The Great Depression: Crash Course US History #33

Hi, I'm John Green, this is the

crash

course

in US

history

and Herbert Hoover is here, which is never a good sign. Today we'll return to two of my favorite topics: economics and inaccurate naming conventions. That's right, we're going to talk about the Great Depression, which was only cool if you like being a hobo or selling pencils. Now, some of you might be feeling a little frustrated today because there is no real consensus about the Great Depression, and simple, declarative statements about it really say a lot more about you than they do about

history

. Why are you looking at me, Mr.

Green? I said nothing. I thought so. Because, Past Me, you always want things to fit into this simplistic narrative: she loves me, she loves me not, the Great Depression was caused by x or it was caused by y. It's complicated! (Intro Music) Many people tell you that the Great Depression began with the stock market

crash

in October 1929, but a) that's not true and b) it leads people to confuse correlation with cause. What we consider the Great Depression began AFTER the stock market crash, but not because of it. As we saw last week, the underlying economic conditions in the United States before the stock market crash were not all moonshine and rainbows.

The 1920s were characterized by large-scale domestic consumption of relatively new consumer products, which was good for American industry. But much of this consumption was driven by credit and installment purchases, which turned out to be totally unsustainable. The thing about credit is that it works well unless and until economic uncertainty increases, at which point POW. By the way, that's a historian's technical term. Meanwhile, the agricultural sector suffered during the 1920s and agricultural prices continued to fall for two reasons. First, American farms had expanded

great

ly during World War I to provide food for all those soldiers, and second, the expansion led many farmers to mechanize their operations.

As you know if you've ever bought a tractor, such mechanization was expensive and many farmers went into debt to finance their expansion. And then a combination of overproduction and low prices meant their farms were often seized. And throughout the decade other signs of economic weakness appeared. As in 1925, the growth of automobile manufacturing slowed, along with residential construction. And worst of all was what noted left-wing radical Herbert Hoover called "an orgy of mad speculation" in the stock markets that began in 1927. By the way, I'm joking about him being a left-wing radical. Look at it. According to historian David Kennedy, "In 1929, commercial bankers were in the unusual position of lending more money for investments in the stock market and real estate than for commercial enterprises." I wonder if we would ever find ourselves in that position again.

Oh, sure, we did that in 2008. Anyway, it's tempting to see the stock market crash as the cause of the

depression

, possibly because it turns American economic history into a morality play, but the truth is that the stock market crash stock market and

depression

were not the causes. the same thing. A lot of rich people lost money in the market, but what made the Great Depression the Great Depression was the mass unemployment and the hardships that came with it, and this didn't really start until 1930 or 1931. The end of 1929 was actually good. Unless you were a farmer. Or a stockbroker, obviously.

So what really caused the Depression? Well, that's a

great

question and one that economists have wrestled with ever since. They want to know to prevent this from happening again. No pressure, economists. Only 3% of Americans owned stocks, and the markets regained much of their value in 1930, although then they went down again because, you know, there was a depression. And although big banks and corporations were buying a lot of stocks, much of it was with borrowed money, known as margin buying, and all of that was still nowhere near an iceberg big enough to sink the world economy. . But if I had to name a single cause of the Great Depression, it might be the weak American banking system.

Alright. Let's go to the thought bubble. Although the Federal Reserve system was created in 1913, the vast majority of American banks were small, individual institutions that had to rely on their own resources. When there was panic and depositors rushed to withdraw money from the bank (as they do in the dark arthouse film Mary Poppins), the bank failed if it did not have enough money in reserve. Then, in 1930, a wave of bank failures began in Louisville that later spread to Indiana, Illinois, Missouri, and eventually Arkansas and North Carolina. As depositors lined up to withdraw their money before the banks failed, banks took out loans and sold assets.

Ultimately, this meant that credit was frozen, which is what really destroyed the economy. A frozen credit system meant there was less money in circulation, and that led to deflation. Now you're probably thinking, "Big deal, deflation can't be as bad as inflation, right?" No. Deflation is much worse, as anyone who has ever slept on an air mattress knows. When prices fall, companies reduce costs, mainly by laying off workers. These workers then cannot buy anything, so inventories continue to rise and prices fall even further. Banks did not lend money, so employers could not borrow to pay their workers and more and more businesses went bankrupt leaving more and more workers unable to purchase the goods and services that would keep the businesses open.

