specters of ruin: the depression of 1893 and the great depression of the 1930s day 1, july 29...

Specters of Ruin: The Depression of 1893 and the

Great Depression of the 1930s

Day 1, July 29

Matthew L. Daley, GVSU

Key questions:

• How to provide some level of economic stability?– workers reliant on wages - vulnerable to cyclical

declines– result was federal intervention - and it has caused

great controversy

At least two long term conflicts since the 19th century:

• 1. Self-regulation of the market

• 2. Community regulation - interstate commerce, railroads, trusts, monopolies.

I. Social Views of Relief and Social Responsibility

• Key idea: Though a very serious problem, large segments of the general public minimized its gravity, and looked unfavorably upon plans to provide aid for the unemployed.

• - very strong resistance to any government funds, or the dole


• A. View regularly expressed - the out of work did not want to work - anyone seeking work could easily find a job

• B. Traditional attitudes: unemployment and relief have a long history– 1. Originates from English Poor Law of 1661

• poverty was disgraceful because it resulted from laziness, aiding the poor tended to pauperize them


– 2. Public relief could not be separated from politics, relief was really “something for nothing”

• a. should be a local responsibility, and should be given grudgingly and in a manner that humiliated the recipients so as to encourage them to seek private employment

• b. In a nation that stressed work as a virtue - even men thrown out of work through no fault of their own seemed to believe that they were jobless because of some inner defect and became confused and befuddled when they could not readily find work.


• c. Many of the jobless looked upon relief as distasteful - only sought and accepted after all other avenues exhausted - also caused a feeling of deep shame

• d. Many communities required applicants to take a pauper’s oath - excluded from voting or holding public office

• President Grover Cleveland, 1887– “the lesson should be constantly enforced that though the

people support the government, the government should not support the people.”

II. Depression of 1893

• 1890s as critical turning point

• Urbanization

• Industrialization– Deep concern about the rise of giant corporations

• Backlash against Laissez Faire capitalism

• Shift from agrarian economy – to modern industrial order


• Bimetallism

• Series of Financial panics– 1873– 1884– 1893– 1907


• 1893– Wall St. Collapse– “Watered” stock– Loans called in - inability to pay.


• 1896 Election– William McKinley - Republicans– William Jennings Bryan - Democrats

– Gold and tariffs are the key issues.


• Relief – decentralized and local

• “Deserving” and “undeserving” poor – immigrants and migrants

• “Bootstraps” narrative of self-help

• Clash over – “nurture” vs. “nature” and the principles of Social Darwinism

III. The Great Depression: Laissez Faire vs. Economic Coordination

• Private vs. Social production– Governor Wilbur M. Brucker - classical economics

believer - economy would right itself - without any community or government interference.

• joblessness - a personal problem - a moral failing.


• Reformers: illness to be treated via temporary solutions

• though most were not radicals out to alter the whole system.


• A. Hoover and Brucker - classical economics– statistics - very hard to come by - no real precise

measurement - endless debate - but about 35-46% unemployment between 1931 and 1933.

– Brucker vetoed - direct relief, unemployment compensation, aid to the elderly

• - boosted Michigan products - go buy a car

A. Hoover and Brucker - classical economics

– 1. James Couzens - Michigan’s senior senator (ex-Ford aide) - engage wealthy to aid - pushed Hoover for direct intervention - more progressive

– 2. Hoover - now very reviled by the left - but a very traditional perspective

• - RFC - loans to states/businesses

• Spring 1931 - loans - $27 million to aid road building and post offices and to dredge rivers.

B. Collapse and Crisis

– 1. Hard hit urban areas - workers reliant on wages - little to fall back on.

• - But-they had left farms, many in Michigan -and they left to go back to places that were no better

• - 2/3 of Montcalm and Keweenaw Counties were on relief

– 2. Instability - opened the door for threats - real or imagined

• - social instability made things very scary.

B. Collapse and Crisis

– 3. One response: Mayor Charles Bowles of Detroit:

• a. March 6,1930 - public rode down a crowd protesting for relief - 31 arrested, dozens injured

C. Indicates the growing social tensions - and specter of class conflict.

– 1. March 6,1930: major demonstrations: Detroit, Grand Rapids, Flint and Kalamazoo

– 2. Consumers angry as well: depressions and the high cost

• a. Housewives Committee Against the High Standard of Living

– - based in Hamtramck - Mary Zuk - anger at high prices

• “...win the fight on meat and go on to the other necessities of life.”

D. Bank Failures

• 1. 1930-1933 - 200 banks failed across the state - usually 5-10 per year.– 2. Feb. 1933 - ready for collapse - no support from GM,

Chrysler, or Ford – and they went under.

