Indeed so.The late Milton Friedman suggested that coming off the gold standard and expanding the money supply could have countered the deflation of the great depression.
one of the things they could have spent the money on was the bonus bonds.
or stopping runs on banks like the bank of the USA.
Bonus Army - Wikipedia
en.wikipedia.org
Bank of United States - Wikipedia
What Should Herbert Hoover Have Done Differently?
- Thread starter Amadeus
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So...the national economy in 1944 was as bad as it was in 1932? We fought all of WWII in a Depression? With 20+% unemployment?
Kevin,
Not 1944, 1945. It was a major concern that once the war ended, the Depression would resume. Things were kind of dicey in 1945-48. They passed a tax cut in 1945 that helped. It removed some of the New Deal taxes. There was another one in 1948 that kicked off the 50's economy.
Speaking about the War economy, it's striking how differently FDR managed the economy for WW2 vs Wilson in WW1. Wilson went big for central planning and failed miserably. FDR let the private sector lead the way with Federal investment and succeeded.
There were also "minor" policies like the Veterans Act. By late 20th century standards income tax levels were high and the gap between the incomes of blue collar workers and higher management low.
FDR had planning boards to co-ordinate industrial production and the allocation of inputs. Plus price controls and rationing. Not a laissez faire strategy at all.
I recommend Mark Harrington The Economics of World War II as a guide to how the US succeeded in being "The Arsenal of Democracy".
The libertarian idiocy about 1920-1921 knows no bounds.
1920-1921 was a case of a sharp rise in interest rates in response to inflation, followed by short economic down-turn. This brought inflation down, so interest rates were lowered, followed by economic recovery.
The Depression wasn't a matter of inflation. It was a matter of a collapse in demand. The solution to which was a stimulation of demand via Government spending and an expansion of the money supply via the abolition of the Gold Standard.
1920-1921 was a case of a sharp rise in interest rates in response to inflation, followed by short economic down-turn. This brought inflation down, so interest rates were lowered, followed by economic recovery.
The Depression wasn't a matter of inflation. It was a matter of a collapse in demand. The solution to which was a stimulation of demand via Government spending and an expansion of the money supply via the abolition of the Gold Standard.
Which is what FDR did.
I think if Hoover had taken similar measures, he'd probably still have lost in 1932 but his margin of defeat would be much more narrow and he'd be remembered as a well-meaning person who did his best in a bad situation rather than as a modern Nero who fiddled while Rome burned.
marathag
Banned
And Veterans returning home. Would there be jobs for them, as factories converted from War work, paid by the government, back to commercial goods?
It was a worry
Grand Admiral Thrawn
Donor
Can the president unilaterally go off the gold standard or lower the exchange rate, or does Congress have that power? "Nixon's shock" indicated the president does, but that seems crazy to believe early 20th century Congress gave up that power.
Congress enacted legislation in 1933 that effectively transferred that power to the President (or, more exactly, the treasury secretary), but Roosevelt took actions almost immediately upon assuming office that effectively suspended the gold standard. Probably Hoover could have persuaded Congress to enact similar legislation at some point, if he had lobbied for it.
Incidentally, the single strongest predictor of how severe the Depression was in a country was how long they tried to remain on the gold standard--the longer they did, the worse the depression. Conversely, countries that didn't use the gold standard at all were relatively unaffected. This is pretty much universal, so certainly the single most useful thing Hoover could do would be to end the gold standard at some point in his term instead of leaving it to Roosevelt.
Giving the veterans bonuses and extra education helped sustain consumer demand and improved the supply ofskilled and professional labour. Making a better outlook for firms to invest, hire workers and increase output.
More Keynrsian than Moneterist, though low interest rates and the maintainance of tight regulations on speculation, Deposit Insurance and Glass-Steagall helped too.
1. Rescue the Bank of the United States. The failure of this bank in New York had a negative effect at the worst time.
2. Better Federal Reserve appointments. New York Fed should have provided liquidity in 1929 to soften the Crash and limit its fall out. As troubles mounted, the Fed should have cut interest rates.
3. Veto the Smoot Hawley tariffs. Tariffs are taxes, they restrain commerce and production, invite retaliation, and deaden the economy.
4. Be willing to tolerate deficit spending. Spending doesn't stimulate the economy if it is offset by taxes.
5. Institute federal deposit insurance. Probably the single most important policy measure after fiscal and monetary stimulus. It heads off bank runs and permits the financial system to keep functioning. The expansion of deposit insurance to include larger deposits and interbank loans in 2008 is probably the most important factor in the resolution of the crisis.
6. If necessary either get off the gold standard or raise the price of gold. Again, this tends to fend off deflation.
I have read some comments that reflect the Classical school of economics and suggest just letting things work themselves out, arguing that in the long run this is the best solution. Years ago, one writer noted that "people don't eat in the long run." A massive deflationary recession in a modern economy has long lasting negative effects - a rise in suicides, a decline in births and marriages,malnutrition, interrupted education for millions of college and graduate students, the dismantling of the workforce and the decay of capital equipment. and of course, the rise of extremists (Hitler's rise was not caused by hyperinflation - that was long gone by 1933 - it was caused by a wrongheaded austerity program that intensified an already horrible depression).
A deflationary recession is an inexorable decline characterized by financial failure, reduced output, lower prices leading to the postponement of purchases awaiting further price declines, loan defaults due to the increase in the real principal amount owed, failure of financial institutions, layoffs due to the sticky nature of wages and the reluctance to reduce payroll expense by cutting wages and the choice to reduce headcount instead, and political and social instability.
