America's Great Depression (41 page)

This self-destructive threat to return to a barter economy was originally supposed to last a month as a warning to the rest of society. But, by the fall of 1932, the movement had become a continuing mob. Centering in Sioux City, Iowa, the movement spread, and state units were formed in North and South Dakota, Minnesota, Montana, and there was agitation in Illinois, Wisconsin, Nebraska, and Kansas; but the units did not form a very cohesive front. The 25At the end of 1931, Secretary of Agriculture Hyde was advocating the replacement of our traditional “planless” agriculture by a program of government purchase and reforestation of submarginal lands. “Hyde, however, had rejected as incompatible with American liberty the proposal of Senator Arthur H.

Vandenberg (R., Michigan) to compel farmers to curtail their production.” Gilbert N. Fite, “Farmer Opinion and the Agricultural Adjustment Act, 1933,”
Mississippi Valley Historical Review
(March, 1962): 663.

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farmers soon shifted from attempts to persuade their fellows to outright physical violence. As is often, the case, when the strikers found that they were starving due to their own policies, while their non-striking colleagues were thriving, they attempted to force the hated “scabs” to lose
their
income as well. In August, in Sioux City, scene of the first farm strike, strikers blockaded roads, used guns to enforce their commands, stoned buildings, and forcibly stopped transportation.26 Strikers formed their own aggressive private army, the Khaki Shirts of America. And Governor Floyd Olson of Minnesota offered to use the state militia to enforce an embargo on the “export” of all farm produce from his state, provided that all the other farm-state governors would join. Happily, his offer was refused. All this agitation failed to raise prices; in fact, more goods flowed in from non-striking (largely non-Iowa) sources, and prices continued to fall rapidly. By the end of 1932, the farmers’ holiday movement had ended—with the exception of North Dakota, where a farmers’ convention urged farmers to organize a council of defense, and to strike and refuse to farm for the market until prices had risen to the farms’ cost of production.

Although they failed in their main objective, the farm councils managed to scale down farm mortgages, worth hundreds of thousands of dollars, and farmers also organized “penny sales,” where they forcibly barred other than a bankrupt farmer’s friends from attending the auction sale of his goods. The friends would buy the goods for a “penny,” and then return it to the bankrupt. The low point of this criminality occurred in April, 1933, when a gang assaulted and almost hung an Iowa county judge for refusing to agree to their demand that he order no more farm foreclosures.27

26There were also “milk strikes” in some areas, with milk trucks seized on the roads, and their contents dumped upon the ground. Wisconsin and California, in 1932, pioneered in setting up state milk controls, amounting to compulsory milk cartellization on a state-wide level. See Benedict and Stine,
The Agricultural
Commodity Programs
, p. 444.

27See Fred A. Shannon,
American Farmers’ Movements
(Princeton, N.J.: D.

Van Nostrand, 1957), pp. 88–91, 178–82.

The Depression Begins: President Hoover Takes Command
237

And in February, 1933, Governor Olson, under threat from radical farmers of his state to march on the Minnesota capitol to demand compulsory debt moratoria, actually decreed a halt to all foreclosures.

9

1930

By early 1930, people were generally convinced that there was little to worry about. Hoover’s decisive actions on so many fronts—wages, construction, public works, farm supports, etc., indicated to the public that this time swift national planning would turn the tide quickly. Farm prices then seemed to be recovering, and unemployment had not yet reached catastrophic proportions, averaging less than 9 percent of the labor force in 1930.

Such leaders as Hoover, William Green, and Charles Schwab issued buoyantly optimistic statements about early recovery, and Hoover was hailed on all sides as a great statesman. At the end of June, Hoover urged further state and city action to expand public works and thus cure unemployment, and on July 3rd, Congress authorized the expenditure of a giant $915 million public works program, including a Hoover Dam on the Colorado River.

