Is the 1929 Drepression unavoidable?

[Geekhis Khan]

Quick question:

I see the stock market crash of '29 and ensuing depression appear in nearly every post-1850 AH that reaches that mark.

Was it really that predestined?

I know WWI was a large factor, as was unfamiliarity with how volitile the stock market could be, but since the idea of economic "bubbles" has been well documented at least since the Tulip Bubble in Holland couldn't more fiscally-realistic measures have minimized or eliminated the crash?

[catboy637]

There's several possibilities:
-No WWI (As you mentioned, it may have been a cause.)
-Longer WWI (More production past 1918 may mean longer lasting effest on economy.)
-Open free trade (Actually, might not work)
-Shorter WWI (More production, shorter war.)

Tell me if anything is wrong.

[TNF]

More oversight in Wall Street seems like it would seriously blunt the effects of a Depression, if not stop it in its tracks.

[Fearless Leader]

A "Great Depression" is avoidable in my opinion, a recession is not. There's no way you could create a scenario for infinite growth, the business cycle still applies. However the fiasco that created the Great Depression is certainly avoidable.

Exactly how one goes about avoiding it depends on who you ask. On one hand you've got your Keynesian Economists who advocate more reform and government intervention, and on the other hand you have your Libertarians who advocate for less government intervention.

Myself, I'm more of a Libertarian so my POD would be to get rid of Hoover. His actions in and around the stock market crash made a bad situation much, much worse. Though characterized as a "do nothing" President Hoover did infact do a number of things. In my opinion had America truly had a "Do nothing" president the likes of say, Calvin Coolidge, the Stock Market Crash of 1929 would have led to a recession that America would have easily bounced back from in a couple years.

[Jaded_Railman]

No Federal Reserve Act of 1913, no Great Depression. Of course, the butterflies are pretty immediate, anyway, considering the role of the Fed in financing the Entente in WWI.

EDIT: Oh, and it bears mentioning that the Stock Market Crash in 1929 and the Great Depression were not the same thing, and one did not cause the other. The Depression, that is, the vast increase in unemployment that began and lasted throughout the 30's, only started happening later on. The initial spike that hit after the crash only reached about 9%, before settling back down to 6%. Only later, after Fordism took over and we want back into what we thought was the comfortable shell of protectionism, did it break double digits and eventually hit 25%.

[Faeelin]

Originally Posted by Fearless Leader

Myself, I'm more of a Libertarian so my POD would be to get rid of Hoover. His actions in and around the stock market crash made a bad situation much, much worse. Though characterized as a "do nothing" President Hoover did infact do a number of things. In my opinion had America truly had a "Do nothing" president the likes of say, Calvin Coolidge, the Stock Market Crash of 1929 would have led to a recession that America would have easily bounced back from in a couple years.

What's the evidence for this?

[raharris1973]

Jaded Railman said:

No Federal Reserve Act of 1913, no Great Depression. Of course, the butterflies are pretty immediate, anyway, considering the role of the Fed in financing the Entente in WWI.

I think this warrants more discussion in its own right. First off, how would the financial history of WWI be without the Fed, and would entry in the war, if it occurred, have all by itself forced the creation of the Fed or a Central Bank.

Additionally, the implication I catch from the post is that Fed actively inflicted damage leading to the impression that state banks could not have inflicted under the pre-Fed system. Maybe there's an argument there.

However, not having the Fed would effect pre-1930s history. For example, in the account of Woodrow Wilson in the book, "The Leaders We Reserved" the author gives Wilson great credit for his management of the economy, which led to much better navigation of the business cycle in his term than among manyy other presidents of his era. Do we have deeper recession/depression in the Wilson administration? Beyond that, would the broadening prosperity of much of the 20s been negatively affected by not having the Fed?

[Tobit]

I have read that the Weimar government after wrestling with hyperinflation was a bit too deflationary in their currency policy, the same can be said for France, belgium and switzerland. Inflation is not a bad thing but instead can help if it is gradual.

