America's Great Depression
Notes
Introduction to the First Edition
1. The Positive Theory of the Cycle
Under conditions of free competition... the market is... dependent upon supply and demand... there could [not] develop a disproportionality in the production of goods, which could draw in the whole economic system... such a disproportionality can arise only when, at some decisive point, the price structure does not base itself upon the play of only free competition, so that some arbitrary influence becomes possible.
Kuznets himself criticizes the Austrian theory from his empiricist, anti-cause and effect-standpoint, and also erroneously considers this theory to be “static.”
Frank D. Graham, “Partial Reserve Money and the 100% Proposal,” American Economic Review (September, 1936): 436.
[B]anks must be constantly desirous of increasing their loans, by issuing their own credit in the shape of circulation and deposits. The more they can get out, the larger the income. This is the motive power that ensures the constant expansion of a mixed [fractional reserve] currency to its highest possible limit. The banks will always increase their indebtedness when they can, and only contract it when they must.
2. Keynesian Criticisms of the Theory
[T]he apparent revolution wrought by Keynes after 1936 has been reversed by a bloodless counterrevolution conducted unwittingly by higher critics who tried very hard to be faithful. Whether some permanent benefit to our science will have made up for the destruction which the revolution left in its train, is a question which economic historians of the future will have to answer.
W.H. Hutt, “The Significance of Price Flexibility,” in Hazlitt, The Critics of Keynesian Economics., p. 402.
3. Some Alternative Explanations of Depression: A Critique
On the acceleration principle, also see L. Albert Hahn, Common Sense Economics (New York: Abelard–Schuman, 1956), pp. 139–43; Ludwig von Mises, Human Action (New Haven, Conn.: Yale University Press, 1949), pp. 581–83; and Simon S. Kuznets, “Relation Between Capital Goods and Finished Products in the Business Cycle,” in Economic Essays in Honor of Wesley C. Mitchell (New York: Columbia University Press, 1935), pp. 209–67.
On the fallacies of the qualitative credit theorists, and of their views on the stock market, see the excellent study by Fritz Machlup, who at that time was a leading Austrian School theorist, The Stock Market, Credit and Capital Formation (New York: Macmillan, 1940).
4. The Inflationary Factors
In the present day, government savings bonds would have to be included in the money supply. On the other hand, pension funds are not part of the money supply, being simply saved and invested and not redeemable on demand, and neither are mutual funds—even the modern “open-end” variety of funds are redeemable not at par, but at market value of the stock.
Just as the ultimate source of reserve for commercial banks consists of the deposit liabilities of the Federal Reserve Banks, so the ultimate source of the reserves of non-bank institutions consist of the deposit liabilities of the commercial banks. The money supply [is] … two inverted pyramids one on top of the other. The Federal Reserve stands at the base of the lower pyramid, and … by controlling the volume of their own deposit liabilities, the FRBs influence not only the deposit liabilities of the commercial banks but also the deposit liabilities of all those institutions which use the deposit liabilities of the commercial banks as cash reserves.
“The Federal Home Loan Bank,” p. 326. Also see Donald Shelby, “Some Implications of the Growth of Financial Intermediaries,” Journal of Finance (December, 1958): 527–41.
5. The Development of the Inflation
In the autumn of 1926, a leading banker admitted that bad consequences would follow the cheap money policy, but said: “that cannot be helped. It is the price we must pay for helping Europe.” H. Parker Willis, “The Failure of the Federal Reserve,” North American Review (1929): 553.
6. Theory and Inflation: Economists and the Lure of a Stable Price Level
7. Prelude to Depression: Mr. Hoover and Laissez-Faire
8. The Depression Begins: President Hoover Takes Command
9. 1930
On the other hand, it must be admitted that Hoover staunchly resisted Congressional attempts during 1931 and 1932 to launch into socialized electric power production and distribution at Muscle Shoals, a project strongly opposed by private power companies and later enlarged by the New Deal into the Tennessee Valley Authority (TVA). See Harris Gaylord Warren, Herbert Hoover and the Great Depression (New York: Oxford University Press, 1959), pp. 64, 77–80.
Edith Abbott
Asher Achinstein
Emily Green Balch
Bruce Bliven
Sophinisba P. Breckenridge
Paul F. Brissenden
William Adams Brown, Jr.
Edward C. Carter
Ralph Cassady, Jr.
Waddill Catchings
Zechariah Chafee, Jr.
