This Day in Economic History (‘Black Tuesday’ Kicks Off Great Depression)

Oct. 29, 1929—Only five days after Wall Street trembled before righting itself, the New York Stock Exchange collapsed. The 16 million shares sold at declining prices not only made this “Black Tuesday” but also, for all intents and purposes, the start of the Great Depression. 

In contrast to prior economic contractions, which lasted only a year or two, the Great Depression was far more protracted—not really ending until the arms ramp-up just before Pearl Harbor—and far more devastating, putting one-quarter of the American workforce on the unemployment line simultaneously. 

It is well-known that, in effect, it thrust the federal government into a more interventionist position in relation to the economy. But not as many Americans realize that the Depression opened the country up to dangerous forces in a way never seen before. More Americans than ever before were willing to at least flirt with the idea of Communism, and in Louisiana, Huey Long made the entire state dance to his will.

Perhaps somewhat less surprising, my predominantly U.S. readership may not realize the impact of the Depression on other nations, starting with north of the border in Canada, a downturn chronicled by historian Pierre Berton in The Great Depression: 1929-1939. New Zealand, Australia and the United Kingdom also felt the blow. Worst of all was Germany, where voters in the already weak Weimar Republic looked increasingly toward, then embraced, the Nazi Party.

Critic Edmund Wilson called his account of the early stage of the downtown The American Earthquake. But if the noun in that title applies domestically, the case of Germany suggests that yet a stronger term might be required to depict the political damage in that country, where people sought simplistic solutions, then moved to wipe out the most vulnerable in their society. 

I will not rehash what happened on Black Tuesday. If you want a vivid narrative of what happened that fateful day, you can turn to economist John Kenneth Galbraith’s The Great Crash: 1929.  What I really want to do is consider: could it happen again?

In one sense, it already has—in the 2007-2009 Global Financial Crisis (GFC). Much ink has been spilled about how Fed Chair Ben Bernanke and Treasury Secretary Hank Paulson, mindful of what happened in 1929, prevented a complete economic meltdown.

But what happened was bad enough. Consider some of the consequences of the crisis in the decade since, here and abroad:

*largely anemic economic growth;

*a whole cadre of the unemployed who, toward the start of the recession, became jobless for so long that they ended up out of the workforce for good;

*the hollowing out of the middle class; 

*a resentment of government bank bailouts that, in part, sparked the Tea Party movement;

*scapegoating of immigrants.

In the July/August issue of Foreign Affairs, Gillian Tett, an editor at The Financial Times, laid out the results of the “Faith-Based Finance” of a dozen years ago—how a mystical conviction about new technology, for instance, not only led to a round of Wall Street delusion, but could be repeaed:

“It would be foolish to imagine that the lessons of the crisis have been fully learned. Today, as before, there is still a tendency for investors to place too much faith in practices they do not understand. The only solution is to constantly question the basis of the credit that underpins credit markets. Just as there was in 2007, there is still a temptation to assume that culture does not matter in the era of sophisticated, digitally enabled finance.”

In a sense, Galbraith had anticipated this in 1954, when his highly acclaimed history of the Great Crash appeared. Although much of the book brimmed with ironic reflections on the comeuppance of Wall Street a quarter-century before, he became considerably more sober in the introduction to his 1961 edition:

"Someday, no one can tell when, there will be another speculative climax and crash. There is no chance that, as the market moves to the brink, those involved will see the nature of their illusion and so protect themselves. The mad can communicate their madness; they cannot perceive it and resolve to be sane. There is some protection so long as there are people who know, when they hear it said that history is being made in this market or that a new era has been opened, that the same history has been made and the same new eras have been opened many, many times before. This acts to arrest the spread of illusion. A better sense of history is what protects Europeans if not perfectly at least more adequately from speculative excrescence."

Photo of the Day: At Least Somebody Loved ‘America’s Worst President’

When I took this photo in Washington in November 2013, I could not foresee using it anytime soon. Then New York Times columnist Gail Collins’ piece from earlier this week, “Hillary Versus History,” engaging in what she called “random irrelevant trivia about presidential elections of the past”—but which, one suspects, she regarded as anything but irrelevant to today—gave me the opportunity.

