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The Big Picture Of The Great Depression
The crisis swept over France and Germany and Britain alike—and they all nearly foundered. Now more than ever, it is important to remember it didn’t just happen here.
August/September 1986 | Volume 37, Issue 5
Hoover has been subject to much criticism for the way in which he tried to put the blame for the Depression on the shoulders of others. In his memoirs he offered an elaborate explanation, complete with footnote references to the work of many economists and other experts. “The Depression was not started in the United States,” he insisted. The “primary cause” was the World War. In four-fifths of what he called the “economically sensitive” nations of the world, including such remote areas as Bolivia, Bulgaria, and Australia, the downturn was noticeable long before 1929, a time when the United States was enjoying a period of great prosperity.
Hoover blamed America’s post-1929 troubles on an “orgy of stock speculation” resulting from the cheap-money policies adopted by the “mediocrities” who made up the majority of the Federal Reserve Board in a futile effort to support the value of the British pound and other European currencies. Hoover called Benjamin Strong, the governor of the Federal Reserve Bank of New York, a “mental annex of Europe,” because the Fed had kept American interest rates low to discourage foreign investors.
According to Hoover, he had warned of the danger, but neither the Fed nor his predecessor, Calvin Coolidge (whom he detested), had taken his advice. Coolidge’s announcement at the end of his term that stocks were “cheap at current prices” was, Hoover believed, particularly unfortunate, since it undermined his efforts to check the speculative mania on Wall Street after his inauguration.
But Hoover could not use this argument to explain the decline that occurred in the United States in 1930, 1931, and 1932, when he was running the country. Instead he blamed the decline on foreign countries. European statesmen “did not have the courage to meet the real issues.” Their rivalries and their heavy spending on arms and “frantic public works programs to meet unemployment” led to unbalanced budgets and inflation that “tore their systems asunder.” These unsound policies led to the collapse of the German banking system in 1931, which transformed what would have been no more than a minor economic downturn into the Great Depression. “The hurricane that swept our shores,” wrote Hoover, was of European origin.
These squirmings to avoid taking any responsibility for the Depression do Hoover no credit. But he was certainly not alone among statesmen of the time in doing so. Prime Minister MacDonald, a socialist, blamed capitalism for the debacle. “We are not on trial,” he said in 1930, “it is the system under which we live. It has broken down, not only on this little island…it has broken down everywhere as it was bound to break down.” The Germans argued that the Depression was political in origin. The harsh terms imposed on them by the Versailles Treaty, and especially the reparations payments that, they claimed, sapped the economic vitality of their country, had caused it. One conservative German economist blamed the World War naval blockade for his country’s troubles in the 1930s. In the nineteenth century “the English merchant fleet helped build up the world economy,” he said. During the war “the British navy helped to destroy it.”
When in its early stages the Depression appeared to be sparing France, French leaders took full credit for this happy circumstance. “France is a garden,” they explained. But when the slump became serious in 1932, they accused Great Britain of causing it by going off the gold standard and adopting other irresponsible monetary policies, and the United States of “exporting unemployment” by substituting machines for workers. “Mechanization,” a French economist explained in 1932, “is an essential element in the worsening of the depression.”
Commentators in most countries, including the United States, tended to see the Wall Street crash of October 1929 as the cause of the Depression, placing a rather large burden of explanation on a single, local event. But in a sense the Depression was like syphilis, which before its nature was understood was referred to in England as the French pox, as the Spanish disease in France, the Italian sickness in Spain, and so on.
When the nations began to suffer the effects of the Depression, most of the steps they took in trying to deal with it were either inadequate or counterproductive. Hoover’s signing of the Hawley-Smoot protective tariff further shriveled an already shrinking international trade. The measure has been universally deplored by historians, who point with evident relish to the fact that more than a thousand economists had urged the President to veto the bill. The measure was no doubt a mistake because it caused a further shrinking of economic activity, but blaming Hoover for the result ignores the policies of other countries, to say nothing of the uselessness of much of what the leading economists of the day were suggesting about how to end the Depression. Even Great Britain, a nation particularly dependent on international trade, adopted the protective imperial preference system, worked out with the dominions at Ottawa in 1932. Many Latin American countries, desperately short of foreign exchange because of the slumping prices of the raw materials they exported, tried to make do with home manufactures and protected these fledgling industries with tariffs. In Europe, country after country passed laws aimed at reducing their imports of wheat and other foreign food products.