My previous letter was not intended to be a comprehensive review of the causes of the Great Depression of 1929-1940. The stock market collapse of October 29th, 1929 triggered a recession. The recession of 1929 became a depression in the second half of 1930 as the direct result of passage of the Smoot-Hawley Tariff in June of that year despite hundreds of leading US businessmen pointing out that the United States had for more to lose than their foreign counterparts in the tariff war that would inevitably ensue. As predicted, retaliatory tariffs caused the demand for US goods to plummet within a few months of the passage of Smoot-Hawley.
Signing Smoot-Hawley into law was one of number of harmful things the Hoover administration did that turned the recession into a depression, spelled with a small “d”. By pressuring companies not to lay off workers, Hoover deprived them of the ability to streamline their operations in response to the new economic reality, further undermining stock values. (US companies did not repeat this mistake in 2007).
The collapse in 1931 of the Bank of United States (whose sixty branch offices held the deposits of some 400,000 depositors, including a large number of small and medium size businesses) triggered the run on banks that wiped out whatever was left of middle class savings, putting an additional damper on domestic demand for goods and services.
Economic historian Amity Shlaes argues in “The Forgotten Man” that we have Roosevelt to thank for turning the depression of 1929-2 into the Great Depression–that it was the erratic economic and overtly anti-big business policies of the Roosevelt administration which caused the depression to drag on for over a decade by discouraging the private sector from investing in new plant and equipment and creating jobs.
While Reich may be right that the years leading up to both the Great Depression and the economic recession of 2007-2009 witnessed a high level of concentration of wealth in the hands of a few speculators, it does not necessarily follow that this was the cause (or even a cause) of either downturn.
The Watchdog, who studied economic history at the University of California, Berkeley, should know better.
