America's Great Depression (55 page)

Essentially, there were two possible routes. One was the course taken by Roosevelt; the destruction of the property rights of bank depositors, the confiscation of gold, the taking away of the people’s monetary rights, and the placing of the Federal Government in control of a vast, managed, engine of inflation. The other route would have been to seize the opportunity to awaken the American people to the true nature of their banking system, and thereby return, at one swoop, to a truly hard and sound money.

The laissez-faire method would have permitted the banks of the nation to close—as they probably would have done without governmental intervention. The bankrupt banks could then have been transferred to the ownership of their depositors, who would have taken charge of the invested, frozen assets of the banks. There would have been a vast, but rapid, deflation, with the money supply falling to virtually 100 percent of the nation’s gold stock. The depositors would have been “forced savers” in the existing bank assets (loans and investments). This cleansing surgical operation would have ended, once and for all, the inherently bankrupt fractional-reserve system, would have henceforth grounded loans and investments on people’s voluntary savings rather than artificially-extended credit, and would have brought the country to a truly sound and hard monetary base. The threat of inflation and depression would have been permanently ended, and the stage fully set for recovery from the existing crisis. But such a policy would have been dismissed as “impractical” and radical, at the very juncture when the nation set itself firmly down the “practical” and radical road to inflation, socialism, and perpetuation of the depression for almost a decade.

President Hoover, of course, did not even come close to advocating the hard money, laissez-faire policy. Hoover and his parti-sans have woven the myth that all would have been well if only
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America’s Great Depression

Roosevelt had “cooperated” with Hoover before the inaugural, but just what was this projected cooperation to be? Largely, a joint agreement on partial or total national bank holidays, and on a Hoover proposal for temporary federal guarantees of bank deposits—inflationist and statist measures which Roosevelt was soon to adopt.10, 11 Furthermore, as a
pièce de résistance
, agitation for going off the gold standard kept proceeding from high up in the Hoover administration itself; specifically from Secretary of Treasury Mills and from Undersecretary Arthur Ballantine.12

WAGES, HOURS, AND EMPLOYMENT

DURING THE DEPRESSION

Mr. Hoover left office in March, 1933, at the very depth of the greatest depression in American history. Production had fallen by more than one-half: industrial production had been at an index of 114 in August, 1929, and then fell to 54 by March, 1933. Unemployment was persisting at nearly 25 percent of the labor force, 10There was a recurring tendency on the part of Hoover and his colleagues to blame the whole depression on a plot by Hoover’s political enemies.

Hoover attributed part of the currency crisis to Communists spreading distrust of the American monetary system (it is remarkable that Communists were needed for distrust to arise!); and Simeon D. Fess, Chairman of the Republican National Committee, said quite seriously in the fall of 1930: Persons high in Republican circles are beginning to believe that there is some concerted effort on foot to utilize the stock market as a method of discrediting the administration. Every time an administration official gives out an optimistic statement about business conditions, the market immediately drops.

Edward Angly, comp.,
Oh Yeah?
(New York: Viking Press, 1931), p. 27.

11Another Hoover contribution to these times was a secret attempt to stop the press from printing the full truth about the banking crisis, and about views hostile to his administration. See Kent Cooper,
Kent Cooper and the Associated Press
(New York: Random House, 1959), p. 157.

12In fact, Ballantine recently wrote, rather proudly: “the going off [gold] cannot be laid to Franklin Roosevelt. It had been determined to be necessary by Ogden Mills, Secretary of the Treasury, and myself as his Undersecretary, long before Franklin Roosevelt took office.”
New York Herald-Tribune
(May 5, 1958): 18.

The Close of the Hoover Term

331

and gross national product had also fallen almost in half. Hardest hit was investment, especially business construction, the latter falling from about $8.7 billion in 1929 to $1.4 billion in 1933. This is not the only indication that the depression hit hardest in the capital goods industries.

