1930  The Slump Deepens

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Late in 1929 President Herbert Hoover had received an analysis from the Federal Reserve that the correction had several months to run. Hoover was glad to expand a public buildings program to boost the economy. But the stock market continued to decline, as the president signed the Smoot-Hawley Tariff Act into law. Then the Jewish-owned Bank of United States in Manhattan failed.

In the 1930 US Senate Elections the Democrats gained 8 seats from the Republicans. In the 1930 US House Elections the Democrats gained 52 seats. In the 72nd Congress the Republicans controlled the Senate with 48-47 seats, and the Democrats controlled the House with 217-217 seats.

Letting the Banks Fail

A few banks had failed in the fall of 1929 but it was nothing out of the ordinary. About 70 banks had failed every year in the 1920s. Numerous rural banks had failed throughout 1930, over 700 in all, but nobody worried about that. Then on December 11, 1930, the Bank of United States failed. Primarily serving immigrants in New York, it was a Jewish-owned bank. The establishment thought that it could draw a ring around the bank and its portfolio of second mortgages, but it could not. The contagion spread, the stock market fell, and in 1931 banking failures began in earnest. Many of the failing banks were state-chartered banks and outside the Federal Reserve System. Officials hesitated before assisting them, and so they failed, and their failures contracted the money supply. By the nadir of the depression thousands of banks had failed in the United States, and the money supply had contracted from $46 billion in 1929 to $32 billion in 1933.
Intention: Many people, in the crash of 1907, had not liked the experience of relying on J.P. Morgan and the “Money Trust” to act as “lenders of last resort.” They thought that the job should be the responsibility of the federal government. So the Federal Reserve System was created to provide central banking services and serve as a lender of last resort that would provide liquidity in the event of a financial panic.Liberal Line: President Hoover sat in the White House and did nothing while millions of people suffered.
Outcome: Although the Federal Reserve System had been in existence for over 15 years by the time of the market crash of 1929 it had never been tested. And many banks, particularly state-chartered banks, were outside the system. In the event, the leaders of the Federal Reserve failed to do their job, and thousands of banks failed. In consequence the money supply of the United States contracted sharply in a savage deflation.Conservative Line: First time that the Federal Reserve System was called to execute its role of “lender of last resort” it failed to do the job. As a result millions of Americans lost their savings and suffered ten years of suffering and poverty.

Tariff Act of 1930

Although President Hoover had pledged to reduce tariffs on imports to the United States in early 1930 Congress sent a tariff bill to the president in the spring. Sponsored by Senator Reed Smoot (R-UT) and Representative Willis Hawley (R-OR) the Smoot-Hawley Tariff Act implemented a plank of the Republican Party platform of 1928. While calling for lower tariffs the president had also promised to protect farmers from the world market. In the end, despite an appeal from over a thousand economists President Hoover signed the bill in June 1930. Nations across the world retaliated in kind.
Intention: High tariffs would protect American manufacturers, American workers, and American farmers from foreign competition.Liberal Line: Typical Republicans, carrying water for their business and rich-farmer paymasters.
Outcome: High tariffs violate Ricardo‘s Law of Comparative Advantage and reduce trade between nations.Conservative Line: Clueless solons on Capitol Hill busily screwing up the economy.

1929-1939: “A Decade that will live — in stupidity.”

Why Stuck on Stupid?

Seventy years ago the leaders of both US political parties turned away from the policies that had created an economic powerhouse we call the Roaring Twenties. For ten long years Americans suffered through wrenching economic dislocations: deflation, inflation, a four-year economic contraction, endless unemployment, mindless political experiments, and ruthless attacks on businessmen for political gain as their leaders stayed Stuck on Stupid.

Today, after a twenty-five year economic boom, Americans are once more faced with a political elite that wants to monkey with success. It wants to raise tax rates. It wants to restrict trade. It wants to increase government power.

It’s time to look back and remind ourselves how it came to be, starting in 1929, that America got itself Stuck on Stupid. Otherwise it could happen again.

 — Christopher Chantrill



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presented by Christopher Chantrill