:58.760 lot more money and credit, if there could have been more money created, and if the credit 24 00:02:58.760 --> 00:03:04.560 Strings could have been loosened, then we might have been able to prevent the Depression. 25 00:03:04.560 --> 00:03:09.260 But unfortunately the government didn't do anything, and the result was this economic 26 00:03:09.260 --> 00:03:16.120 collapse which we think of as the Great Depression, which as we usually think began with the stock 27 00:03:16.120 --> 00:03:25.600 market collapse of October of 1929 and continued primarily through the decade of the 1930s. 28 00:03:25.600 --> 00:03:32.600 Now when we take and examine this period we're going to find a welter of conflicting economic 29 00:03:32.600 --> 00:03:40.760 views even today. I don't know that any kind of consensus has been reached. Some economists 30 00:03:40.760 --> 00:03:46.920 will insist very stoutly on what I have just stated, that the cause of the depression was 31 00:03:46.920 --> 00:03:51.560 overproduction on the part of business and the failure of the government to intervene 32 00:03:51.560 --> 00:03:59.860 to offset some of the excesses that had occurred. Others will point to other matters, and sometimes 33 00:03:59.860 --> 00:04:05.520 you have a complete variation in what will be pointed to. For instance, a part of this 34 00:04:05.520 --> 00:04:11.780 will relate to the period of time preceding the depression which led into it, and this 35 00:04:11.780 --> 00:04:19.980 is this decade that we call the roaring twenties. We think of it now with some nostalgia, realizing 36 00:04:19.980 --> 00:04:25.220 that actually it was a pretty good period. But having lived through it, I can recall that 37 00:04:25.220 --> 00:04:32.800 at the time we didn't think it was so good, and there were many factors that were in conflict. 38 00:04:32.800 --> 00:04:38.880 Some people view the twenties as a period of rapid industrial growth and expansion, 39 00:04:38.880 --> 00:04:46.080 with prices rising, with everything getting better, and in a sense you can sustain that 40 00:04:46.080 --> 00:04:51.980 claim by some of the statistics that are available. Others will look at the 20s as a period of 41 00:04:51.980 --> 00:04:58.320 time in which prices declined, conditions worsened, and there were constant new demands 42 00:04:58.320 --> 00:05:06.080 made for government to intervene. And that's true, too. There's a conflict of reports 43 00:05:06.080 --> 00:05:12.880 that comes out of the 20s that led into the stock market collapse of 1929, and the stock 44 00:05:12.880 --> 00:05:18.840 Stock market collapse, of course, was simply the trigger that fired off the gun that led 45 00:05:18.840 --> 00:05:24.520 into the depression. Don't confuse a stock market collapse with a depression. A depression 46 00:05:24.520 --> 00:05:34.120 goes on for some time. The stock market simply came down very quickly in October of 29, and 47 00:05:34.120 --> 00:05:39.000 it wasn't until a little bit after that that the effects of this and other things began 48 00:05:39.000 --> 00:05:43.740 And to indicate that we were moving into a depression, and for the record we should point 49 00:05:43.740 --> 00:05:52.580 out that the depression continued to worsen from 1930 on to 1936. That was the nadir. 50 00:05:52.580 --> 00:05:58.560 That is as far down as it got. There it seemed to bottom out, and then it began to come up 51 00:05:58.560 --> 00:06:07.300 out of it so that we actually did begin to really emerge from it in 1939, 1940. But that's 52 00:06:07.300 --> 00:06:14.700 What's the period of the Depression is fundamentally the 1930s that was preceded by the roaring 53 00:06:14.700 --> 00:06:21.700 20s. Now, why do these conflicts in evidence appear covering the 20s? Well, it depends 54 00:06:21.700 --> 00:06:28.020 on what you're looking at. You have to keep in mind that most economists tend to follow 55 00:06:28.020 --> 00:06:35.300 price indices. They look at prices to determine whether conditions are good or bad. Now, if 56 00:06:35.300 --> 00:06:41.900 If you examine the price indices relating to the 1920s, you will discover that in certain 57 00:06:41.900 --> 00:06:48.980 areas prices constantly went up. These are notably the speculative areas. Areas in the 58 00:06:48.980 --> 00:06:55.180 stock market. Stock market prices went up pretty steadily through that whole decade. 59 00:06:55.180 --> 00:07:02.500 The same thing would be true of land prices, notably unimproved land, but real estate generally. 