Joseph P. Chamberlain
John Bates Clark
John Maurice Clark
Victor S. Clark
Joanna C. Colcord
John R. Commons
Morris L. Cooke
Morris A. Copeland
Malcolm Cowley
Donald Cowling
Jerome Davis
Davis F. Dewey
Paul H. Douglas
Stephen P. Duggan
Seba Eldridge
Henry Pratt Fairchild
John M. Ferguson
Frank A. Fetter
Edward A. Filene
Irving Fisher
Elisha M. Friedman
A. Anton Friedrich
S. Colum Gilfillan
Meredith B. Givens
Carter Goodrich
Henry F. Grady
Robert L. Hale
Walton Hamilton
Mason B. Hammond
Charles O. Hardy
Sidney Hillman
Arthur N. Holcombe
Paul T. Homan
B.W. Huebsch
Alvin S. Johnson
H.V. Kaltenborn
Edwin W. Kemmerer
Willford I. King
Alfred Knopf
Hazel Kyrk
Harry W. Laidler
Corliss Lamont
Kenneth S. Latourette
William Leiserson
J.E. LeRossignol
Roswell C. McCrea
Otto Tod Mallery
Harry A. Millis
Broadus Mitchell
Harold G. Moulton
Paul M. O’Leary
Thomas I. Parkinson
S. Howard Patterson
Harold L. Reed
Father John A. Ryan
Francis B. Sayre
G.T. Schwenning
Henry R. Seager
Thorsten Sellin
Mary K. Simkhovitch
Nahum I. Stone
Frank Tannenbaum
Frank W. Taussig
Ordway Tead
Willard Thorp
Mary Van Kleeck
Oswald G. Villard
Lillian Wald
J.P. Warbasse
Colston E. Warne
Gordon S. Watkins
William O. Weyforth
Joseph H. Willits
Chase Going Woodhouse
Matthew Woll
Also involved in the agitation, by virtue of their being officers and members of the American Association for Labor Legislation during this period, were the following economists and other intellectual leaders:
Willard E. Atkins
C.C. Burlingham
Stuart Chase
Dorothy W. Douglas
Richard T. Ely
Felix Frankfurter
Arthur D. Gayer
Harold M. Groves
Luther Gulick
Mrs. Thomas W. Lamont
Eduard C. Lindeman
William N. Loucks
Wesley C. Mitchell
Jessica Peixotto
Donald Richberg
Bernard L. Shientag
Sumner H. Slichter
Edwin S. Smith
George Soule
William F. Willoughby
Edwin E. Witte
If government expenditures and receipts are just balanced, then obviously each is a measure of depredation, as funds are acquired by taxation and channelled into expenditures. If expenditures are larger, then the deficit is either financed by issuing new money or by borrowing private savings. In either case, the deficit constitutes a drain of resources from the private sector. If there is a surplus of receipts over expenditures then the surplus taxes are drains on the private sector. For a more extended discussion, and a tabulation of estimates of these figures for the 1929–1932 period, see the Appendix.
10. 1931—“The Tragic Year”
to secure, by cooperative action, the continuous adjustment of the production of bituminous coal to the existing demand for it, thereby discouraging wasteful methods of production and consumption. … The European method of meeting this situation is through the establishment of cartels.
Quoted in Ralph J. Watkins, A Planned Economy Through Coordinated Control of Basic Industries (mimeographed manuscript, submitted to American Philanthropic Association, October, 1931), pp. 54ff.
Hoover also reduced production in other fields by adding over two million acres to the virtually useless national forests during his regime, as well as increasing the area of the totally useless national parks and monuments by forty percent. If Congress had not balked, he would have permanently sequestered much more usable land. See Harris Gaylord Warren, Herbert Hoover and the Great Depression (New York: Oxford University Press, 1959), pp. 64, 77–80.
11. The Hoover New Deal of 1932
Edwin W. Borchard
Paul W. Brissenden
Morris L. Cooke
Richard T. Ely
Ralph C. Epstein
Irving Fisher
Felix Frankfurter
Walton Hamilton
Horace M. Kallen
Frank H. Knight
William M. Leiserson
W.N. Loucks
Broadus Mitchell
Harold G. Moulton
E.M. Patterson
Selig Perlman
E.R.A. Seligman
Sumner H. Slichter
George Soule
Frank W. Taussig
Ordway Tead
Gordon S. Watkins
Myron W. Watkins
W.F. Willcox
E.E. Witte
Willard E. Atkins, New York University
Frank Aydelotte, President of Swarthmore College
C. Canby Balderston, University of Pennsylvania
George E. Barnett, Johns Hopkins, President of the American Economic Association
John Bates Clark, Columbia University
Miss Joanna C. Colcord, The Russell Sage Foundation
Morris A. Copeland, University of Michigan
Paul H. Douglas, University of Chicago
Howard O. Eaton, University of Oklahoma
Frank Albert Fetter, Princeton University
Frank Whitson Fetter, Princeton University
Irving Fisher, Yale University
Walton H. Hamilton, Yale University
Paul U. Kellogg, Editor of Survey Graphic
Willford I. King, New York University
William M. Leiserson, Antioch College
Richard A. Lester, Princeton University
Harley Leist Lutz, Princeton University
James D. Magee, New York University
Otto Tod Mallery
Broadus Mitchell, Johns Hopkins University
Sumner H. Slichter, Harvard University
Charles T. Tippetts, University of Buffalo
Jacob Viner, University of Chicago
Charles R. Whittlesey, Princeton University
Joseph H. Willits, Dean of Wharton School, University of Pennsylvania
Leo Wolman, Columbia University
James W. Angell
Garfield V. Cox
Aaron Director
Irving Fisher
Harold D. Gideonse
Alvin H. Hansen
Charles O. Hardy
Frank H. Knight
Arthur W. Marget
Harry A. Millis
Lloyd W. Mints
Harold G. Moulton
Ernest M. Patterson
C.A. Phillips
Henry Schultz
Henry C. Simons
Charles S. Tippetts
Jacob Viner
C.W. Wright
Ivan Wright
Theodore O. Yntema
12. The Close of the Hoover Term
Actually all of us were treating our savings and time deposits as demand deposits and we still do … we still pay our savings depositors on demand. It is significant that the heavy runs on banks were engineered by savings and time depositors. When the trouble was at its height in January, 1933, practically every bank in St. Louis faced heavy withdrawals from … savings depositors and had a minimum of diffculty with the checking depositors. This was true throughout most of the country.
F.R. von Windegger and W.L. Gregory, in Irving Fisher, ed., 100% Money (New York: Adelphi Press, 1935), pp. 150–51.
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.
