Each year that goes by, the further we trail away from the tragic occurrences of the Great Depression that began in 1929. It was a time all on its own and for many Americans, life became a living hell. The times were very unique with severe heart-ache and unbearable stress for the millions that were impacted. Was the Great Depression necessary? Did this country really need to go through a decade long deep rooted financial disaster? What was the real cause? Was it small government, lack of oversight, or sheer speculation that needed to be governed by Keynesian policies?
After the return of the soldiers from World War I and the decimated remains of the economy after Woodrow Wilson, America was headed for a depression in the early 1920s. Something that is not taught in American schools is that we avoided this severe depression by cutting government, cutting taxes, and facilitating growth through the conservative leadership of Warren G. Harding and Calvin Coolidge. It was actually these men who refrained from government that turned the economy around that started the party of the 1920s that became affectionately known as the “Roaring 20s.” During this time, wages rose, businesses grew, and life in America was limitless. Many positives during this time took place such as cost of living coming down, the dollar strengthening, and national debt being cut. Automobiles became the number one selling item in the country as cars became more affordable. This industry influenced other industries such as steel, rubber, paints, and glass. Aggressive expansion of the roadways and highways came as a result of the automobile explosion. Radio, movies, and advertising were on the move which were a huge aspect to the “Roaring 20s.” By 1929, industry sales had increased to 850 million dollars having grown rapidly through the boom years. Advertising was everywhere with consumer products that we still know today popping up in movies, radio, and publications. Advertising revenues were bursting at the seams growing from 1.3 billion in 1915, to 3.4 billion in 1926.
During the 1920s, cost efficiency of goods was going so well that Americans not only had enough money to sustain their needs, but to fulfill their desires. Production of consumer goods increased during this time by 43%. Many consumer stores came around including J.C. Penney, Sears, Roebuck & Company, Montgomery Ward, etc.
The stock market, something that was very primitive and undiscovered to many Americans, became a huge factor in the 1920s. For almost 8 years straight, stock values went up and there seemed to be no wrong doing in the world of stocks during this time period. Similar to the real estate boom we saw recently, there was an illusion of unbounded opportunity that people were going to ride this wave forever and there would be no end. Conventional wisdom economists during this time period were talking about this era of prosperity that would never end and a new America that was on the verge of abolishing poverty. Of course as we later find out this excess speculation was a factor that caused a crash in the stock market. But, could this have been a normal cyclical recession that economies go through? Why did the next ten years in history become known as the “Great Depression?”
Interestingly enough, the real economy started to cool during 1928 with a complete disconnect in the stock market that continued to skyrocket. Keynesians would have you to logically believe that it was small government, lack of oversight, and all speculation that caused the Great Depression.
There seemed to be no end to the life of leisure and fun. In 1929, all the hope and promise of a new era of timeless prosperity converged.
On August 27, 1929, the Dow Jones Industrial reached its all time high. On Wednesday, October 23rd, initial panic occurred which began to drive down prices of blue chip stocks. The next day was followed with fear and frenzy with brokers unloading large amounts of margin accounts. That morning, in less than 2 hours, 10 billion dollars invested in the stock market was gone simply evaporating into thin air. Crowds were in the streets hoping for some sort of miracle to take place. There was an announcement that wealthy bankers were going to pump millions into the stock market to stimulate growth which excited those on the streets and gave them short term hope. That Friday, the markets appeared to be stabilized and the banks pulled out their funds. Tuesday, October 29, 1929, known as “Black Tuesday,” had another storm of selling and only this time was not artificially stopped. A record 16 million shares were traded that day with a loss of another 14 billion dollars. This day marked the beginning of the Great Depression. As far as Wall Street was concerned for the main population, get rich quick was not an option the way it had been before the stock market crash.
The years to come were some of the roughest years the country has seen. At the peak, 1 in 4 Americans were out of a job with many taking severe paycuts. In 1929, the average manufacturing wage was 55 cents per hour. By 1933, only 4 years later, this number dropped to 5 cents per hour. Soup kitchens and breadlines were being established to accommodate the crowds of displaced families that became helpless. For men and families who couldn’t find jobs, they migrated from town to town looking for new opportunities but were left out of luck in so many instances. There was a growing gap of the “haves” and “have-nots.” The more hurting and suffering that went on, the more America surrendered the free market over to the government for an answer.
Now was it the stock market crash that really caused a decade long depression or was there another load of weight holding back the economy?
Taxes on the wealthy was raised in 1932, the stiffest tax hike ever recorded in history from 25% to a rate of 63%. The highest it got was under FDR who raised it to 79%. During this time, even some of the states were starting to get involved in wanting a piece of the pie from the taxpayers of the time. World trade restrictions were imposed with a 59% import tariff on more than 25,000 products. By 1933, world trade was down to 1/3 of 1929 levels. The New Deal had a frenzy of government interventions that intruded on the free market so much that only favored interested parties and was not a benefit for the common man. During this time, the government intervened and actually mandated that farmers and producers destroy supplies and commodities to artificially keep prices high. Of course this increased unemployment and put a heavier burden on families. While millions of Americans were suffering and going hungry, the government destroyed just under 10 million acres of crops and slaughtered 6 million pigs cutting supply. Other “New Deal” consequences that prolonged the depression included a mandate on businesses to pay higher wages with new programs such as Social Security, new minimum wage laws, excessively high wages for federal contracts, and more. Unions expanded tremendously under these new laws. While millions of federal jobs were created during the 1930s, the private sector was decimated.
It was so easy to blame the boom and the success of the 1920s for the deep rooted depression of the 1930s, however, this depression was supposed to take place 10 years prior. The fact that fiscal responsibility and small government is what saved this country is nowhere to be found and something so contrary to the mind-set of progressive America. The hardship of the 1930s was dragged on and suffocated by the actions of large oppressive government. It’s hard to say if the real story of the Great Depression will ever be widely known as Conventional Wisdom. Actions taken by our government today with our economic crisis are similar to what we saw during the 1930s, prolonging and burying this country further and further into a deeper hole that will only be reason for more and more government. Are we really going to have to go through another decade long depression or something worse? The answer is clear. It’s tyranny to the constitution when people blame the economy on the free market and capitalism which is why it’s important to educate and know the truth.
“Now I believe I can hear the philosophers protesting that it can only be misery to live in folly, illusion, deception, and ignorance, but it isn’t– it’s human.” -Desiderius Erasmus
Opt-out of conventional wisdom!!!