Freedom from Fear The American People in Depression and War 1929 -1945 by David Kennedy 2001 989pg 15/1/21
The real cause of the great depression was external, the result of WW1 and reperations that Germany was forced to pay. The New Deal did not solve the problem tragically WW2 did.
1862 The Homestead Act, enacted during the Civil War, provided that any adult citizen, or intended citizen, who had never borne arms against the U.S. government could claim 160 acres of surveyed government land. Claimants were required to “improve” the plot by building a dwelling and cultivating the land.
In the US years of Republican government mean low taxes for big business, to encourage their growth. Curtailed immigration and put tariffs on imports.
1924 Halt to immigration was also a factor causing the depression important. Before that it had always been "give us your poor and make us rich." The need for goods and services dropped. The reason for this was more to do with Keep America WASP than economics.
WW1 Canada was in a deep state of depression in 1914 and this resulted in a big rush of volunteers to go to war 424000 Canadians fought in Europe
Prohibition
Prohibition started with the 18th Amendment in 1920. It caused the loss of over 250,000 legitimate jobs many of which carried on underground but it cost over $226 million per annum in loss of government revenue. The social cost of this was as much as $432 million per annum.
Unintended consequences proved to be a decline in amusement and entertainment industries across the board. Restaurants failed, as they could no longer make a profit without legal liquor sales. Theater revenues declined rather than increased, and few of the other economic benefits that had been predicted came to pass.
On the whole, the initial economic effects of Prohibition were largely negative. The closing of breweries, distilleries and saloons led to the elimination of thousands of jobs, and in turn thousands more jobs were eliminated for barrel makers, truckers, waiters, and other related trades.
The unintended economic consequences of Prohibition didn't stop there. One of the most profound effects of Prohibition was on government tax revenues. Before Prohibition, many states relied heavily on excise taxes in liquor sales to fund their budgets. In New York, almost 75% of the state's revenue was derived from liquor taxes. With Prohibition in effect, that revenue was immediately lost. At the national level, Prohibition cost the federal government a total of $11 billion in lost tax revenue, while costing over $300 million to enforce. The most lasting consequence was that many states and the federal government would come to rely on income tax revenue to fund their budgets going forward.
The USA disillusionment with World War I led to a retreat from international affairs. “The United States emerged as the logical leader on the world stage and then cut out of that role, and demanded payment of loans and WW1 supplies. The allies wanted the reparations to pay for this. Maynard Keynes resigned from the treasury as a result predicting this will bring damage to the whole of Europe’s economy. American banks lent to Germany to pay reparations and to the allies to pay loans. in 1923 the Ruhr was occupied as Germany couldn't pay and this affected caused their economy to shrink further and inflation.
Government regulation of interest rates and the money supply - "easy money" policies - inevitably lead to misjudgments by investors, who assume that the resulting booming economy and rising prices signal the need for more production and more goods. Since rising prices are actually the result of inflation, however, there is no surging demand that needs to be satisfied, and the investments in higher orders of production ultimately prove unsound, leading to recession or depression. Radios cost $135 and 12 million families had them.
Conventional wisdom
The great TV and radio announces make a point of articulating what their audience will find most acceptable. Businessmen and government are always expounding the role of government in business.
The enemy of this is the march of events and the installing of new ideas. The idea of the importance of a balanced budget even in times of a depression. The concept of Deficit Spending was unheard of. It only came with Maynard Keynes in 1936
The cause of this were
1 Bad distribution of income Investment and luxury spending of the rich is subject to fluctuation unlike outlaying for rent and bread.
2 Bad corporate structure. This was open to promotors, grafters, swindlers, imposter frauds. The holding companies controlled large segments of utilities railways. The temptation to give dividend could curtail investment in factories.
3 Bad banking structure. Bankers yielded to the immoral optimistic mood of the time. A bank failed and all the assets of others were frozen. a failure led to other failures, destroying the weak and the strong.