60 00:07:02.500 --> 00:07:09.100 But it was particularly observable with unimproved land. In fact, we had a land boom in California 61 00:07:09.100 --> 00:07:15.100 and another one in Florida during this time when the prices of unimproved land simply 62 00:07:15.100 --> 00:07:21.300 went up and up. Now, when you're buying land or when you're buying stock, there's especially 63 00:07:21.300 --> 00:07:27.540 unimproved land and land that is not income producing at the time. You have a kind of 64 00:07:27.540 --> 00:07:32.040 investment that is fundamentally speculative. You don't know what's going to happen. So 65 00:07:32.040 --> 00:07:38.820 So you buy at a price that you trust is a bottom price. It's a low price because you 66 00:07:38.820 --> 00:07:43.420 anticipate that a little further on you'll be able to sell it. At a higher price you 67 00:07:43.420 --> 00:07:49.340 probably don't intend to do anything with your stock or with your land except to hold 68 00:07:49.340 --> 00:07:57.980 it while the market goes up above it and then you'll sell. And during the 1920s that is 69 00:07:57.980 --> 00:08:03.900 The picture that emerges in speculative areas primarily, that prices continued to drift 70 00:08:03.900 --> 00:08:08.700 upwards, and sometimes they didn't drift, they actually shot upwards. And so it was 71 00:08:08.700 --> 00:08:15.340 a good time for people in the speculative arena to take their dollars and put them to 72 00:08:15.340 --> 00:08:21.500 work in buying things which they felt with the passing of time could be sold for more 73 00:08:21.500 --> 00:08:26.980 than they paid for them. But conversely, in another part of the market, prices were going 74 00:08:26.980 --> 00:08:34.980 Looking down, there was a consistent decline in prices in such areas as foods, household 75 00:08:34.980 --> 00:08:42.320 appliances, automotives, and things of this sort. There was a constant steady decline 76 00:08:42.320 --> 00:08:49.420 or depression in these price areas. And so you have a mixed view of the market. If you 77 00:08:49.420 --> 00:08:54.900 look at the 20s, you'll have one curve definitely going up. At the same time, another 78 00:08:54.900 --> 00:09:00.680 Curve is definitely coming down. And your economists take a look at this and some favor 79 00:09:00.680 --> 00:09:08.080 the one chart and some favor the other. They're both there. Both sets of economists are telling 80 00:09:08.080 --> 00:09:13.560 you the truth as they see it. But for a complete view, you should look at both and see what 81 00:09:13.560 --> 00:09:20.560 is happening on a broad scale. And that is, I think if you do that, if you see the whole 82 00:09:20.560 --> 00:09:28.560 If you look at the whole picture, then you begin to realize that the price index alone is not sufficient to understand what is happening in the market. 83 00:09:28.560 --> 00:09:39.560 You see, if you have prices going down, as we did in the market during the 20s, you could presume conditions are getting bad. 84 00:09:39.560 --> 00:09:47.560 But that's not true. Actually, prices can go down as a result of improved efficiency. 85 00:09:47.560 --> 00:10:01.560 And, notably, this is what we were doing in the 1920s. We were engaged in learning how to produce farm products better, to produce household appliances better, and to produce automobiles better than ever. 86 00:10:01.560 --> 00:10:11.560 More and more people were buying more and more things in these areas, but our productive techniques had so improved that we could lower the unit cost. 87 00:10:11.560 --> 00:10:21.560 I can recall my own grandfather during this period who was a farmer, and during the 1920s was the only time in his life that he got out of debt. 88 00:10:21.560 --> 00:10:31.560 And yet during this period of the 20s, he was singing the blues, and the reason was that the price of wheat was dropping every year. 89 00:11:01.560 --> 00:11:06.760 The result was that he was making more money. His net was better. In fact, I think it's 90 00:11:06.760 --> 00:11:11.240 about the only time in his life that he had a net, and it was the best that he'd ever 91 00:11:11.240 --> 00:11:17.040 had during this time. But the unit cost was going down, and so, like many economists, he 92 00:11:17.040 --> 00:11:21.680 looked at it as a negative thing. And many people in the country did. They saw the 20s 93 00:11:21.680 --> 00:11:26.620 as a period of decline, and they wanted the government to intervene. In fact, it was during 94 00:11:26.620 --> 00:11:32.380 During the 20s, many of the farmers began clamoring for the creation of what we later 95 00:11:32.380 --> 00:11:36.500 got and we call the AAA or the Agricultural Administration. 