The Great Depression 1929 - 1941

Robert S. McElvaine, “The Great Depression: America 1929-1941” Three Rivers Press (Kindle Library Edition), 1993, 386 pps


Although the original publication of this book was during Reagan’s presidency, the authoritative description by historian Robert McElvaine of the Great Depression remains as accurate and easy to read as any other later presentations I have read. The author provides an introduction that updates the reader and illustrates the parallels between the roots of the Great Depression and the economic meltdown that followed the credit crisis of 2008. Additionally, he also examines the resurgence of anti-regulation free market ideology, beginning in the Reagan era, and the predictable consequences of ignoring lessons of the Depression era. No period in American history has more of importance to us than does the Depression decade. Events in those years have determined the direction of our social and economic policies, our relationship to our government, and our political alignments ever since. The author maintains that history provides a clearer understanding of the Depression era than economics can. In the summer of 2007, the author completed an analysis of the similarities between the 1920s and the 2000s predicting a collapse—few listened.

The main cause of recurring depressions is the maldistribution of income (thus a lack of spending) and lack of sensible regulation (note: he does not deal with wealth, only income). Our economy depends on consumption and consumption depends on having adequate income to purchase.

Loc 244: The free market, it seems, is fine for prosperous times and for the poor and the middle class, but the rich bleat for government intervention to save them the moment they fail.

Loc 431: It is true that the New Deal failed to end the Depression; the reason, though, is not that Roosevelt and Congress overspent, but that they underspent. The war ended the Depression because it obliged Roosevelt and Congress to spend huge amount without worrying about where the money was coming from. And, held up against the experience of the Roosevelt years, the argument that low taxes are the way to end an economic collapse is ludicrous. This is not a matter for debate; it is absolutely certain that it was not tax cuts that brought the nation out of the Great Depression. The recovery took place at a time when the top marginal income tax rate was raised to 88 percent and then, in the last two years of the war, to 94 percent.

Loc 539: In 1999 Congress repealed the 1933 Glass-Steagall Act, which separated investment banking from commercial banking, that change facilitated the mortgage bubble and collapse of the 2000s. Also, in 2000 the “Commodities Futures Modernization Act” prohibited any regulation of the modern gambling instruments called derivatives, including credit default swaps.

Loc 555: Two mistakes of the New Deal: (1) the use of a regressive payroll tax to fund social security and (2) failure to include national health insurance in the Social Security program. These mistakes may have been unavoidable in order to get the bill passed.

Loc 599: Federal debt expanded during the Reagan and George H. W. Bush presidencies from one trillion to four trillion dollars over a scant twelve years and raised debt service back to nearly a quarter of regular federal expenditures by the early 1990s.

Loc 634: The concentration of income at the top is ever-more-pronounced the higher the income level. The share going to the richest 10 percent shot up from 1979 to 2007 by 45 percent, but the share going to the richest 1 percent far more than doubled—ant that taken in by the hyperrich, the top one-hundredth of a percent, more than tripled in less than three decades after the launch of the Reagan Revolution.

Loc 1006: Many different types of business cycles have been traced over the years. During the nineteenth century, for example, major economic slumps occurred with disturbing regularity: 1819, 1837, 1857, 1873, 1893. Another was beginning “on schedule” in 1914 but was interrupted by the war.

Pg. 12: About half of the more than $32 billion cost of WWI as met by borrowing. The rest was paid for through sharply increased taxes, including levies on corporate profits and a sharply graduated income tax (the latter made possible by the ratification of the Sixteenth Amendment in 1913).

Pg. 17: The relationship between expanding consumption and prosperity in the 1920s is clear. Productivity increased astronomically. Between 1920 and 1929 output per person-hour soared upward by 63 percent. If the economy was to stay afloat, someone had to buy these products. Much of the twenties prosperity was directly related to the automobile industry. Between 1919 and 1929 the number of motorcars in the U.S. leaped from fewer than 7 million to more than 23 million.

Pg. 29: In 1929 annual per capita income of farm persons was $273; the average for all Americans was $750.