4 Dubious State of Foreign Balance, Surplus exports over imports and heavy tariffs on imports.
5 Poor state of economic intelligence. November 1929 Hoover announced a cut in taxes. The concept of balancing the budget. Disavowing all steps to check deflation "A triumph of dogma over thought"
Dust Bowl:
5 States of the southern plains include Kansas Colorado, New Mexico , Oklahoma and Texas which have become our cultural boneyard. 17 million people affected. They show man's failure at adaptation in this region, like the worst ecological blunders like in 3000 BC deforestation in China's upland which produced centuries of flooding and silting.
The Dust Bowl took 50 years to accomplish and cannot be blamed on illiteracy and overpopulation. This was a false achievement of excessive dominating and exploiting nature, on volatile and marginal land. This was a fundamental weakness of traditional American culture- Private property laissez faire, profit motive, free enterprise.
1 Nature is seen as capital, trees, wildlife, minerals and water and no other value to nature.
2Man has a right and obligation to use nature to self-advancement.
3 The community exists to help individuals get ahead and absorb environmental costs.
4 Capitalist societies is eager to take risks.
Farm families had not fully benefited from the burst of wealth, and then drought brought them to their knees. At least 15% less precipitation and clouds of grasshoppers. 1934 drought cost the US half of what they put into fighting WW1. Rains only returns fully in 1941. This was the work of man not nature. 350 tons of soil lifted up in the air. People suffered from "dust pneumonia, silicosis of the lungs and measles broke out in the black blizzard from the north. Accompanied by thunder and lightning.
Chronic asthma bronchitis or tuberculosis were reasons that people had moved to the high plains to breathe easier. 1935 was the worst year.
Agriculture
A farm crisis began in the 1920s, commonly believed to be a result of high production for military needs in World War I. At the onset of the crisis, there was high market supply, high prices, and available credit for both the producer and consumer.
During WW1 farmers invested heavily in Farm Machinary because of the high demand for food, when the war ended most were left heavily in debt and no market for their products. Land and crop prices plumetted.
During World War I, farmers worked hard to produce record crops and livestock.
In 1916 Federal Farm Loan Act to encourage farmers to produce more They bought more land and invested in new machinery. By 1917 an extra 40 million acres of land was under the plow, farmers receive inflated prices for their produces.
When prices fell they tried to produce even more to pay their debts, taxes and living expenses. In the early 1930s prices dropped so low that many farmers went bankrupt and lost their farms. In some cases, the price of a bushel of corn fell to just eight or ten cents. Some farm families began burning corn rather than coal in their stoves because corn was cheaper.
In some ways farmers were better off than city and town dwellers. Farmers could produce much of their own food while city residents could not. Almost all farm families raised large gardens with vegetables and canned fruit from their orchards. They had milk and cream from their dairy cattle. Chickens supplied meat and eggs. They bought flour and sugar in 50-pound sacks and baked their own bread. In some families the farm wife made clothing out of the cloth from flour and feed sacks. They learned how to get by with very little money. But they had to pay their taxes and debts to the bank in cash. They had to form Unions to stop the banks taking their lands.
Between 1920 and 1922 the price of tractors dropped by half making them affordable to farmers with money.
1927 Florida land speculation of land sold on margin until the worst floods in memory and the land was worthless.
External causes of the Great Depression. This was the real and major cause
The Gold standard Countries with currencies pegged to gold can’t print more money without getting more gold. When the banks collapsed people started hoarding gold.1931 Britain came off the gold standard but the US took till Roosevelt came to power and signed the 1934 Gold Reserve Act this raised the price of Gold to $35 an ounce.
During WW1 Germany never increased taxes but simply took loans, when the war ended she had to pay the loans and also the $33 billion. This was a national humiliation for Germany but by not having an army saved a lot. At a later stage the British were prepared to forgive their reparations if America would forgive the $ 10million they owed for their American War loans.
The demolition of the liberal settlement that Wilson championed a peace that should have been magnanimous to Germany so that world commerce could be unshaken from political restraint.
1922 Industrial Ruhr The peace gave France the coal , iron and steel properties from Germany. Victors and vanquished were bowed beneath this crushing ballast in the interwar decades. This settlement refused to accept the principle of racial equality and so Prince Fumimaro Konoya of Japan realized that Japan was relegated to 2nd class. So it later signed the Tripartite pack with Nazi Germany and Fascist Italy.