96 00:11:36.500 --> 00:11:46.020 This was in order to give us a protected price area in the farming segment of the market. 97 00:11:46.020 --> 00:11:51.220 One of the things that caused it was the decline in price even while the farmers had never 98 00:11:51.220 --> 00:11:54.380 done any better than they did during the 20s. 99 00:11:54.380 --> 00:11:58.960 This is one of the things that can confuse you when you look only at price. You have 100 00:11:58.960 --> 00:12:05.260 to look at more than price. You have to learn to look at productivity as well as price if 101 00:12:05.260 --> 00:12:11.620 you're going to understand what happened. Actually, one of the major causes of the depression 102 00:12:11.620 --> 00:12:18.620 of the thirties was not the decline in price and not the failure of government to intervene 103 00:12:18.620 --> 00:12:25.100 Nor was it overproduction. What it was, was the fact that the government had already begun 104 00:12:25.100 --> 00:12:33.100 to intervene on a massive scale. Now this is usually not recognized. We tend to suppose 105 00:12:33.100 --> 00:12:39.020 that the government really didn't get into the market to intervene until, oh, possibly the time 106 00:12:39.020 --> 00:12:43.740 of Franklin Delano Roosevelt. Of course, at that time there was a rapid expansion of government 107 00:12:43.740 --> 00:12:48.380 government intervention, and people, some of them, for the first time became aware that 108 00:12:48.380 --> 00:12:53.140 such intervention was occurring. But if you examine the record, you will discover that 109 00:12:53.140 --> 00:12:59.100 the American government began intervening in the economy virtually from 1789. We had 110 00:12:59.100 --> 00:13:05.100 all kinds of interventions, notably in the field of money, banking, credit, and so on, 111 00:13:05.100 --> 00:13:11.180 but also getting into other areas, including agriculture, from a very, very early time. 112 00:13:11.180 --> 00:13:30.420 In the 1930s, the government had begun intervening with the price mechanism long before 1930, 113 00:13:30.420 --> 00:13:37.180 and the inability of the free market to adjust prices was one of the things that contributed 114 00:13:37.180 --> 00:13:40.300 to the depression. 115 00:13:40.300 --> 00:13:45.340 You see, it wasn't that there was an overproduction of goods. 116 00:13:45.340 --> 00:13:50.980 It was that there was an overproduction of goods at a given price. 117 00:13:50.980 --> 00:13:58.540 And it was impossible to cause the price to fluctuate because of certain rigidities that 118 00:13:58.540 --> 00:14:05.160 had already been built into the market as a result of taxation, as a result of unionization 119 00:14:05.160 --> 00:14:12.840 in many industries that create artificial strictures around which the rest of the economy 120 00:14:12.840 --> 00:14:20.160 has to flow. And thus, if the economy had been absolutely flexible so that prices could 121 00:14:20.160 --> 00:14:26.240 have adjusted, then the natural price mechanism of a free market would have tended to prevent 122 00:14:26.240 --> 00:14:30.940 the depression from occurring in the first place. But it was because of price rigidity 123 00:14:30.940 --> 00:14:37.140 caused by government and union intervention in the market that was one of the contributing 124 00:14:37.140 --> 00:14:39.820 factors that brought on the Depression. 125 00:14:39.820 --> 00:14:48.460 Now another cause of the Depression was a large increase, a sudden increase in government 126 00:14:48.460 --> 00:14:55.660 intervention not brought on by Mr. Roosevelt, as most people think, but by Mr. Hoover. Mr. 127 00:14:55.660 --> 00:15:01.760 Mr. Hoover, who we generally think of as a conservative, was actually quite radical in 128 00:15:01.760 --> 00:15:07.300 his thinking as it related to the function of the government in dealing with the economy. 129 00:15:07.300 --> 00:15:15.060 Mr. Hoover had personally assisted in launching about 40 new governmental agencies during 130 00:15:15.060 --> 00:15:16.780 his term of office. 