When Deja Vu is no Better than Hind Sight
“The stock market has taken its sixth big loss, plummeting the values of this year’s shares twenty percent lower than last year’s holdings. The decline has greatly strained the banks and other financial institutions, particularly those holding stock in their portfolios. Eleven thousand banks have closed, reduced spending has decreased demand for production, while manufacturing has fallen by fifty-four percent. Twenty-five percent of the work force is currently unemployed.”
Does this sound like today’s news? Tomorrow’s headlines? Actually, this was the scenario for 1929, while the economy shuddered into a depression, creating a world wide panic, and eventually; a second world war. The U.S. stock market was booming in the nineteen twenties.. Measured as a multiple of corporate dividends or corporate earnings, that left no tangible means of valuation, historians suspect that at least forty percent of the stock market appraisals were thin air; prices well above their fundamental value for no other reason than that a wide cross-section of investors thought that the stock market would go up because it had gone up.
Eventually, it reached its maximum capacity. Goods and services had out-stripped the public’s ability to pay for them. What began in the United States quickly turned into a worldwide economic recession. This was largely due to the intimate relationships that had been forged between the United States and European economies after World War I. The United States had emerged from the war as the major creditor and financier of postwar Europe, whose national economies had been greatly weakened by the war itself, by war debts, and, in the case of Germany and other defeated nations, by the need to pay war reparations. Without the stimulus of American credit, Europe was faced with stabilizing its own faltering economy. The Depression hit hardest those nations most deeply indebted to the United States, i.e., Germany and Great Britain. In Germany, unemployment rose sharply beginning in late 1929, and by early 1932 it had reached 6 million workers, or 25 percent of the work force. Britain was less severely affected, but its industrial and export sectors remained seriously depressed until World War II.
Almost all nations sought to protect their domestic production by imposing tariffs, raising existing ones, and setting quotas on foreign imports. The effect of these restrictive measures was to greatly reduce the volume of international trade: by 1932 the total value of world trade had fallen by more than half as country after country took measures against the importation of foreign goods.
There were those who claimed that the Federal Reserve had created the stock market boom and subsequent crash, through “easy money policies”. Said Friedrich Hayek, an outspoken statesman of the times, “I should have expected that the subsequent depression would be very mild. But in that year an entirely unprecedented action was taken by the American monetary authorities [who] succeeded, by means of an easy-money policy, inaugurated as soon as the symptoms of an impending reaction were noticed, in prolonging the boom for two years beyond what would otherwise have been its natural end. And when the crisis finally occurred, deliberate attempts were made to prevent, by all conceivable means, the normal process of liquidation.”
The “leave it alone” liquidation theorists were headed by Secretary of the Treasury Mellon. He felt if the government left things alone, the slump would take care of itself. He had one formula for investors: “Liquidate everything. Liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate”.
Backed by the leading economists, President Herbert Hoover resisted calls for government intervention on behalf of the individuals. Herbert’s efforts consisted cutting most services and spending mainly to stabilize the business community, believing that prosperity would eventually “trickle down” to the poor majority. His policies did not work. The trickle was either too slow or not enough. When Franklin D. Roosevelt arrived on the scene to challenge the Presidency in 1932, Hoover was easily defeated.
President Herbert Hoover resisted calls for government intervention on behalf of individuals. He reiterated his belief that if left alone the economy would right itself and argued that direct government assistance to individuals would weaken the moral fiber of the American people. Hoover further believed that during hard times the government should adopt austerity measures, that is, cut spending even further. Forced by Congress to intervene, Hoover did so reluctantly, concerned about both unbalancing the federal budget, and, even more importantly, violating his laissez-faire principles. Hoover’s efforts consisted of spending to stabilize the business community, believing that returning prosperity would eventually “trickle down” to the poor majority. The poor majority proved unwilling to wait. Branded by his many detractors as cold and uncaring, Hoover was easily defeated in the presidential election of 1932 by Democrat Franklin D. Roosevelt.
The Radical Ends of Policy
During Roosevelt’s first one hundred days, he worked frantically on the implementation of what he called, “The Deal”. Factories were closing, along with farm foreclosures, and continuing bank failures increased. Unemployment soared to a staggering thirty percent, creating the greatest internal crisis since the Civil War. .. To halt depositor panics, his first act as President was to declare a four day bank holiday. During this time, Congress drafted the Emergency Banking Bill of 1933, which stabilized the banking system and restored the public’s faith in the banking industry by putting the federal government behind it. His measures included working with a special session of Congress, passing recovery legislation which set up alphabet agencies such as the AAA (Agricultural Adjustment Administration) to support farm prices and the CCC (Civilian Conservation Corps) to employ young men. Other agencies assisted business and labor, insured bank deposits, regulated the stock market, subsidized home and farm mortgage payments, and aided the unemployed. These measures revived confidence in the economy. Banks reopened and direct relief saved millions from starvation. But the New Deal measures also involved government directly in areas of social and economic life as never before and resulted in greatly increased spending and unbalanced budgets which led to criticisms of Roosevelt’s programs. However, the nation-at-large supported Roosevelt, elected additional Democrats to state legislatures and governorships in the mid-term elections.
By 1935 the Nation had achieved some measure of recovery, but businessmen and bankers were turning more and more against Roosevelt’s New Deal program. They feared his experiments, were appalled because he had taken the Nation off the gold standard and allowed deficits in the budget, and disliked the concessions to labor. Roosevelt responded with a new program of reform: Social Security, heavier taxes on the wealthy, new controls over banks and public utilities, and an enormous work relief program for the unemployed.