2. Better Federal Reserve appointments. New York Fed should have provided liquidity in 1929 to soften the Crash and limit its fall out. As troubles mounted, the Fed should have cut interest rates.
3. Veto the Smoot Hawley tariffs. Tariffs are taxes, they restrain commerce and production, invite retaliation, and deaden the economy.
4. Be willing to tolerate deficit spending. Spending doesn't stimulate the economy if it is offset by taxes.
5. Institute federal deposit insurance. Probably the single most important policy measure after fiscal and monetary stimulus. It heads off bank runs and permits the financial system to keep functioning. The expansion of deposit insurance to include larger deposits and interbank loans in 2008 is probably the most important factor in the resolution of the crisis.
6. If necessary either get off the gold standard or raise the price of gold. Again, this tends to fend off deflation.
I have read some comments that reflect the Classical school of economics and suggest just letting things work themselves out, arguing that in the long run this is the best solution. Years ago, one writer noted that "people don't eat in the long run." A massive deflationary recession in a modern economy has long lasting negative effects - a rise in suicides, a decline in births and marriages,malnutrition, interrupted education for millions of college and graduate students, the dismantling of the workforce and the decay of capital equipment. and of course, the rise of extremists (Hitler's rise was not caused by hyperinflation - that was long gone by 1933 - it was caused by a wrongheaded austerity program that intensified an already horrible depression).
A deflationary recession is an inexorable decline characterized by financial failure, reduced output, lower prices leading to the postponement of purchases awaiting further price declines, loan defaults due to the increase in the real principal amount owed, failure of financial institutions, layoffs due to the sticky nature of wages and the reluctance to reduce payroll expense by cutting wages and the choice to reduce headcount instead, and political and social instability.
This should probably be number 1. As I noted above, the single most well-supported conclusion about any of the measures taken to fight the depression is that the faster you got off the gold standard the faster you recovered. This was true for rich countries (by 1929 standards) and poor countries, for European and Asian countries, for big countries and small countries. All of the other stuff you listed is also quite useful, of course, but this is probably the one measure that would have the biggest effects, or at least the most clearly-supported effects.
marathag
Banned
Easier to bail out the Southern Banks that set the stage for that disaster.
People were primed to yank their funds at the slightest whiff of trouble, after months of newspaper stories on banks dropping out, depositors losing all funds.
marathag
Banned
5 should be higher to head off the incoming bank failure problem.
Going off Gold helps in the mid and long term.
Kleins 'A Call to Arms' is another recommendation. A 800 page primer on the course of industrial mobilization 1938 to 1944. & yes the US was heavily invested in central planning. The difference is the mistakes made 1938-1941 are overshadowed by how it was eventually done right in the last three years. The Great War did not last long enough for Wilsons administration to learn from or correct mistakes. Many of the same mistakes were made early on, but Roosevelt & Co. figured it out and tried new techniques over four years until some minimal success was had. By the end of 1943 there was a 15,000+ man bureaucracy dedicated to allocating raw materials and coordinating production quotas across the US.
Two factors hindered industrial mobilization from the start. First there had never been any meaningful funding in the War Dept budget for proper planning of mobilization. The Army never had the officers or clerical staff to fully develop its war plans, mobilization plans, or industrial requirements. Marshal & his overworked staff spent the better part of three years playing catch up & chasing among target. Second. Was that until the DoW of Deember 1941 & accompanying legislation the Federal government had negligible power to set any priority to military contracts. The free market was still in effect & Ford Motor Co, Westinghouse, Corning, DuPont, ect... went for the more profitable civilian market, giving Federal contracts a low priority, or turning them down entirely. It was not until 1942 planning agencies in Washington were able to force the allocation of nitrates first to explosives and not to soaps, or rubber to Army tire contracts over tires for new Dodge passenger cars. Up through 1941 political groups across the spectrum failed to support effective control of resource allocation and the free market ruled.
The misunderstanding about industrial management during the war stems from that the planning boards and that 15,000 man clerical staff were managed largely by business managers or former business managers. Guys like Knudsen proved very effective at managing the US industrial plant on a consolidated basis. Roosevelt had by 1942 realized the weaknesses of his New Dealers and others in actual industrial management. So, with some irony he had successful managers of capitalist industry running a socialist command economy. It was imperfectly ugly but worked well enough for the moment.
The depression was a series of banking failures and a shirking of the money supply leading to less demand and lower prices.
protectionism in the 1930s did not help either
Smoot–Hawley Tariff Act - Wikipedia
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Cryostorm
Monthly Donor
It also means people get paid less. This is why deflation was usually the sign of bad times as anyone with loans, like farmers, homeowners, and businesses, would fail as their income would drop while their loan bills did not, eventually resulting in bankruptcy. Especially since it wrecked exports by making it more expensive to buy locally produced goods overseas.
Deflation only helps those who have no debt and large capital already in hand.
Depends on what you mean by deflation.
The Austrian school of economics defines deflation as a shrinking of the money supply and this can lead to lower prices but also a resession if not depression.
Yes, the point being that there was no issue with inflation. Hence 1920-1921 being irrelevant.The depression was a series of banking failures and a shirking of the money supply leading to less demand and lower prices.
protectionism in the 1930s did not help either
Hoover not signing the Smoot Hawley Tariff Act could have helped.Smoot–Hawley Tariff Act - Wikipedia
(The collapse in demand being aggravated by mass unemployment, of course. The unemployed tend to buy less. And for that matter, the 1920s concentration of wealth did not help matters either).
No Smoot-Hawley woud have been a good thing, but honestly, would have had little effect on the Depression.