– 3. February 14,1933 - Comstock declared a bank holiday until Feb. 23 - FDR later declared a National Bank Holiday

• - regulation came in response to significant improper procedures by banks.

“Hard” free-market

• Biggest issue was the management of the Federal Reserve System (Fed) - a fairly new system (1914)– Fed practiced “easy money” policies: inflating currency

supplies, interest rates fell and a boom ensued

– When business costs rose and effects of the policies wore off, the Fed contracted the money supply leading to collapse.

– The spiral of the stock market mirrored that of the Fed’s policies

Friedman’s Thesis

• Milton Friedman and Anna Schwartz: A Monetary History of the United States, 1867-1960– Bank failures as turning points - from recession to

depression.– Direct cause - “a contagion of fear”

• An academic It’s a Wonderful Life

Further views

• Elmus Wicker - Bank Failures of the Great Depression– “Conceivably, banking failures may have been the

passive consequence of declining income and prices - an endogenous response. Or, they might have been a purely autonomous response to an unanticipated shock to depositor confidence - an exogenous response.”

Economists Debate

• “independent” economic events - result of sudden loss of depositor confidence

• Or erosion of banks’ underlying investments and securities.

So, three choices:

• The Federal Reserve System is the ultimate demon - ultimate macro view.

• Result of panic and mob behavior.

• Or, an irresistible occurrence not unlike the weather.– When the storm comes - a few healthy trees go

with the weak ones - and no ones’ fault.– Naturalize it or spread blame over the mob.

Detroit’s “Banksters”

• Guardian Detroit Bank Complex– Bank, investment affiliate, trust company– Holding company: Union Commerce Corp.– Formed June, 1927, reorganized 1930

• Detroit Bankers Company– Built around First National Bank of Detroit– Formed June, 1930

Banking “Holiday”

• Really an illegal moratorium from Governor Comstock.– 550 national and state banks– $1.5 billion representing 900,000 depositors

– Acting Comptroller of Currency let stand.

Territorial Annexations – 1806-1926

Who owns my home?

• Who will purchase the mortgage assets of failed banking groups?– Branch banking prohibited in Michigan until after

WWII - fears of them being undercapitalized.

– During Depression - people are simply left in their homes - by banks by landlords.

Who Owns My Home?

• New Deal policy: Home Owners Loan Corporation (HOLC)– Establishes long term mortgages, standard

appraisals.– Stability to housing market.

• FHA: 20 - 30 year mortgages, along with Freddie Mac and Fannie Mae– Though they are troubled today as well.

Outcome of “Holiday”

• Guardian - never reopened

• First National Bank of Detroit -never reopened

• GM formed National Bank of Detroit

• Henry and Edsel Ford form Manufacturers National Bank - today’s Comerica– Both “buy” $120 million of the best assets from

predecessors.

Conclusion

• Banking failures of the Great Depression– Failure of confidence?– Failure of the Fed?– Inescapable happenstance?

• Failure of management and politics rather than the “invisible hand”.

IV. Roosevelt and Murphy - Complicated Reformers

• A. FDR - a study in contradictions - no longer the simple worship - our view of him has changed significantly

• B. Frank Murphy - mayor and later governor - WWI vet - Detroit Recorders Court Judge - elected mayor of Detroit in 1930.– finished Charles Bowles’ term in office

Frank Murphy

– 1. Contrast to Bowles: “...no one in this great city of plenty....must be allowed to go hungry,

or cold, or unhoused, or unclothed.”• - took direct action steps - city resources - persuasion• - April 1931 - cost was immense - no county/state aid - cash relief

to food orders - weekly allowance cut.

– - October 24, 1931 - 2,000 protesters - Grand Circus Park to City Hall marched to confer with a delegation of twelve from the mayor.

Attitudes towards relief

– 2. Such actions angered some - city welfare department assistant superintendent John S. Ballenger:

• “Italians will not be at all satisfied with rations which Poles, for instance, would consider splendid. Negroes would not eat what Greeks would buy nor would Greeks stand for a diet designed for native Americans.” - Detroit News April 8,1931

– 3. One supervisor asked why one family was denied relief and received the response that “the family did not show the proper attitude towards the department.’ In short, they were being disciplined for a lack of humility.”

Attitudes towards relief

• C. Relief: “...the duty of the state...not a matter of charity, and [should be provided] not paternally, but as a matter of right.” - Mayor Frank Murphy

• D. Push Back - state loaned only $1.8 million - enough for Feb. 1931 relief costs– and such provision caused much anger in the rest of the

state.– policy changed in 1933 - new governor Democrat William

Comstock - but very rough - no one really new how to respond - very little experience in running state government.