I think the Fed argument is not adressing the global situation, and the mass unemployment and enacting of huge trade barriers not necessarily directly related to the stock crash. Also remember that during this time the Soviet Union was undergoing a huge economic boom while the rest of the world crashed. So if perhaps all across the world ruthless dictators starved their rural populations a whipped into existence infrastructure, the resulting crowding of the cities would affect huge industrial growth...

[Jaded_Railman]

Originally Posted by raharris1973

I think this warrants more discussion in its own right. First off, how would the financial history of WWI be without the Fed, and would entry in the war, if it occurred, have all by itself forced the creation of the Fed or a Central Bank.

The war wouldn't have lasted long enough for American intervention. At some point in late 1915/early 1916 the various Powers would have noticed they were substantially bankrupt and there would have been some sort of negotiated settlement.

Originally Posted by raharris1973

Additionally, the implication I catch from the post is that Fed actively inflicted damage leading to the impression that state banks could not have inflicted under the pre-Fed system. Maybe there's an argument there.

The Fed didn't actively inflict any damage, in fact it was largely responsible for the orderly recovery from the '21 recession. It was, however, responsible for the massive contraction of the money supply in the immediately post-crash era. Had we had a decentralized system of clearing-houses and deposit insurance companies like we did in 1907, there would have been a similar action to save the first banks which showed signs of weakness but were otherwise built on sound foundations, rather than the disastrous inaction of the Federal Reserve.

Things still had the chance to go south, I'll admit. If Hoover buckled under Fordist pressure and engaged in job protectionism unemployment probably would have still shot up, but it wouldn't have gone as high and recovery would have occurred faster.

Originally Posted by raharris1973

However, not having the Fed would effect pre-1930s history. For example, in the account of Woodrow Wilson in the book, "The Leaders We Reserved" the author gives Wilson great credit for his management of the economy, which led to much better navigation of the business cycle in his term than among manyy other presidents of his era. Do we have deeper recession/depression in the Wilson administration? Beyond that, would the broadening prosperity of much of the 20s been negatively affected by not having the Fed?

He probably gave him great credit for his actions in 1917 and 1918, when we shifted to a war economy. Leftists across the country saw this as a sign that the government 'could' manage the economy, and have maintained this line since. In fact, one of the major inspirations for the IRA of the New Deal was Wilson's handling of the war economy.

The prosperity of the 20's would have still been there. In fact, it probably would have been more sound growth, although possibly slower than OTL. The crash in '29 would have been milder and recovery quicker, if it happened in '29 at all (perhaps it would have occurred earlier). You see, it's really fucking difficult to predict financial shit more than a few months into the future after the PoD, let alone decades. With the vast butterflies of no Federal Reserve system, even politics isn't that easy to predict.

EDIT: Oh, and it bears mentioning that Fed policy (specifically, a purposeful hiking of interest rates) is the direct cause of the '29 stock market crash. They intended to pop the stock bubble that had been forming at the time, and they did.

[Patriot]

I think some more oversight on Wall Street certainly would have helped, they could pretty much do whatever they wanted. Some more confidence from Hoover probably could have helped a little as well. A recession was imminent, but not necessarily a depression.

[Geekhis Khan]

Alright, gettin' juicy!

On one hand we have an advocate agaist the Fed Reserve system.

On the other hand there's talk that stronger fed oversight would have mitigated it.

On the gripping hand there's a Libertarian calling for no action whatsovever!

This is why I love economic debate: pure chaos!

The one common thread seems to be "yes, it was avoidable or at least able to be mitigated". The disagreement seems to be in HOW.

Any other opinions?

[Dr. Nodelescu]

You can make the 1929 depression avoidable if you make it a 1928 or 1930 depression.

You may modify exact dates, but the great trend can't be reversed. Keynesianism was first proposed when the child already fell down the fountain. It's just like saying Weimar would have survived if you gave it the FRG basic law, the political actors first got enlightend AFTER the mess happened.

