The Big Picture Of The Great Depression


And while the Hawley-Smoot tariff was unfortunate, if Hoover had followed all the advice of the experts who had urged him to veto it, he would surely have been pushing the American economy from the frying pan into the fire, because most of their recommendations are now seen to have been wrongheaded. Opposition to protective tariffs, almost universal among conservative economists since the time of Adam Smith and Ricardo, was no sign of prescience, then as now. In their Monetary History of the United States , Milton Friedman and Anna Jacobson Schwartz characterize the financial proposals of the economists of the 1930s as “hardly distinguished by the correctness or profundity of understanding of the economic forces at work.” A leading French economic historian, Alfred Sauvy, compares the typical French economist of the period to a “doctor, stuffed with theories, who has never seen a sick person.” An Australian historian characterizes the policies of that country as “deeply influenced by shibboleths.”

The most nearly universal example of a wrongheaded policy during the Depression was the effort that nations made to balance their annual budgets. Hoover was no exception; Albert Romasco has counted no fewer than twenty-one public statements stressing the need to balance the federal budget that the President made in a four-month period. As late as February 1933, after his defeat in the 1932 election, Hoover sent a desperate handwritten letter to President-elect Roosevelt pleading with him to announce that “there will be no tampering or inflation of the currency [and] that the budget will be unquestionably balanced even if further taxation is necessary.”

But Hoover had plenty of company in urging fiscal restraint. Roosevelt was unmoved by Hoover’s letter, but his feelings about budget balancing were not very different. In 1928 William Trufant Foster and Waddill Catchings published a book, The Road to Plenty , which attracted considerable attention. Roosevelt read it. After coming across the sentence “When business begins to look rotten, more public spending,” he wrote in the margin: “Too good to be true—you can’t get something for nothing.” One of Roosevelt’s first actions as President was to call for a tax increase. According to his biographer Frank Freidel, fiscal conservatism was a “first priority” in Roosevelt’s early efforts to end the Depression.

Budget balancing was an obsession with a great majority of the political leaders of the thirties, regardless of country, party, or social philosophy. In 1930 Ramsay MacDonald’s new socialist government was under pressure to undertake an expensive public works program aimed at reducing Great Britain’s chronic unemployment. Instead the government raised taxes by £47 million in an effort to balance the budget. The conservative Heinrich Brüning recalled in his memoirs that when he became chancellor of Germany in 1932, he promised President Hindenburg “that as long as I had his trust, I would at any price make the government finances safe.”

France had fewer financial worries in the early stages of the Depression than most nations. Its 1930 budget was designed to show a small surplus. But revenues did not live up to expectations, and a deficit resulted. The same thing happened in 1931 and again in 1932, but French leaders from every point on the political spectrum remained devoted to “sound” government finance. “I love the working class,” Premier Pierre Lavai told the National Assembly during the debate on the 1932 budget. Hoots from the left benches greeted this remark, but Laval went on: “I have seen the ravages of unemployment.…The government will never refuse to go as far as the resources of the country will permit [to help]. But do not ask it to commit acts that risk to compromise the balance of the budget.” In 1933, when France began to feel the full effects of the Depression, Premier Joseph Paul-Boncour, who described himself as a socialist though he did not belong to the Socialist party, called for rigid economies and a tax increase. “What good is it to talk, what good to draw up plans,” he said, “if one ends with a budget deficit?”

Leaders in countries large and small, in Asia, the Americas, and Europe, echoed these sentiments. A Japanese finance minister warned in 1930 that “increased government spending” would “weaken the financial soundness of the government.” Prime Minister William Lyon Mackenzie King of Canada, a man who was so parsimonious that he cut new pencils into three pieces and used them until they were tiny stubs, believed that “governments should live within their means.” When King’s successor, R. B. Bennett, took office in 1931, he urged spending cuts and higher taxes in order to get rid of a budget deficit of more than eighty million dollars. “When it came to…‘unbalancing’ the budget,” Bennett’s biographer explains, “he was as the rock of Gibraltar.”