The index of
non-durable
manufacturing production fell from 94 to 66 from August, 1929, to March, 1933—a decline of 30 percent; the index of
durable
manufactures fell from 140 to 32, in the same period, a decline of 77 percent. Factory employment fell by 42 percent; pig iron production decreased by an astounding 85

percent; the value of construction contracts fell from July, 1929, by an amazing 90 percent, and the value of building permits by 94

percent. On the other hand, department store sales fell by less than 50 percent over the period. Taking durable goods industries (e.g., building, roads, metals, iron and steel, lumber, railroad, etc.) Col.

Leonard P. Ayres estimated that their total employment fell from 10

million in 1929 to 4 million in 1932–1933, while employment in consumer goods industries (e.g., food, farming, textiles, electricity, fuel, etc.) only fell from 15 million to 13 million in the same period.13 Stock prices (industrials) fell by 76 percent during the depression, wholesale prices fell by 30 percent, and the total money supply declined by one-sixth.

What of wage rates? We saw that the Hoover policies managed to keep wage rates very high during the first two years of the depression. By 1932, however, with profits wiped out, the pressure became too great, and wage rates fell considerably. Total fall over the 1929–1933 period, however, was only 23 percent—less than the decline in wholesale prices. Therefore, real wage rates, for the workers still remaining employed, actually
increased
. An excellent inquiry into the wage-employment problem during the depression has been conducted by Mr. Sol Shaviro, in an unpublished essay.14

13Leonard P. Ayres,
The Chief Cause of This and Other Depressions
(Cleveland, Ohio: Cleveland Trust, 1935), pp. 26ff.

14Sol Shaviro, “Wages and Payroll in the Depression, 1929–1933,” (Unpub.

M.A. thesis, Columbia University, 1947).

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America’s Great Depression

Shaviro shows that in 25 leading manufacturing industries, the following was the record of monetary, and real, average hourly earnings during these years.

We thus see that money wage rates held up almost to the prosperity-par until the latter half of 1931, while real wage rates actually increased by over 10 percent. Only then did a monetary wage decline set in, but still without a very appreciable reduction in real wage rates from the 1931 peak. It should here be noted that, in contrast to Keynesian warnings, prices fell far less sharply after wage rates began to drop, than before. From July, 1929, to June, 1931, wholesale prices fell from 96.5 to 72.1, or at a rate of fall of 1 per month, while from June, 1931, to February, 1933, prices fell to 59.8, or at a rate of .65 per month.15

TABLE 10

AVERAGE HOURLY EARNINGS IN

25 MANUFACTURING INDUSTRIES

(100 = 1929)

Monetary

Real

June, 1929

100.0

100.7

December, 1929

100.0

99.8

June, 1930

100.0

102.7

December, 1930

98.1

105.3

June, 1931

96.1

111.0

December, 1931

91.5

110.1

June, 1932

83.9

108.2

December, 1932

79.1

105.7

March, 1933

77.1

108.3

Shaviro points out that businessmen, particularly the large employers, were taken in by the doctrine that they should pursue an “enlightened” high-wage policy, a doctrine not only fed to them by the veiled threats of the President, but also by economists and 15See C.A. Phillips, T.F. McManus, and R.W. Nelson,
Banking and the Business
Cycle
(New York: Macmillan, 1937), pp. 231–32.

The Close of the Hoover Term

333

labor leaders, on the grounds of “keeping up purchasing power” to combat the depression. The drop in wage rates had been more extensive and far more prompt in the far milder 1921 depression; in fact, even
money
wage rates rose slightly until September, 1930.16

More wage cuts took place in smaller than in larger firms, since the smaller firms were less “enlightened,” and furthermore, were not as fully in the public (and governmental) view. Furthermore, executive, and then other, salaries were generally reduced considerably more than wage rates. In fact, one reason that the eventual wage declines proved ineffective was the pseudo-humanitarian morality that governed the cuts when finally made: thus, reductions were automatically graduated in proportion to the income brackets of the workers, the higher brackets suffering greater declines. And reductions were often softened for workers with dependents. In short, instead of trying to adjust wage rates to marginal productiv-ities, as was desperately needed, the firms allocated the “loss in income on the most just and equitable [sic] basis . . . [actuated by the] desire to make the burden of reduced income fall as lightly as possible on those least able to suffer the loss.” In short, each man was penalized according to his ability and subsidized according to the need for which he had voluntarily assumed the responsibility (his dependents).