The last time one Democrat was elected to succeed another, without first becoming Vice-President, was when James Buchanan followed Franklin Pierce, back in the election of 1856. That one didn’t go over terribly well. Buchanan, despite one of the most glittering pre-Presidential resumes in history, became a disaster.

Was Buchanan “the worst President ever,” as Collins suggests? My vote still goes to Richard Nixon, for his cynicism, vindictiveness, and the gargantuan set of scandals that, for the sake of simplicity, is now remembered with the word “Watergate.”

But I’ll grant Collins the point that even Tricky Dick has not only defenders, but even Democratic historians who, looking back in the 35 years since Ronald Reagan entered the Oval Office, reluctantly allow that this GOP predecessor had his good points as far as domestic policy was concerned (e.g., the creation of the Environmental Protection Agency).

Collins is indisputably correct, that “you very seldom run into fans of Buchanan, the man who cozied up to slaveholders and failed to stop Southern secession.” That is why, when I came upon the James Buchanan Memorial in today’s “Photo of the Day” a year and a half ago, I was absolutely dumbfounded.

I’m not going to get into the aesthetics of this sculpture of James Buchanan by Hans Schuler in DC’s Meridian Hill Park (now also nicknamed “Malcolm X Park”—a moniker that, if Buchanan could hear it now, would give this Northern “doughface” sympathizer of the South fits). But I must say that I had a WTF? moment when I read its inscription: “THE INCORRUPTIBLE STATESMAN WHOSE WALK WAS UPON THE MOUNTAIN RANGES OF THE LAW.” And framing him between statues of "Diplomacy" and "Law"--too much!

The only people who could have wanted such a memorial made, with such a ludicrous description of his character and legacy, would have been Southern Democratic segregationists who never got over their loss in the Civil War, I figured. But not so—they weren’t pushing to see him honored, either. On the other side, there was active opposition from the most prominent Senate Republican of the time, Henry Cabot Lodge of Massachusetts, who noted that the statue would honor the only president "upon whom rests the shadow of disloyalty in the great office to which he was elected."

So who wanted it? As Brady Carlson wrote, in an entertaining post on the memorial, it was Buchanan's niece. Yes, his niece.

The only bachelor to become President, Buchanan never had any offspring. (I’m not going to get into the issue of whether or not he was gay—not in this post, anyway.) But he needed someone with the feminine touch to help with social occasions. When the widower Thomas Jefferson became President, that function was filled by the wife of his Secretary of State, Dolley Madison (giving her great on-the-job training for when she officially filled the role, as the actual President’s wife). Now, under Buchanan, that function was performed by Harriet Lane. It is one of the great anomalies of White House history that the first person known to have been called “First Lady” was not the wife of the President, but his niece.

Buchanan looked on his niece not just as something like his daughter (he had, in fact, adopted her, after the death of both her parents when she was 10) but also—surprisingly enough for someone so conservative—as an intellectual equal, someone whom he could sound out for advice on career decisions, for instance. Twenty-six years old when her uncle was inaugurated, she was, by all accounts, a lively, intelligent young woman who, in a different time, might have aspired to high office herself.

James Buchanan’s life was blighted by national tragedy; Harriet’s, by personal tragedy, as her husband and two sons died within three years. Quite affluent by this time (the mid-1850s), as a result of inheritances from her uncle and her banker husband, she devoted the remainder of her life, as recounted in this 2006 Pittsburgh Post-Gazette article by Mark Roth, to eminently worthwhile philanthropy: improving prison and hospital conditions, establishing an institute for the blind in New York and fighting illegal liquor sales on Chippewa Indian reservations.

But part of her estate, at the time of her death in 1903, was earmarked for a memorial to her uncle. Nowadays, the government would practically grab with both hands at a project in which no public funds would be expended (particularly when what would be $100,000 in today's currency would be involved), but for a long time there were no takers. Then, with somebody noticing that her bequest came with an expiration date—15 years—lawmakers reluctantly signed on, perhaps consoling themselves with the thought that the project might mean more work for the construction industry.