131 00:15:16.780 --> 00:15:23.460 You'll recall he was elected in 1928 and served until 1932, and in that period of time, 132 00:15:23.460 --> 00:15:28.660 which is the period of time in which the Depression got started, Mr. Hoover had been among the 133 00:15:28.660 --> 00:15:36.700 foremost in clamoring for government intervention in order to assist the businessmen from getting 134 00:15:36.700 --> 00:15:43.180 into this decline and stagnation that they seemed to be getting into. 135 00:15:43.180 --> 00:15:47.860 One of the things that Mr. Hoover believed, and it was a belief that was then picked up 136 00:15:47.860 --> 00:15:54.580 up and shared by Mr. Roosevelt, who followed him, was a belief in the Keynesian idea of 137 00:15:54.580 --> 00:16:00.420 how the market works. And those of you who are old enough to remember will recall that 138 00:16:00.420 --> 00:16:07.480 there was a popular notion that the Depression was caused by a lack of spending money, notably 139 00:16:07.480 --> 00:16:14.480 it was called by a lack of effective demand. That is, the market had slowed down because 140 00:16:14.480 --> 00:16:19.500 Because customers weren't able to go to the market to buy all the goods and services 141 00:16:19.500 --> 00:16:21.120 that were there. 142 00:16:21.120 --> 00:16:24.400 And sometimes this was called a surplus in production. 143 00:16:24.400 --> 00:16:29.880 But often it was called an insufficiency of effective demand. 144 00:16:29.880 --> 00:16:34.580 That is, if the customers had more money and more credit to play with, then they would 145 00:16:34.580 --> 00:16:38.140 naturally spend it, and that would cause the market to speed up. 146 00:16:38.140 --> 00:16:47.060 And so Mr. Hoover believed this and his entire practices from the time he took office through 147 00:16:47.060 --> 00:16:55.140 his entire four years was aimed at putting more spending money in the hands of customers. 148 00:16:55.140 --> 00:17:03.780 He had several bank agencies started and certain credit restrictions were relaxed so that more 149 00:17:33.780 --> 00:17:41.880 See, we had had, from the beginning in this country, periodic booms and busts. We had 150 00:17:41.880 --> 00:17:47.140 had recessions and panics, and then we'd had good times, and it seemed that there was 151 00:17:47.140 --> 00:17:53.060 more or less a cyclic operation of the economy. We'd have good times, then they'd be followed 152 00:17:53.060 --> 00:17:58.160 by a recession, and then maybe by a depression or even a panic, and then it would bottom 153 00:17:58.160 --> 00:18:02.100 out and we'd have good times again. And this sort of thing went on. It caused many 154 00:18:02.100 --> 00:18:07.300 Many people, about the turn of the century, coming from the 19th into the 20th, to believe 155 00:18:07.300 --> 00:18:11.420 that the government should take a more active part in the economy and try to figure out 156 00:18:11.420 --> 00:18:20.100 a way of preventing these wild booms or busts. You ought to have an agency that could prevent 157 00:18:20.100 --> 00:18:27.220 a boom from occurring by holding it down if it started to overheat, and then at the same 158 00:18:27.220 --> 00:18:42.260 The Federal Reserve Bank was an agency created in part to accomplish this mission. 159 00:18:42.260 --> 00:18:48.540 Now I'd like to point out to you that many people suppose that since we now have the Federal 160 00:18:48.540 --> 00:18:52.380 Reserve Bank that it would be impossible to have a depression. 161 00:18:52.380 --> 00:18:57.860 And I'd like to point out that the Federal Reserve Bank came into existence by federal 162 00:18:57.860 --> 00:19:05.100 law in 1913, and the Great Depression didn't occur until the 1930s, so obviously the Federal 163 00:19:05.100 --> 00:19:10.380 Reserve Bank did not prevent the Great Depression because it was here, that is, the bank was 164 00:19:10.380 --> 00:19:13.460 here considerably before the Depression. 165 00:19:13.460 --> 00:19:21.460 I'd like to just read a portion of the purposes of the Federal Reserve Bank as they appear 166 00:19:21.460 --> 00:19:27.220 in the Federal Reserve Act, and I quote here, the purposes of the act are, and I'm quoting, 167 00:19:27.220 --> 00:19:33.660 to provide for the establishment of Federal Reserve Banks, to furnish an elastic currency, 168 00:19:33.660 --> 00:19:39.220 to afford means of re-discounting commercial paper, to establish a more effective supervision 169 00:19:39.220 --> 00:19:46.460 of banking in the United States, and for other purposes." Naturally, your mind boggles a 170 00:19:46.460 --> 00:19:58.740 I'd like to direct your attention primarily to the phrase, to furnish an elastic currency. 171 00:19:58.740 --> 00:20:03.060 Now that was the idea, to furnish an elastic currency. Elastic currency, of course, is 172 00:20:03.060 --> 00:20:07.860 rubber money. And the idea was that you would have a kind of money that would stretch out 173 00:20:07.860 --> 00:20:12.620 when you wanted it to, and then would contract when you wanted it to, and by manipulating 174 00:20:12.620 --> 00:20:30.380 The Federal Reserve Bank was created in part for that purpose. 