E. Farmer Revolts / Holidays

• 1. Immediate problem - Foreclosures - inability to pay mortgages first, taxes second.

• a. counties, banks, lenders, sought court orders to regain their money

• b. farm sales of household goods and implements.• c. sheriff conducted the sales - any competitive bids were treated

pretty roughly by other farmers - called penny auctions

– “In late January [1933] ...near Howard City in Montcalm County ...they offered only a few cents for each item. A grand piano was sold for four cents, a hay loader for eleven. The total proceeds of the sale were $2.40, and the purchasers returned the items to the owner.” Grand Rapids Press, June 8,1935.

E. Farmer Revolts / Holidays

– 2. Increased anger and coercion - Stanton and Manistee, example - protests

– Gratiot County - bid $3.85 - crowd compelled receivers to return the mortgage to the family.

Farm Holiday Associations - hold back goods from the market

– 3. State replaced general property tax with a sales tax

– 4. New Deal brought with it the - Agricultural Adjustment Act (AAA)

F. Voice of Anger: Fr. Charles Coughlin

– 1. Fr. Charles E. Coughlin, Roman Catholic priest, pastor of the Shrine of the Little Flower of St. Therese in Royal Oak, Michigan - stared down the KKK, built a strong religious community

– 2. Started on WJR with Sunday homily, and then expanded to start offering social and political commentaries

– 3. Started as a Roosevelt supporter - “Roosevelt or Ruin”– 4. By 1935 - turned against FDR, and had developed a real

rage against Jews, bankers, and other elites in society.

F. Voice of Anger: Fr. Charles Coughlin

– 5. Gains a real following that is ecumenical, not just among Catholics, spoke to a real deep seated anger in the public.

V. “An Astonishing Rabble of Impudent Nobodies”

• I. Conservative / Opposition View

• 1. focus attention on the abandonment of free market values during the 1930s to the present day

• 2. also come back to the issue of explaining the economic crash

• 3. most agree that the situation was dire - the how and the why are the problems that they come back to

• A. Key argument that blame is unjustly placed on the free-market system and capitalism in general

• 1. The general, overly simplified popular view: stock market crash dragged the economy down in 1929.

• 2. Herbert Hoover - “hands-off” policy - refused to use the government.

• 3. FDR - comes in like a hero with an activist role for the government.

B. Their counter-vision: Great Depression is really four consecutive downturns

• 1. Monetary Policy and Business Cycle (Why it happened)

• 2. The Disintegration of the World Economy

• 3. The New Deal

• 4. The Wagner Act

• - Numbers 2,3,4 explain why government intervention made it worse.

III. New Deal

• What this represents:

• - shift in policy - away from candidate policies to that of presidential administration

• - shift policy away from anti-government to pro-government intervention

• - they argue that there was no change to fundamental system

• - note no change in unit banking laws - and then permit branch-banking which was not ordered or required

• - raised exchange rate between paper dollars and gold

• - then ruined the gold standard - limitless currency and credit expansion as a result - depreciating currency

III. New Deal

• D. Social Critics

• 1. H.L. Mencken - hated FDR - called him a “Quack” - called the entire New Deal - a “series of stupendous bogus miracles”

•

• E. Supreme Court

• 1. Though important gets short shrift - they are viewed as aiding the program of recovery by striking down the worst of the programs

• 2. The meddling removed in 1935-1936 - fostered recovery and then it was crushed again by the new policies formulated by the “Second New Deal”.

VI. New Deal Policies - Federal Emergency Relief Act - immediate aid

• A. State Emergency Welfare Commission - spent $43 million - 1933-1934 - est. 640,000

people on relief

• B. Civilian Works Administration - 120,000 on projects - WPA - $500 million spent, _ from the federal government - public buildings, dams, roads other large scale projects.


• C. Figures - “In Detroit [Wayne County], nearly $65 million was spent for public relief during the period from April 1933 to December 1935...80 percent was spent by the federal government, 10 percent by the state, and 9 percent supplied by the city and county.”


• D. Most popular project - largest in the public mind - Civilian Conservation Corps (CCC) - 50 camps - 50,000 men passed through in two years - 100,000 total.– Example: Western UP - copper production

collapsed entirely - 1/3 of families in Houghton and Ontonagon County, 2/3 of

families in Keweenaw County on relief - all received aid, but the overall population fell.

Conclusion

• Like the Depression of 1893 – changes to system – but not full reordering

• Bigger impact – on how people consider the role of government.

• Individuality

• “A little cog in the big machine”

specters of ruin: the depression of 1893 and the great depression of the 1930s day 1, july 29...

Documents