Pg. 27: Explanations of what caused the Great Depression (or any Depression):
Milton Friedman proposed that prosperity is dependent upon the size of the money supply. The Great Depression, he contends, was triggered by a mild decline in the money stock from 1929 to 1930. The collapse broadened when a wave of bank failures beginning in 1930 further contracted the money supply. (This monetarist explanation is rejected by Charles Kindleberger. The facts plainly do not support the contention of a shrinking money supply from 1929 to 1931. Interest rates declined and so did prices, the latter more sharply than the reduction of the money supply, hence the real money supply was actually growing slightly).

The most prevalent view of the causes of the Depression has been that which focuses upon a decline in spending—that is, in consumption, investment, or both. Tariff policies were not at the root of the Great Depression, but international forces did play a role in causing the collapse.
The coming of the automobile and tractor on a large scale in the 20s freed some 25 million acres previously used to grow feed for horses was turned to other agricultural products, creating over-production and decimating farm prices.

Pg. 37: By the end of the twenties, roughly two-thirds of the industrial wealth of the U.S. had passed from individual ownership to ownership by the large, publicly financed corporations. In 1929, 200 corporations controlled nearly half of all American industry.

Pg. 37: According to the Brookings Institution study, the top 0.1 percent of American families in 1929 had an aggregate income equal to that of the bottom 42 percent. Maldistribution of wealth in 1929 was even greater than that of income. Nearly 80 percent of the nation’s families—some 21.5 million households—had no savings whatsoever. The 24,000 families at the top—0.1 percent—held 34 percent of all savings. The 2.3 percent of families with incomes of more than $10,000 controlled two-thirds of America’s savings. A large part of the reason for the growing gap between rich and poor was that productivity was increasing at a far faster rate than wages. Wages increased only by a rate one-fourth as fast as the rise in productivity.

Pg. 43: Roughly 4 million Americans owned stock in 1929, out of a population of approximately 120 million. Only 1.5 million of those stockholders had a sufficiently large interest to have an account with a broker.

Pg. 75: From the top of prosperity in 1929 to the bottom of depression in 1933, GNP dropped by a total of 29 percent, consumption expenditures by 18 percent, construction by 78 percent, and investment by an incredible 98 percent. Unemployment rose from 3.2 to 24.9 percent. By 1932 black unemployment reached approximately 50 percent.

Pg. 204: The Communist party itself was never very great in Depression America, but Marxist ideas were very important; indeed, they played a significant role in advancing the cooperative values of the period.
Townsend, Couglin, and Huey Long had their various radical ideas of sharing the wealth. The threat of these radicals influenced Roosevelt to move more left than he otherwise would have.

Pg. 245: A study in 1935 estimated that if all wealth in excess of $1 million were taken and given to those with assets of $5,00 or less, there would only be enough to grant each poor family $400.

Pg. 284: Roosevelt’s attempt to enlarge the Supreme Court was not unconstitutional. It is clearly within the power of Congress to alter the size of the Supreme Court; it had, in fact, been done several times in the nineteenth century. But his attempt to do so enraged enough of his own supporters that his second administration was severely hampered.

Pg. 296: In 1939 the Supreme Court outlawed the sit-down strike, taking from the CIO its most effective weapon.

Pg. 298: In August 1937 the stock market collapsed again, with the Dow Jones average dropping from 190 to 115 over the next two months. By March 1938 unemployment again approached 20 percent. The Great Depression outlived the New Deal. The irony was that FDR and Congress finally began to restore prosperity by spending on military needs at levels they had rejected for social needs. The military buildup of 1940-41 did more to revive American industry and reduce unemployment than had any New Deal program.

Pg. 335: Who did the early measures of the New Deal help? The NRA aided big business, the AAA helped large landowners and hurt tenant farmers, the Emergency Banking Act and the FDIC helped bankers and depositors, the HOLA aided lenders and homeowners, and the SEC helped stock investors. The only things in the First New Deal that directly benefited the really poor were the TVA, the Farm Credit Administration, and the relief programs.
The Second New Deal created the benefits of the Wagner Act, Social Security, and the later Fair Labor Standards Act. The WPA was the most important factor in tying the poor to the New Deal. The New Deal created the welfare state. Never again would it be seriously argued that society had no responsibility for the unemployed, the aged, and the infirm.