175 00:20:30.380 --> 00:20:33.940 Actually, this came into existence in 1913. 176 00:20:33.940 --> 00:20:37.620 They began working on it in 1914. 177 00:20:37.620 --> 00:20:42.140 But it was in 1914, as you recall, that World War I got started. 178 00:20:42.140 --> 00:20:47.460 We weren't in it at the outset, but we very quickly revealed where our sympathies were. 179 00:20:47.460 --> 00:20:54.800 We tended to side with France and Britain and Belgium, and the result was that although 180 00:20:54.800 --> 00:21:02.340 we didn't become an active combatant until later on, we did lend moral support to the 181 00:21:02.340 --> 00:21:07.220 side of what we call the Allies and against the Central Powers. 182 00:21:07.220 --> 00:21:14.100 And then, as you know, in 1917, in April, we got into World War I, I beg your pardon, 183 00:21:14.100 --> 00:21:22.500 and we stayed in it for 18 months, the ultimate armistice coming in November of 1918. Now, 184 00:21:22.500 --> 00:21:28.940 when that happened, when the armistice came and we knew the war was over, the people in 185 00:21:28.940 --> 00:21:35.220 the money areas, the economists, the bankers, the people who are supposed to be informed 186 00:21:35.220 --> 00:21:39.820 in these areas, immediately drew back and they said, uh-oh, now we're going to have 187 00:21:39.820 --> 00:21:47.700 a depression. Because this is one of the cyclic conditions that has reappeared so frequently. 188 00:21:47.700 --> 00:21:53.720 Our country has been at war periodically all through its history. And during the war times 189 00:21:53.720 --> 00:22:01.420 we usually have a boom because money is loosened up and it flows freely and each dollar is 190 00:22:01.420 --> 00:22:19.420 The money is spent many times in a contracted period of time, but when the war ends, then the money disappears from the market and spending slows down and you have a decline that could be a recession or you lead into even a depression or panic. 191 00:22:19.420 --> 00:22:27.020 So here we had gone through a war, and we had spent a great deal of money, and during the war we had had boom-boom times. 192 00:22:27.020 --> 00:22:34.320 That is, from a financial point of view, from the flow of money and the acceleration of flow, things had gone very well. 193 00:22:34.320 --> 00:22:38.420 Now the war was over, and so we anticipated a recession. 194 00:22:38.420 --> 00:22:45.120 But we were also aware of the fact that the Federal Reserve Bank was in existence, and it wasn't going to permit anything to happen. 195 00:22:45.120 --> 00:22:48.320 And so we watched with bated breath to see what would happen. 196 00:22:48.320 --> 00:22:59.120 and 1918 ran out and there was no depression, and 1919, no problem, 1920, no problem. 197 00:22:59.120 --> 00:23:06.140 We began to wonder what was going on because although the acceleration had tapered off, 198 00:23:06.140 --> 00:23:08.920 we had not gone into a decline. 199 00:23:08.920 --> 00:23:16.320 Business was getting better all the time, 1918, 1920, into 21. 200 00:23:16.320 --> 00:23:24.680 And then, right after the first of the year, in 1921, we got it. There was a real jolt. 201 00:23:24.680 --> 00:23:29.340 It was a very serious moment in the economic history of the country. You could virtually 202 00:23:29.340 --> 00:23:35.200 feel it. The headlines in the papers were full of news of factories closing down, men 203 00:23:35.200 --> 00:23:40.220 being laid off, conditions were going to be very, very bad. 204 00:23:40.220 --> 00:23:46.700 And then, in the midst of this, a very interesting thing occurred. A number of businessmen, and 205 00:23:46.700 --> 00:23:52.640 from personal memory, I recall that Mr. Henry Ford was one of them, took their private money 206 00:23:52.640 --> 00:23:58.000 out and began making investments. In fact, it was during this time that Ford announced 207 00:23:58.000 --> 00:24:03.220 that he was building a new plant in every state in the Union, or in virtually every 208 00:24:03.220 --> 00:24:08.260 state. He was expanding to that degree. And this was while the steel companies were contracting 209 00:24:08.260 --> 00:24:13.940 and everybody was shutting back. Now Ford announced that he was opening up and then in order to supply 210 00:24:13.940 --> 00:24:20.340 the things he would need the steel companies had to open up and