As worries of a deepening recession loom before us, more and more comparisons are made between today and the Great Depression, looking for similarities and differences, examining the past like a crystal ball to the future. Bank failures and the stock market drop, though not as severe, are reminiscent of 1929. Are today’s losses going to last for decades? Are we headed for period of 20+% unemployment? What can we learn from that devastating time that will help us mitigate if not avoid the struggles and hardships suffered back then?
Fewer and fewer people are around who lived through those times, but still most of us have been touched in some way. My grandparents were born in 1902 putting them just at the beginning of their adult lives at the time of the stock market crash. Both went to college at the University of Illinois, graduating and getting married in 1926. My grandmother told stories of men (she called them hobos) who came to their back door asking for food, and then marking the house to alert others of their success or failure. My grandfather was able to enter a well established family business and though times were tight, was never without work and a house. Charity was a constant theme in his life. He lived to be 98, but has been gone for eight years now.
My father-in-law was born in 1918. The depression permeated his childhood. Orphaned while not yet through college, and unable to make the payments, he and his two brothers simply packed up and walked away from their family home. He recalls the New Deal as providing jobs when there otherwise were none. This summer we celebrated his 90th birthday, and the memories of the hard times are still sharp.
My dad, born in 1925, grew up in Chicago in a family which squeaked by. His tales include Sunday suppers consisting of popcorn and apples, as two big meals a day just wasn’t possible. His first job put him on a ship to Europe and in a tank under Patton. His memories of scarce resources morphed into lessons of frugality and self-reliance which he passed on to his five daughters. Turn out the lights. Two squares of toilet paper should be enough. His delight in a flat-tipped spoon designed to get the last little bit of peanut butter out of the jar. He’s healthy and going strong in his early 80’s, enjoying the fruits of his successful entrepreneurship, still fiscally prudent and an enthusiastic advocate of conservation.
So now to my generation. We too have been touched by the Great Depression through its imprints on our parents and grandparents. Their stories have a poignancy sharpened by our shared lives, yet blurred by the fact we are looking through someone else’s eyes. We too feel the concern and worry of experiencing such times of tenuousness and uncertainty. So we peer closely, looking for clues, for understanding, and hopefully for guidance and answers.
The Great Depression was a turning point in economic thought as well in personal philosophy. I don’t think I can capture the shift better than this summary by Mark Skousen:
The Great Depression of the 1930s was the most traumatic economic event of the twentieth century. It was especially shocking when one considers the great advances that had been achieved in Western living standards since the turn of the century. The economic abyss represented a watershed in economic history and theory; its effects on attitudes and policies still linger at this dawn of a new century.
The brunt of the depression was felt in 1929-33. In the USA, industrial output fell by over 30 per cent. Nearly half the commercial banks failed. The unemployment rate soared to 25 per cent. Stock prices lost 88 per cent of their value. Europe and the rest of the world experienced similar turmoil. In addition, the recovery in the 1930s was slow and uneven; unemployment remained high (above 15 per cent) until the armament race heated up in the early 1940s. The prolonged depression created an environment critical of laissez-faire policies and favorable towards ubiquitous state interventionism throughout the Western world. It led to the Welfare State and boundless faith in Big Government. It caused most of the Anglo-American economics profession to question classical free-market economics and to search for radical anti-capitalist alternatives, eventually converting to the 'new economics' of Keynesianism and 'demand-side' economics. Prior to the Great Depression, most Western economists accepted the classical virtues of thrift, limited government, balanced budgets, the gold standard and Say's Law. While most economists continued to defend free enterprise and free trade on a microeconomic scale, they rejected traditional views on a macroeconomic level in the postwar period, advocating consumption over saving, fiat money over the gold standard, deficit spending over a balanced budget and active state interventionism over limited government. They bought the Keynesian argument that a free market was inherently unstable and could result in high levels of unemployed labor and resources for indefinite periods. They blamed the Great Depression on laissez-faire capitalism and contended that only massive government spending during the Second World War saved the capitalist system from defeat. In short, the depression opened the door to widespread collectivism in the USA and around the world. * (emphasis mine)
So which model is right? Communism and socialism were embraced earlier this century as potential answers, but the devastating experience of the Soviet experiment has shown those paths lead to tyranny and impoverishment. We now are trying to decide once again between laissez-faire capitalism and a Keynesian-style mixed-economy. How shall we decide? What exactly are these two systems of economic theory? Where are they similar? Where do they part ways? How do we decide which is right, or at least which is best?
This is my current intellectual journey which I try to share on this blog. My basic assumption is that most people are honest and caring, wanting to find solutions which are both practical and just. Yet while we are searching, we come to such different conclusions. What exactly are the points of divergence? If we can’t convince one another, can we at least better understand how and why we differ?
So much is riding on the answers we choose. Can we keep in mind that, for the most part, we are on the same side, each doing our best to grapple with complexities that have such immediate and immense effects on our one and only life? That is my goal. I hope you will join me.
Skousen, Mark, "The Great Depression" in The Elgar Companion to Austrian Economics, ed. Peter Boettke, Edward Elgar Pub. Ltd., 1994.