[Susano]

Originally Posted by Dr. Nodelescu

It's just like saying Weimar would have survived if you gave it the FRG basic law, the political actors first got enlightend AFTER the mess happened.

I cant stand this cult
Dam historic narrativism. Weimars constitution was superior to the basic law.

[Earling]

I tend to go with "do nothing" libertarianism however that won't work because it would only apply if taken globally as the American-centric approach is a nonsense. Further more once things are in motion they have to be undone.

0. Have the USA reduce the value of the war-loans or scrap them entirely. Probably politically impossible, but it would no doubt help.
1. Have the French raise the value of the Franc and have the British lower the value of Sterling in the late 20's. Even better get off the Gold Standard all together although thats not going to happen when things are working I guess.
1a. If no, atleast have the French not sterilize large amounts of Gold which they were acquiring by virtue of a low Franc. That won't see the supply of circulating gold fall to a point which has the Gold Standard implode.
2. Have no one adopt protectionism, pretty vital but will require considerable political strength, probably impossible.
2a. If some protectionism has to be brought in, keep it small and specific. Avoid big tariffs.

That should do it.

[perfectgeneral]

Tax the land's imputed rent value on an annual basis.

There is a limited supply of land (supply curve is vertical line). It isn't part of the free market and it isn't going anywhere. This tax should, eventually, take a majority share of the imputed (or actual) rent (producer surplus). To prevent shocks to the economy it should build-up gradually over a few decades (one percent a year for 100 years?) As revenue from the land value tax increases, other taxes should be reduced. In time land will effectively become nationalised and leased back. This should limit property based credit bubbles. Investment capital will move to the real economy.

Burst the bubbles and people have to earn a living. Speculation in unrealistic markets is like pyramid selling.

Regulation of credit rules and realistic assessment of risk (risk pricing) should limit consumer and business credit bubbles.

Burst the bubbles and people have to earn a living. Speculation in unrealistic markets is like pyramid selling.

Use the interest rate of the central bank to limit (say, 1% or 2% target) inflation, but allow clearing banks to set their own rates in competition with each other and to reflect free market forces. All money lent by banks must be secured by loans from the central bank or by deposits. Interbank lending has to be limited to a real economy.

Burst the bubbles and people have to earn a living. Speculation in unrealistic markets is like pyramid selling.

Get off the gold standard. Stay off the gold standard. Let the currencies float.

Water and mineral rights are also supply limited. Perhaps an oil tax, coal tax, gas tax, landfill, (ores and materials) extraction and water taxes might be in order too. The case is less clear as there is some variation in the supply from abroad. The supply curve for defence, customs and exise, public utility network infrastructure companies and emergency services are unusual. A large portion of their total costs are in the form of fixed costs. The supply curve for these is often constant (shown as a horizontal line). Perhaps the vertical lines should pay for the horizontal ones? This goes to the issue of public goods, club goods and common good (economics).

A street parking tax (pay and display) makes a good local tax too. It stops the end of off-street parking when you introduce land value tax.

[TNF]

Originally Posted by perfectgeneral

Tax the land's imputed rent value on an annual basis.

There is a limited supply of land (supply curve is vertical line). It isn't part of the free market and it isn't going anywhere. This tax should, eventually, take a majority share of the imputed (or actual) rent (producer surplus). To prevent shocks to the economy it should build-up gradually over a few decades (one percent a year for 100 years?) As revenue from the land value tax increases, other taxes should be reduced. In time land will effectively become nationalised and leased back. This should limit property based credit bubbles.

Regulation of credit rules and realistic assessment of risk (risk pricing) should limit consumer and business credit bubbles.

Burst the bubbles and people have to earn a living. Speculation in unrealistic markets is like pyramid selling.

Use the interest rate of the central bank to limit (say, 1% or 2% target) inflation, but allow clearing banks to set their own rates in competition with each other and to reflect free market forces.