MORE INFLATION

Dr. Anderson records that, at the end of December, 1929, the leading Federal Reserve officials wanted to pursue a laissez-faire policy: “the disposition was to let the money market ‘sweat it out’

and reach monetary ease by the wholesome process of liquidation.” The Federal Reserve was prepared to let the money market find its own level, without providing artificial stimuli that could only prolong the crisis.1 But early in 1930, the government instituted a 1Benjamin M. Anderson,
Economics and the Public Welfare
(New York: D. Van Nostrand, 1949), pp. 222–23.

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America’s Great Depression

massive easy money program. Rediscount rates of the New York Fed fell from 42 percent in February to 2 percent by the end of the year. Buying rates on acceptances, and the call loan rate, fell similarly. At the end of August, Governor Roy Young of the Federal Reserve Board resigned, and was replaced by a more thor-oughgoing inflationist, Eugene Meyer, Jr., who had been so active in government lending to farmers. During the entire year, 1930, total member bank reserves increased by $116 million. Controlled reserves rose by $209 million; $218 million consisted of an increase in government securities held. Gold stock increased by $309 million, and there was a net increase in member bank reserves of $116 million. Despite this increase in reserves, the total money supply (including all money-substitutes) remained almost constant during the year, falling very slightly from $73.52 billion at the end of 1929 to $73.27 billion at the end of 1930. There would have been a substantial rise were it not for the shaky banks which were forced to contract their operations in view of the general depression. Security issues increased, and for a while stock prices rose again, but the latter soon fell back sharply, and production and employment kept falling steadily.

A leader in the easy money policy of late 1929 and 1930 was once more the New York Federal Reserve, headed by Governor George Harrison. The Federal Reserve, in fact, began the inflationist policy on its own. Inflation would have been greater in 1930

had not the stock market boom collapsed in the spring, and if not for the wave of bank failures in late 1930.2 The inflationists were not 2The New York Federal Reserve also continued to lead in collaborating with foreign central banks, often against the wishes of the administration. Thus, the Bank of International Settlements, an attempt at an inter-central banks’ central bank, instigated by Montagu Norman, treated the New York Bank as America’s central bank. Chairman of the BIS’s first organizing committee was Jackson E.

Reynolds, a director of the New York Federal Reserve, and its first president was Gates W. McGarrah, who resigned as Governor of the New York Reserve Bank in February, 1930, to assume the post. J.P. Morgan and Company supplied much of the American capital in the new Bank. In November, Governor Harrison made a “regular business trip” abroad to confer with other central bankers, and discuss loans to foreign governments. In 1931, the New York Federal Reserve extended loans to the BIS. Yet there was no legislative sanction for our participation in the Bank.

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satisfied with events, and by late October,
Business Week
thundered denunciation of the alleged “deflationists in the saddle,” supposedly inspired by the largest commercial and investment banks.3

THE SMOOT–HAWLEY TARIFF

In mid-1930, another chicken born in 1929 came home to roost. One of Hoover’s first acts upon becoming President was to hold a special session on tariffs, beginning in the spring of 1929.

Whereas we have seen that a policy of high tariffs cum foreign loans was bound to hurt the farmers’ export markets when the loans tapered off, Hoover’s answer was to raise tariffs still further, on agricultural and on manufactured products. A generation later, Hoover was still to maintain that a high tariff
helps
the farmer by building up his domestic market and lessening his “dependence” on export markets, which means, in fact, that it hurts him grievously by destroying his export markets.4 Congress continued to work on a higher tariff, and finally reported a bill in mid-1930, which Hoover signed approvingly. In short, it was at a precarious time of depression that the Hoover administration chose to hobble international trade, injure the American consumer, and cripple the American farmers’ export markets by raising tariffs higher than their already high levels. Hoover was urged to veto the Smoot–Hawley Tariff by almost all the nation’s economists, in a remarkable display of consensus, by the leading bankers, and by many other leaders. The main proponents were the Progressive bloc, the three leading farm organizations, and the American Federation of Labor.

No one had advocated higher tariffs during the 1928 campaign, and Hoover originated the drive for a higher tariff in an effort to help the farmers by raising duties on agricultural products. When 3
Business Week
(October 22, 1930). Dr. Virgil Jordan was the chief economist for
Business Week
—then as now, a leading spokesman for “enlightened” business opinion.

