The Big Picture Of The Great Depression

When the nations began to suffer the effects of the Depression, most of the steps they took were inadequate or counterproductive.

The Brazilian dictator Getulio Vargas is reported to have had a “high respect for a balanced budget.” When a journalist asked Jaime Garner, one of a succession of like-minded Spanish finance ministers in the early 1930s, to describe his priorities, Garner replied that he had three: “a balanced budget, a balanced budget, and a balanced budget.” A recent historian of Czechoslovakia reports that the statesmen of the Depression era in that country displayed an “irrational fear of the inflationary nature of a budget deficit.”

These examples could be extended almost without limit. The point is not that Hoover was correct in his views of proper government finance; obviously he was not. But describing his position without considering its context distorts its significance. Furthermore, the intentions of the politicians rarely corresponded to what actually happened. Deficits were the rule through the Depression years because government revenues continually fell below expectations and unavoidable expenditures rose. Even if most budgets had been in balance, the additional sums extracted from the public probably would not have had a decisive effect on any country’s economy. Government spending did not have the impact on economic activity that has been the case since World War II. The historian Mark Leff has recently reminded us, for example, that the payroll tax enacted to finance the new American Social Security system in 1935 “yielded as much each month as the notorious income tax provisions of Roosevelt’s 1935 Wealth Tax did in a year.”

It is equally revealing to look at other aspects of the New Deal from a broad perspective. Franklin Roosevelt’s Brain Trust was novel only in that so many of these advisers were academic types. Many earlier Presidents made use of informal groups of advisers—Theodore Roosevelt’s Tennis Cabinet and Andrew Jackson’s Kitchen Cabinet come to mind. There is no doubt that political leaders in many nations were made acutely aware of their ignorance by the Depression, and in their bafflement they found that turning to experts was both psychologically and politically beneficial. Sometimes the experts’ advice actually did some good. Sweden was blessed during the interwar era with a number of articulate, first-rate economists. The Swedish government, a recent scholar writes, was “ready to listen to the advice of [these] economists,” with the result that by 1935 Sweden was deliberately practicing deficit spending, and unemployment was down nearly to preDepression levels.

Throughout the period British prime ministers made frequent calls on the expertise of economists such as Ralph Hawtrey, A. C. Pigou, and, of course, John Maynard Keynes. In 1930 Ramsay MacDonald, who was particularly fond of using experts to do his thinking for him, appointed a committee of five top-flight economists to investigate the causes of the Depression and “indicate the conditions of recovery.” (The group came up with a number of attractive suggestions, but avoided the touchy subject of how to finance them.) The next year MacDonald charged another committee with the task of suggesting “all possible reductions of national Expenditure” in a futile effort to avoid going off the gold standard. Even in France, where political leaders tended to deny that the world depression was affecting their nation’s economy and where most economists still adhered to laissez-faire principles, French premiers called from time to time on experts “to search,” Sauvy explains, “for the causes of the financial difficulties of the country and propose remedies.”

Many specific New Deal policies were new only in America. In 1933 the United States was far behind most industrial nations in social welfare. Unemployment insurance, a major New Deal reform when enacted in 1935, was established in Great Britain in 1911 and in Germany shortly after World War I, well before the Depression struck. The creation of the New Deal Civilian Conservation Corps and the Civil Works Administration in 1933, and later of the Works Progress Administration and Public Works Administration, only made up for the absence of a national public welfare system before 1936.

The New Deal National Recovery Administration also paralleled earlier developments. The relation of its industrywide codes of “fair” business practices to the American trade-association movement of the 1920s and to such early Depression proposals as the plan advanced by Gerard Swope of General Electric in 1931 are well known. (The Swope Plan provided that in each industry “production and consumption should be coordinated…preferably by the joint participation and joint administration of management and employees” under the general supervision of the Federal Trade Commission, a system quite similar to NRA, as Roosevelt himself admitted.)