Though Woodrow Wilson signed the legislation enabling the memorial, it was another President, almost as maligned as Buchanan, Herbert Hoover, who spoke at the monument’s dedication. Hoover—beleaguered, in the form of the Great Depression, by the steepest challenge to face an American President since the secession movement that made Buchanan so unhappy—made one assertion that, while historically debatable, was, given his own predicament, heartfelt:  “James Buchanan occupied the presidency at a moment when no human power could have stayed the inexorable advance of a great national conflict.”

But another sentence, about the contribution of Buchanan’s niece to this most unexpected bit of DC memorial art, was inarguable: “It is due to Miss Lane's devoted appreciation of his kindness that this statue has been erected."

This Day in Presidential History (Hoover Choice: ‘Rugged Individualism’ or ‘State Socialism’)

October 22, 1928-- In the next-to-last address of his successful campaign for the Presidency, Herbert Hoover laid down the marker for much of the rhetoric that would be used by conservatives for the next 85 years—very much up to, and including, the Obamacare debate. The dichotomy to which he pointed in his speech at New York’s Madison Square Garden, however—America’s “rugged individualism” and Europe’s “state socialism”—was, and is, a false one.

Hoover was, in effect, baiting Democratic opponent Alfred E. Smith on his home turf. Though Smith would break four years later with Franklin Roosevelt over their clashing ambition for the White House, the two shared a belief in a federal government that mitigated the effects of untrammeled capitalism on society’s marginalized. They knew all too well about this issue, as New York’s Triangle shirtwaist factory fire of 1911 had served as an object lesson in the need for at least some regulation.

Smith, as much as FDR, was a joyous campaigner, and had he been chosen for the Presidency we would probably recall more of his words than we do Hoover’s. The Secretary of Commerce had never held elective office, but now here he was, with an overwhelming victory only weeks away, telling Americans what they had gained in eight years of Republican governance—and how it was all at stake now:

 “When the war closed, the most vital of all issues both in our own country and throughout the world was whether Governments should continue their wartime ownership and operation of many instrumentalities of production and distribution. We were challenged with a peace-time choice between the American system of rugged individualism and a European philosophy of diametrically opposed doctrines—doctrines of paternalism and state socialism. The acceptance of these ideas would have meant the destruction of self-government through centralization of government. It would have meant the undermining of the individual initiative and enterprise through which our people have grown to unparalleled greatness.”

But Hoover could not begin to conceive of the damage his party had done by taking the brakes off the economy. A few months before, he predicted to delegates at the Republican National Convention an outcome that, to countless Americans over the next decade, would sound unintentionally hilarious: “We in America today are nearer to the final triumph over poverty than ever before in the history of any land. The poorhouse is vanishing from among us.”

Within a year, “the poorhouse” would vanish, all right—to be replaced by entire Hoovervilles of sprawling, desperate privation, all over America. Hoover’s “American system” of intense voluntary economic cooperation on the part of big business could not have had less in common with Henry Clay’s “American System” of furthering the growth and cohesion of America through government action (a tariff, a national bank, and such “internal improvements” as canals).

When the Great Crash hit in October 1929, Hoover was blind to the serious flaws in the Republican-inspired prosperity he had hailed, including wage increases not matching industry productivity gains and farmers already plunged into a depression several years before the rest of the country followed suit. His dismay over worsening conditions was not dissimilar to Alan Greenspan’s surprise, in 2008, that deregulation would not encourage market corrections that would avoid a recession (“Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief,” the former Federal Reserve chair lamented).

The resulting Great Depression might have occurred on Hoover’s watch, but it did happened more through a lack of imagination than a lack of empathy. The Midwest orphan farmboy who had survived countless medical mishaps in childhood to become a millionaire mining engineer—and a humanitarian savior during Europe’s refugee crisis during WWI—could not conceive that the problems facing America were no longer amenable to the individual will. "The man who had fed Europe had become a symbol of hunger, the brilliant administrator a symbol of disaster," wrote Richard Hofstadter in The American Political Tradition and the Men Who Made It (1948)

I don’t know if Hoover coined the term “rugged individualism,” but he did much to spread notions of self-improvement that had been around since Benjamin Franklin and Ralph Waldo Emerson. This, despite the overwhelming tone of pomposity and self-righteousness that permeated this and other speeches by the Republican Presidential nominee.