While America stumbled through the Depression years with a series of social programs designed to prop up the economy, Germany was creating its own solutions. The young Democratic Republic, fashioned at the end of World War I, flourished during the brief period of prosperity kindled by corporate spending, but staggered when manufacturing and industry shut down following the stock market crash. The middle class collapsed, leaving millions starving in the streets. They were desperate for a solution; any solution.
The crisis of the Great Depression brought disunity to the political parties in the Reichstag. Instead of forging an alliance to enact desperately need legislation, they broke up into squabbling, uncompromising groups. In March of 1930, Heinrich Bruening, a member of the Catholic Center Party, became Chancellor.
Despite the overwhelming need for a financial program to help the German people, Chancellor Bruening encountered stubborn opposition to his social plans. To break the stalemate, he went to President Hindenburg, petitioning the elderly statesman to invoke Article 48 of the German constitution which gave emergency powers to the president to rule by decree. This provoked a huge outcry from the opposition, a group of anti-Marxists headed by Adolf Hitler, who insisted Chancellor Bruenings proposals would only lead the country into more debt.
Hitler’s whirlwind campaign began with press releases, advertising, hand pamphlets, radio and television appearances, and even extended to jumping from airplanes into the arms of his adoring fans, then lifting up again with promises of husbands for every Nazi woman. Hitler offered something to everyone; work to the unemployed, prosperity to failed business people, profits to industry, expansion to the Army, social harmony and an end of class distinctions to idealistic young students, and restoration of German glory to those in despair. He promised to bring order amid chaos, a feeling of unity to all and the chance to belong. He would make Germany strong again, end payment of war reparations to the Allies, tear up the treaty of Versailles, stamp out corruption, keep down Marxism, and deal harshly with the Jews.
On election day September 14, 1930, the Nazis received 6,371,000 votes, over eighteen percent of the total, and were thus entitled to 107 seats in the German Reichstag. It was a stunning victory for Hitler. Overnight, the Nazi party went from the smallest to the second largest party in Germany.
By 1933, Hitler had established himself as the dictator of Germany. By pressuring the President to sign an enabling act, he began assembling prison camps for enemies of the state, gave full pardon for any Nazi in prison; opening the doors to a number of thugs and murderers; and allowed for the arrest of anyone suspected of maliciously criticizing the government and the Nazi party.
While Roosevelt was busy dismantling the American manifesto of the Monroe Doctrine, Germany elaborated on its own manifest destiny. The Nuremberg laws were set into place in 1935, limiting the rights of Jews in the interest of keeping “German blood pure”. Funds for retirement pension and health insurance were emptied out and channeled into the military. All citizens became subjects of the fuhrer from birth. Children were wards of the state and placed wherever the fuhrer saw fit for their education and indoctrination.
While Roosevelt worked to establish an accord with the European nations, Hitler plotted war. His military machine, now comprising of 550,000 enlisted men, marched into the Rhineland and invaded Versailles. With scarcely more than a protest, with a world struggling to regain its footage after an economic collapse, the Second World War began.
Here We are Again
Although most people shudder at the years of the holocaust, believing they’ve learned their history lesson and there will never be another mass extermination, they’ve failed to take into account the forces that made it possible for a man like Hitler to come to power. Ideologies are easy when they are not under duress. When America was faced with a free enterprise system that had failed to grant equal opportunity and greater distribution of the wealth, they chose a social program, electing Roosevelt to the presidency not just once, but four times. When Germany faced a passive democratic government, apparently unable to resolve the problems of its bankrupt economy, it chose militarization.
What America has failed to learn is how to maintain an equilibrium between government for the people and the industrial needs for revenue. Roosevelt died just a month before the war ended, failing to realize any of the effects of his long term plan for the New Deal. The newly elected President Eisenhower felt Roosevelt’s socialistic agenda would discourage business investments and undermine the spirit of American free enterprise. During his years of office, he dismantled many parts of it, setting into place instead, a program for witch hunting communists, a policy of open arms for major industry, and the rudiments of a massive defense system. America began to thrive again.
It has taken eighty years to come full circle and arrive at the same financial circumstance where speculation has disabled the ability to spend and over-production has resulted in down sizing and subsequent unemployment. Eighty years in which an entire generation has passed away, forgetting its economic lessons, and another that boomed on the shirt tails of the war, reaches its retirement years, remembering nothing except the post war energetic dynamics. The effects of inflationary practices remain the same, but the face of America has changed. It has become more aggressive. It has actively engaged in conflicts beyond its boundaries, abandoning the earlier policies of non-intervention. Youth who see no prospects open in civilian work, join the armed services for the pay and the opportunities promised. Basic rights, such as unencumbered travel and privacy have been freely surrendered for a false presence of security.
The eleventh hour is upon us; the evening of decision that can lead us into a new era of greatness or deplorable misery. History has shown us two diverse paths; each springing from the same set of economic irregularities. That we could take either path is unmistakable. The stage is as easily set for a dictatorship as it is for a socialized environment. Much depends on the will of the people. What we set in place; what we demand as solutions; will, in its own time be set in motion. Ultimately, our leaders are only a reflection of our choices. If we are to be a people of vision, of progressive understanding and conviction in the evolvement of intellectual awareness; perhaps we can find a third path; one that truly reflects that we have entered a new era.
“The stock market has taken its sixth big loss, plummeting the values of this year’s shares twenty percent lower than last year’s holdings. The decline has greatly strained the banks and other financial institutions, particularly those holding stock in their portfolios. Eleven thousand banks have closed, reduced spending has decreased demand for production, while manufacturing…