4Herbert Hoover,
Memoirs of Herbert Hoover
(New York: Macmillan, 1952), vol. 2, pp. 291ff. See John H. Fahey, “Tariff Barriers and Business Depressions,”
Proceedings of the Academy of Political Science
(June, 1931): 41ff.

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the bill came to the House, however, it added tariffs on many other products. The increased duties on agriculture were not very important, since farm products were generally
export
commodities, and little was imported. Duties were raised on sugar to “do something for” the Western beet-sugar farmer; on wheat to subsidize the marginal Northwestern wheat farmers at the expense of their Canadian neighbors; on flaxseed to protect the Northwest farmers against Argentina; on cotton to protect the marginal Imperial Valley farmer against Egypt; on cattle and dairy products to injure the Canadian border trade; on hides, leather, and shoes; on wool, wool rags, and woolen textiles; on agricultural chemicals; on meat to hamper imports from Argentina; on cotton textiles to relieve this

“depressed industry”; on velvets and other silks; on decorated china, surgical instruments, and other glass instruments; on pocket knives and watch movements.5 The tariff rates were now the highest in American history.

The stock market broke sharply on the day that Hoover agreed to sign the Smoot–Hawley Bill. This bill gave the signal for protectionism to proliferate all over the world. Markets, and the international division of labor, were hampered, and American consumers were further burdened, and farm as well as other export industries were hindered by the ensuing decline of international trade.

One prominent protectionist drive was put on by the silver bloc. In February, the mining interests suggested an international monetary conference to raise and then stabilize silver prices, as well as to levy a tariff on silver. The resolution was put through the Senate in February, 1931, but the State Department could not interest foreign governments in such a conference. Main supporters of this price-raising scheme were the Western governors, at the behest of the American Silver Producers’ Association, Senators such as Key Pittman of Nevada and Reed Smoot of Utah, J.H.

Hammond, a mining engineer, Rend Leon, a New York banker, 5See Frank W. Taussig, “The Tariff Act of 1930,”
Quarterly Journal of
Economics
(November, 1930): 1–21; and idem, “The Tariff, 1929–1930,”
Quarterly
Journal of Economics
(February, 1930): 175–204.

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243

and F.H. Brownell, President of the American Smelting and Refin-ing Company.

HOOVER IN THE SECOND HALF OF 1930

During the second half of 1930, production, prices, foreign trade, and employment continued to decline. On July 29, Hoover called for an investigation of bankruptcy laws in order to weaken them and prevent many bankruptcies—thus turning to the ancient device of attempting to revive confidence by injuring creditors and propping up unsound positions. In August, it was revealed that merchant shipping construction had swelled from 170,000 tons in July, 1929, to 487,000 tons in July, 1930—due to Federal subsidies.

On September 9, Hoover took an unusual step: to relieve the unemployment problem, and also to help keep wage rates up, the President effectively banned further immigration into the United States, and did so through a mere State Department press announcement. The decree barred all but the wealthiest immigrants as “public charges,” in a few months reducing immigration from Europe by 90 percent.

Interestingly enough, Hoover’s high-handed action came in defiance of previous Congressional refusal to agree to his proposal to cut immigration quotas in half, and it also came after the Senate had rejected a bill to suspend all immigration except by relatives for five years, offered by Senator Hugo Black (D., Ala.). Typical of the restrictionist, wage-raising arguments for blocking immigration was the charge of Senator Black that “foreign immigration has been utilized by the big business interests of the country as a direct weapon to break down the price of wages of the people of the land.”6 As might have been expected, William Green warmly endorsed Hoover’s stand.

Reducing the labor force as a “cure” for unemployment is similar to “curing” a surplus of a certain commodity by passing a law prohibiting anyone from selling the product, and anticipated 6Robert A. Divine,
American Immigration Policy, 1924–1952 (
New Haven, Conn.: Yale University Press, 1957), p. 78.

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