suddenly what we had was instead 211 00:24:20.340 --> 00:24:27.460 of a depression we had a six weeks period of a sharp recession and after the six weeks were over 212 00:24:27.460 --> 00:24:33.380 we had regained our equilibrium and were going right up again in a way that led all the way through 213 00:24:33.380 --> 00:24:38.340 through the 20s. And the interesting thing is that people credited the Federal Reserve 214 00:24:38.340 --> 00:24:43.940 Bank for this action. And I cannot find any evidence that the Federal Reserve Bank did 215 00:24:43.940 --> 00:24:48.660 anything. At this particular time, the Federal Reserve Bank was still engaged in trying to 216 00:24:48.660 --> 00:24:54.860 attract local bankers to join it. They didn't have all the banks in it by any means. And 217 00:24:54.860 --> 00:24:59.020 a number of banks didn't want to get into it. And so the Federal Reserve Bank really 218 00:24:59.020 --> 00:25:05.180 Money hadn't done anything, but it got the credit for doing it, because everybody believes 219 00:25:05.180 --> 00:25:11.340 that money is in banks, and when money suddenly appears, it must have come out of banks, and 220 00:25:11.340 --> 00:25:16.660 this couldn't have happened if the Federal Reserve Bank hadn't made it happen, and therefore 221 00:25:16.660 --> 00:25:22.220 we had sort of the attitude during the 1920s that there was only one direction, it was 222 00:25:22.220 --> 00:25:28.380 up, and we had found the money tree, nothing could go wrong, or if it did, the Federal 223 00:25:28.380 --> 00:25:34.020 The Federal Reserve Bank could bail us out. This undoubtedly contributed to the psychology 224 00:25:34.020 --> 00:25:39.500 of the period, which led so many people to engage in speculative things. Because how 225 00:25:39.500 --> 00:25:44.460 could they go wrong? If they made a mistake, well, good old Federal Reserve was right there, 226 00:25:44.460 --> 00:25:49.460 and Uncle Sugar is there, and you're going to be taken care of no matter what happens. 227 00:25:49.460 --> 00:25:55.700 And so we had this feeling of optimism, actually a wild optimism that built up during the 20s. 228 00:25:55.700 --> 00:25:59.780 The stock market, as you know, rose to a point higher than it had ever been in its history 229 00:25:59.780 --> 00:26:06.240 up to that time. And then the rug was pulled out and down we came. Now, an interesting 230 00:26:06.240 --> 00:26:10.740 thing that should be pointed out in respect to this is what happened in the midst of the 231 00:26:10.740 --> 00:26:18.100 1920s. You see, as people began speculating more and putting more and more money into 232 00:26:18.100 --> 00:26:23.980 the market, and of course they did it in the speculative areas, as I've mentioned, in land 233 00:26:23.980 --> 00:26:31.100 and the Stock Market and so on. What they had to do was sometimes to borrow money on 234 00:26:31.100 --> 00:26:38.900 their assets and then, having gotten money borrowed, they would take and use that as 235 00:26:38.900 --> 00:26:44.500 a means of establishing credit so that they could borrow still more. In other words, a 236 00:26:44.500 --> 00:26:52.940 man goes to the bank, borrows $5,000, sends the $5,000, say, to Wall Street and buys, 237 00:26:52.940 --> 00:27:01.260 Let us say $10,000 or $25,000 worth of stock, and he does it on the basis that he's paid 238 00:27:01.260 --> 00:27:03.100 $5,000 down. 239 00:27:03.100 --> 00:27:10.660 Well, he borrowed the $5,000 by putting his house up as security, and then he uses that 240 00:27:10.660 --> 00:27:16.820 money to give himself even greater credit, so on his house he has actually borrowed perhaps 241 00:27:16.820 --> 00:27:19.080 as much as $30,000 or $40,000. 242 00:27:19.080 --> 00:27:23.980 The house probably isn't worth more than fifteen, but by pyramiding this way you can build up 243 00:27:23.980 --> 00:27:31.040 a mountain of credit. And this is what happened. We build up a fantastic amount of credit, 244 00:27:31.040 --> 00:27:37.300 and then the rug was pulled out from under us, and the credit bubble burst, and we came 245 00:27:37.300 --> 00:27:44.180 down to a cash level. And that is what actually happened that caused the depression, and of 246 00:27:44.180 --> 00:27:50.040 Of course, then we found various ways of dealing with it, some of which haven't been too effective 247 00:27:50.040 --> 00:27:56.060 even up till now, but it's a fascinating area and I'd like to recommend real good study 248 00:27:56.060 --> 00:27:57.060 in it. 249 00:27:57.060 --> 00:27:57.860 Thanks very much.