So if we have to blame the Great Depression on someone, we can blame the banks, which is not entirely wrong, and gives us the opportunity to shake our fist at Andrew Jackson, whose distrust of central banking got us into trouble. in this mess. first of all. It's probably too simple, but the Federal Reserve deserves a lot of the blame for not bailing out the banks and pumping money into the economy to combat this deflationary cycle. Thanks, thought bubble. So economics zealots might be saying, "Why didn't the Hoover administration undertake some kind of old-fashioned Keynesian preparation?" The idea is that if governments implement large-scale economic stimulus and a series of infrastructure projects, they can create a fund that stops the deflationary cycle.

And that often works, but unfortunately the Hoover Administration didn't have a TARDIS. John Maynard Keynes's great work, The General Theory of Employment, Interest and Money (he wasn't very good with titles) was not published until 1936, when the Depression was already underway. Venturing for a moment into the green nightmare of non-America, Herbert Hoover offered in his memoirs a comprehensive explanation of the global phenomenon that was the Great Depression. He claimed that the main cause of it was the First World War. And to be fair, the war set the stage for a global economic disaster because of the web of debt and reparations it created.

For example, under the Treaty of Versailles, Germany had to pay $33 billion in reparations, mainly to France and Britain, which it could not pay without borrowing money from... American banks. In addition, Britain and France owed the United States $10 billion, part of which those countries repaid with German reparations. But then, once American credit dried up, as it did after the stock market crash and American bank failures, the economies of Germany, France, and Britain also fell off a cliff. And then, with the largest non-U.S. industrial economies in complete upheaval, fewer people abroad could buy American goods, or French wine, or Brazilian coffee, and world trade ground to a halt.

And then, when what the world really needed was more trade, the United States responded by raising tariffs to their highest levels with the Hawley Smoot tariff, a law that was as bad as it gets. The idea of ​​the high tariff was to protect American industry, but since Europe responded with its own high tariffs, that only meant there were fewer buyers for American goods, less trade, fewer sales, and ultimately fewer jobs. So what did Hoover do? Is not sufficient. It is important to remember that the American government is not just the president. Hoover could not always get Congress to do what he wanted, but his political ineptitude was not particularly surprising because the first elected office he ever held was that of President of the United States.

Take as an example the issue of foreign debt. Hoover proposed a moratorium on intergovernmental debt payments and actually got Congress to approve it, but it was not enough, mainly because central bankers in Europe and the United States refused to abandon the gold standard, which would have allowed governments devalue their currency and inject the necessary money into their economies. And when Britain, rather heroically I might add, abandoned the gold standard in 1931 and suspended payments in gold, the United States did not follow suit, which meant that global financial markets froze even further. This is a little complicated, but you and I have always used Cheetos as a currency to exchange goods and services and one day I announced that we can no longer do so because it does not give us the flexibility we need to get out of this deflationary spiral.

If I don't also agree to give up Cheetos, then it will be a total disaster, which it was. And then, worse still, the Federal Reserve raised its discount rate, making it even harder to get credit. By the end of 1931, 2,294 American banks had failed, twice as many as had failed in 1930. Now, it's easy to criticize poor Herbert Hoover for not doing enough to stop the Great Depression, and he probably didn't do enough. but part of that is due to our knowledge of what happened next: the New Deal. That FDR at least tried to do something about the Depression makes us forget that when Hoover was president, orthodox political and economic theory advised doing nothing.

And at least Hoover didn't follow the advice of his Treasury Secretary, who, according to Hoover, argued that the solution was to "liquidate labor, liquidate inventories, liquidate farmers, liquidate real estate," which sounds like the worst shake. ever. Instead, Hoover believed that the best

course

of action was to "use the powers of the government to cushion the situation" and at a meeting at the White House he persuaded a large number of industrialists to agree to maintain wage levels. He also got the Federal Farm Board to support agricultural production and won congressional approval for $140 million in new public works.