Hoover aides Theodore Joslin, French Strother and Gertrude Lane were the “most hapless martyrs” in the history of speechwriting, writes blogger Eugene Finerman. Yet even they had their moments of glory, and one of them had a field day in cleverly combining “rugged” with “individualism.” That adjective evoked not just Theodore Roosevelt’s “Strenuous Life” and Abraham Lincoln’s Rail-Splitter, but also frontiersmen who had opened up interior spaces in the U.S. such as Hoover’s native Iowa. The phrase was potent enough that it even survived the abuse rained on it four years later by F.D.R. 

Perhaps even more potent as a scare tactic has been the use of the term “state socialism.” The phrase’s silliness begins, but does not end, with the fact that it is redundant (socialism is, by definition, state ownership or control of private resources). It also has become a default fallback position against any recourse to change, no matter how necessary--and has even been turned around against its own users.

Newt Gingrich’s 2012 campaign manifesto, for instance, was called To Save America: Stopping Obama's Secular-Socialist Machine. The former Speaker of the House’s adoption of the epithet “Socialist,” however, did not preclude use of the term by his Republican primary opponent, Michelle Bachmann, who referred to him as a “frugal socialist” for his support for the Medicare Part D prescription drug entitlement program.”

Over the years, the damage to the American economy by Republicans when they hold power from the ‘20s and ‘30s has been overcome. But the  poison introduced to the American body politic with the phrase “rugged individualism” has been far more difficult to eradicate.

Quote of the Day (Andrew Mellon, on How to Cope with the Depression)

“Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate.” – Andrew Mellon (1855-1937), Secretary of the Treasury Andrew Mellon to Herbert Hoover, recounted in the latter’s Memoirs of Herbert Hoover (1952)

This statement sounds rather Leninist, doesn’t it? Only it came, oddly enough, from the man who, until that time, had been acclaimed, in many quarters, America’s “greatest secretary of the treasury since Alexander Hamilton.” It was his advice to Hoover on how to cope with the Great Crash of 1929 and the resulting worldwide economic collapse.

Despite heroic attempts to revive his reputation, notably by economic columnist and historian Amity Schlaes, Andrew Mellon—an uber-capitalist ever before he became the nation’s most powerful financial officer during the go-go years of the Roaring Twenties—has never recovered from the hit he took during the Great Depression. 

Neither, for all his constant, earnest, but ideologically hidebound attempts to cope with the crisis, has Herbert Hoover’s, one of the three Presidents Mellon served--the others being Warren Harding and Calvin Coolidge.

Predicting Presidential reputations during a current administration is dicey and often ideologically skewed, but I strongly believe that George W. Bush’s has likewise also taken a fall from which it will never recover. He has looked terribly insignificant—almost physically shrunken—throughout this crisis.

Furthermore, unlike Hoover, he and his administration had ample history to realize the perils of unrestrained markets. Yet, while the Democrats are to some extent complicit in this mess for expanding Fannie Mae and Freddie Mac and for repealing the Depression-era Glass-Steagall Act, the President remains responsible for not sounding the alarm and, in fact, for deregulating even more than prior administrations.

You’d think that a President with approval ratings in the 20s wouldn’t have much further to drop, but right now Bush’s Presidential “stock” has plummeted further and faster than Wall Street’s. Don’t expect him to get into the next Republican convention unless he wears a fake moustache and tries a different name. 

The latter option, incidentally, has been tried before, by Boston's charming rascal mayor James Michael Curley, who at the 1932 Democratic Convention, upon being shut out of the Massachusetts delegation, got himself named to the Puerto Rican delegation as "Jaime Miguel Curleo." Only in America, folks!