It was typical that executive salaries were the ones cut most promptly and severely, even though the great unemployment problem was
not
among the executives but among rank-and-file workers. As a result of this tragically wrong-headed policy, the wage cuts certainly stirred up little worker resentment, but also did little to help unemployment. In sum, management’s attitude looked not for what “reduction can most easily be made, but rather how can necessary payroll economies be accomplished with the least hardship for all concerned.” This policy only
aggravated
the 16“Maintenance of higher wage rates caused many firms to discharge workers rather than appear as slackers by cutting wages, although they might have been able to continue operations if they had made such reductions.” Dale Yoder and George R. Davies,
Depression and Recovery
(New York: McGraw-Hill, 1934), p. 89.

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America’s Great Depression

general hardship, as will always happen when business strays from its proper goal of maximizing profits.17

While real average hourly earnings rose, actual hours worked in industry fell drastically during the depression. Weekly hours averaged over 48 in 1929, and fell to less than 32 by mid-1932. In no previous depression had hours worked fallen by more than 10 percent. This was a form of reduced employment caused by the high-wage policy, a form, as we have seen, particularly recommended by the Hoover administration. As a result of the fall in hours worked and in money wage rates, average weekly earnings fell by over 40

percent during the depression, and real weekly earnings fell by over 30 percent. But hardest hit were the unemployed, the percentage of whom rose to 25 percent by 1932–1933, and reached 47

percent in the selected manufacturing industries. The fall in man-hours worked, combined with the fall in average hourly earnings, caused a truly precipitate drop in total factory payrolls—the base of that very “purchasing power” that the “enlightened” policy was supposed to sustain. Total payroll fell by over 29 percent in 1930, a year when money wage rates (average hourly earnings) rose to a higher level than 1929, and payroll had fallen by almost 71 percent by March, 1933. Real payroll fell by over 60 percent in the same period.

The purchasing power theorists often declaim that the key to prosperity is national income going more to employees and less to profits: these conditions were filled to their hearts’ content during the depression. For aggregate profits were
negative
during 1932

and 1933.

Although unions were not particularly important in these years, amounting to only 6 percent of the labor force, Professor Levinson has shown that unions maintained higher wage rates for their employed workers than did comparable non-union workers.18 This 17National Industrial Conference Board,
Salary and Wage Policy in the
Depression
(New York: Conference Board, 1933), pp. 31–38.

18Harold M. Levinson, “Unionism, Wage Trends, and Income Distribution: 1914–1947,”
Michigan Business Studies
(June, 1951): 34–47. Hoover and Secretary Lamont tried to induce the nation’s industrialists to be more favorable to unions,
The Close of the Hoover Term

335

demonstrates the power of unions to maintain money wage rates during a depression, thereby aggravating the unemployment problem, and reinforcing the effects of Hoover’s injunctions and

“enlightened” economic theory. Wage rates of selected union workers fell only 6–12 percent over the 1929–1932 period, while the rates of non-union workers fell by 14–36 percent.

Levinson points out that there is a close relationship between the strength of the union and the maintenance of wage rates in each specific industry. Thus, the union in the men’s clothing industry had been greatly weakened in the 1920s by moves of industry from union to non-union areas, so that it had to accept wage reductions during the depression “to protect the solvency of the organized employees”; wage rates in this industry fell by 31 percent during the 1929–32 period.

Sharing-the-work by putting employees on reduced time was another favorite panacea of the Hoover administration. Yet, in 1931 the President’s Emergency Committee for Employment reported that, in a sample of manufacturing, plants with under 1,000 employees suffered an unemployment problem in 75 percent of the cases, whereas 96 percent of the plants with over 5,000