Overall, he nearly doubled federal spending on public works between 1929 and 1931. It simply wasn't enough. Because what Hoover did not allow was the federal government to take full charge of the situation. It relied primarily on private companies and state and local governments to stimulate the economy, and that was insufficient. This is not surprising when you consider that in 1929 federal spending represented 3% of our gross domestic product. Today it is more like 20%. So it was really hard to imagine the federal government doing something on such a large scale to address a national problem because it had never done so much before.

Hoover also raised taxes as part of a plan to stabilize the banks by balancing the federal budget, giving confidence to foreign creditors and preventing them from purchasing American gold. This would support the bonds and also keep the federal government out of competition with private borrowers. The Revenue Act of 1932 was passed by Congress, but it did little to stop the Depression. In fact, you could say it made things worse. Ultimately, though, this dire situation forced Hoover to take truly radical action. In January 1932, he and Congress created the Reconstruction Finance Corporation, which was basically a federal bailout program that borrowed money to provide emergency loans to banks, building and loan societies, railroads, and agricultural corporations.

The problem was that in 1932 bailing out the banks was not enough and the Great Depression began to take shape. By early 1932, more than 10 million people were out of work, 20% of the workforce. And in big cities the numbers were even worse, especially for people of color. For example, in Chicago, 4% of the population was African American, but they made up more than 16% of the unemployed. Although Hoover claimed that no one went hungry, which was a bit of a let-them-eat-cake, people did look for food in trash cans. And many Americans were forced to ask for help. Hoover's response was to try to encourage private charity through the unfortunately acronym Presidential Relief Organization.Unemployment.

OR "POUR". New York City government relief programs increased from $9 million in 1930 to $58 million in 1932, and private charitable donations increased from $4.5 million to $21 million, and that sounds great until you realize that The total of $79 million that New York City spent on relief in 1932 was less than ONE MONTH of lost wages for the 800,000 people who were unemployed. Oh, is it time for the Mystery Document? I hope it's a break from the unrelenting misery. Probably not. The rules here are simple. I guess the author of the Mystery Document usually fails and is surprised by the impact pen, which is a real impact pen, no matter what they say.

Alright, what do we have here? "We sit looking at the ground. No one dares to think about the coming winter. There are only a few days of summer left. Everyone is eager to get work to prepare something for that long siege of intense cold. But there is no work . Sitting in the room, we all know it. That's why we don't talk much; we look at the ground with fear of seeing that knowledge in the eyes of others. It's too terrible to see this animal terror in each other's eyes." I mean, Stan, unemployment was 25% and this could be literally any of those people.

I'm guessing it's a woman, because the men were usually on the road trying to find work while women went to these offices to look. I mean, there could be many. I have no idea, Meridel Le Sueur? Maybe we should hire her. Crash Course we try to show how conventional wisdom about history is not always correct. But in the case of the hardships experienced during the Great Depression, it really is. of Wrath by Okies leaving the powder keg in the usually vain hope of a better life in California, tells the story better than I can. Thousands of Americans hit the road in search of work and thousands more lined up for bread.

There were homeless slums called Hoovervilles, and there were protests, such as the Bonus March on Washington by veterans seeking early payment of a bonus they were owed in 1945. Much of the debate surrounding the Great Depression revolves around the causes, while there are still more concerns about the extent to which the federal government's final response, the New Deal, actually helped end the Depression. Those questions are controversial because they are still relevant. We are still talking about how to regulate banking. We're still talking about what the government's role should be in economic policy and whether a strong federal government is ultimately good or bad for an economy.

And what you think about the government's role in the Great Depression will depend on how you feel about government in general. That said, we must not allow our ideological feelings about markets, governments, and the economy to obscure the suffering that millions of Americans experienced during the Great Depression. For generations of Americans, it was one of the defining experiences of their lives. Thanks for watching. I will see you next week. Crash Course is produced and directed by Stan Muller, written by Raoul Meyer and made with the help of all these nice people. And it is possible thanks to your support through Subbable.

These videos are only possible thanks to the support that Crash Course viewers give to the show monthly through Subbable. There is a link in the video information if you would like to join those subscribers. Cool benefits and such, but mainly educational videos available for free to everyone forever. Thank you for watching and supporting Crash Course and as we say in my hometown, don't forget to be awesome... I'm going to reach the world! He got over it.