Water and mineral rights are also supply limited. Perhaps an oil tax, coal tax, gas tax, landfill, (ores and materials) extraction and water taxes might be in order too. The case is less clear as there is some variation in the supply from abroad. The supply curve for public utility network infrastructure companies is unusual. A large portion of their total costs are in the form of fixed costs. The supply curve for these firms is often constant (shown as a horizontal line). Perhaps the vertical lines should pay for the horizontal ones? This goes to the issue of public goods, club goods and common good (economics).

A street parking tax (pay and display) makes a good local tax too.

Yay! Henry George!

[Snake Featherston]

No, something on that scale was simply unavoidable, especially if you look at the factors leading into it. WWI sped it up, but it might have come by the 1940s in the abscence of a general war in Europe anyhow. Some of the most critical factors in it were the theory of infinite growth to be gained by imperialism, the unrestrained growth of major capitalist industries (which we've seen what happened when they were de-regulated, this is when they were non-regulated, the increasing popularity of Marxism (and no WWI means no USSR to show exactly what made that a Very Bad Idea), and the general bubble itself that would have come bursting would have produced a Depression of equal severity. Whether the monarchical Europe of the Tsar and the Kaiser would have been able to keep a lid on that is a different question.

[Jaded_Railman]

Originally Posted by Earling

I tend to go with "do nothing" libertarianism however that won't work because it would only apply if taken globally as the American-centric approach is a nonsense. Further more once things are in motion they have to be undone.

0. Have the USA reduce the value of the war-loans or scrap them entirely. Probably politically impossible, but it would no doubt help.
1. Have the French raise the value of the Franc and have the British lower the value of Sterling in the late 20's. Even better get off the Gold Standard all together although thats not going to happen when things are working I guess.
1a. If no, atleast have the French not sterilize large amounts of Gold which they were acquiring by virtue of a low Franc. That won't see the supply of circulating gold fall to a point which has the Gold Standard implode.
2. Have no one adopt protectionism, pretty vital but will require considerable political strength, probably impossible.
2a. If some protectionism has to be brought in, keep it small and specific. Avoid big tariffs.

That should do it.

The reparations effect on the German economy, the weakness of the inter-war gold standard, and other things you mentioned (except for the protectionism) are things which made the economy weak, and vulnerable to a recession, but what made it a depression were the Fordist policies of the Hoover and Roosevelt administrations and the trade war triggered by Smoot-Hawley.

[Faeelin]

Originally Posted by Snake Featherston

No, something on that scale was simply unavoidable, especially if you look at the factors leading into it. WWI sped it up, but it might have come by the 1940s in the abscence of a general war in Europe anyhow. Some of the most critical factors in it were the theory of infinite growth to be gained by imperialism, the unrestrained growth of major capitalist industries (which we've seen what happened when they were de-regulated, this is when they were non-regulated, the increasing popularity of Marxism (and no WWI means no USSR to show exactly what made that a Very Bad Idea), and the general bubble itself that would have come bursting would have produced a Depression of equal severity. Whether the monarchical Europe of the Tsar and the Kaiser would have been able to keep a lid on that is a different question.

??? I have never heard this argument before, and it doesn't seem to make much sense. It's not like this was a period of limitless growth without sharp recessions.

[Snake Featherston]

Originally Posted by Faeelin

??? I have never heard this argument before, and it doesn't seem to make much sense. It's not like this was a period of limitless growth without sharp recessions.

The general theory of the times was that more applications of the hands-off approach would solve the general question that led to the Depression. That question was going to knock on the door regardless of WWI, it just sped it up by as much as twice as fast as it might have happened otherwise.

The recessions of the 1890s were going to get more and more serious as the first era of globalization that preceded 1914 continued. One of sufficient severity to our modern situation in the era before everyone was strongarmed into modern-style economics is perfect to create the exact situation people fear now.

After all, in 1914 the world was more integrated than nowadays...and there's been nothing to pressure government intervention on the scale of the 1930s without WWI....