1 00:00:00,280 --> 00:00:03,760 The Great Depression was the worst and deepest peacetime 2 00:00:03,760 --> 00:00:07,160 economic shock in the history of the industrialized world. 3 00:00:07,440 --> 00:00:11,160 It changed how economists thought about financial systems, 4 00:00:11,400 --> 00:00:15,240 giving birth to macroeconomics as a distinct field of study. 5 00:00:15,520 --> 00:00:19,960 It brought about profound social change around the world and was 6 00:00:20,000 --> 00:00:23,520 a significant factor in the drift towards the Second World 7 00:00:23,520 --> 00:00:26,120 War. The depth of suffering during 8 00:00:26,120 --> 00:00:30,080 the depression years is hard for many of us to imagine today. 9 00:00:30,400 --> 00:00:35,240 According to a 1932 study by the New York City Health Department, 10 00:00:35,480 --> 00:00:39,320 more than one in five children in the city were suffering from 11 00:00:39,320 --> 00:00:42,920 malnutrition, and the Great Depression was only getting 12 00:00:42,920 --> 00:00:46,880 going at that point. It lasted 7 more years. 13 00:00:47,400 --> 00:00:51,720 It's easy to look at the Great Crash of 1929 as the start of 14 00:00:51,720 --> 00:00:54,760 the Depression. It's convenient to start with a 15 00:00:54,760 --> 00:00:58,640 dramatic and well known event and claim that it both started 16 00:00:58,640 --> 00:01:00,760 and caused everything that followed. 17 00:01:01,040 --> 00:01:04,319 But of course, the real world is a bit more complicated than 18 00:01:04,319 --> 00:01:06,840 that. Ben Bernanke, a scholar of the 19 00:01:06,840 --> 00:01:10,840 Great Depression, famously said that to understand the Great 20 00:01:10,840 --> 00:01:14,360 Depression is the Holy Grail of macroeconomics. 21 00:01:14,720 --> 00:01:19,320 To this day, economists and historians disagree about the 22 00:01:19,320 --> 00:01:22,920 cause of both the crash and the depression that followed. 23 00:01:23,240 --> 00:01:27,160 But the roots of these problems can be traced to the events at 24 00:01:27,160 --> 00:01:31,080 the end of the First World War. When Germany signed the 25 00:01:31,080 --> 00:01:35,640 Armistice in 1918, ending hostilities, its leaders at 26 00:01:35,640 --> 00:01:39,000 first thought that they were accepting a peace without 27 00:01:39,000 --> 00:01:43,600 victory, as was outlined by Woodrow Wilson in his famous 14 28 00:01:43,600 --> 00:01:46,400 points. By the time the Allied leaders 29 00:01:46,400 --> 00:01:50,640 and representatives from Germany gathered in the Hall of Mirrors 30 00:01:50,640 --> 00:01:54,640 in Versailles to sign the final treaty, the mood had changed 31 00:01:54,640 --> 00:01:58,200 significantly. Germany had been denied a seat 32 00:01:58,200 --> 00:02:02,360 at the negotiation table and the blame for inciting the war was 33 00:02:02,360 --> 00:02:04,720 placed squarely on its shoulders. 34 00:02:05,040 --> 00:02:08,520 It was forced to accept the responsibility for the losses 35 00:02:08,520 --> 00:02:12,120 and damages suffered by the Allied nations and to pay 36 00:02:12,120 --> 00:02:15,640 several billion in reparations to rebuild the destroyed 37 00:02:15,640 --> 00:02:19,080 economies of Europe. Before the First World War, 38 00:02:19,200 --> 00:02:23,240 Europe had been the centre of global power, with empires that 39 00:02:23,240 --> 00:02:27,360 stretched across the planet, and it had been easy for goods and 40 00:02:27,360 --> 00:02:29,920 people to cross international borders. 41 00:02:30,280 --> 00:02:33,720 When war broke out, capital, instead of being used for 42 00:02:33,720 --> 00:02:36,720 growth, was being spent on destruction. 43 00:02:37,040 --> 00:02:40,880 Over the five year period, the great empires were severely 44 00:02:40,880 --> 00:02:44,000 diminished, with some being essentially wiped out. 45 00:02:44,480 --> 00:02:48,760 International trade, which had only grown in the past, was now 46 00:02:48,760 --> 00:02:51,200 shrinking. The destruction that had 47 00:02:51,200 --> 00:02:55,440 occurred in Europe transferred financial power to New York as 48 00:02:55,440 --> 00:02:59,600 Europe had to turn to American banks for loans to rebuild their 49 00:02:59,600 --> 00:03:02,200 infrastructure and repay their debts. 50 00:03:02,640 --> 00:03:06,680 The reparations and war debts fuelled international tension 51 00:03:06,680 --> 00:03:10,320 and weakened not just the domestic economies of some 52 00:03:10,320 --> 00:03:13,960 European nations, but also the international economic 53 00:03:13,960 --> 00:03:16,840 structure. European countries were now 54 00:03:16,840 --> 00:03:20,520 debtors rather than creditors of the United States. 55 00:03:21,120 --> 00:03:25,320 The First World War had brought unprecedented prosperity to 56 00:03:25,320 --> 00:03:28,760 American farmers. As with Europe unable to grow 57 00:03:28,760 --> 00:03:33,320 crops, the demand for American agricultural exports exploded, 58 00:03:33,520 --> 00:03:37,240 leading to rising crop prices and rising incomes. 59 00:03:37,520 --> 00:03:41,520 American farmers expanded production to meet this demand 60 00:03:41,720 --> 00:03:45,120 by moving on to marginal farmland and buying machinery 61 00:03:45,120 --> 00:03:47,440 like tractors, ploughs and threshers. 62 00:03:47,800 --> 00:03:51,760 The debt of American farmers grew over this period as they 63 00:03:51,760 --> 00:03:54,680 borrowed to invest in both land and machinery. 64 00:03:55,080 --> 00:03:59,480 When the war ended, agricultural production in Europe recovered 65 00:03:59,480 --> 00:04:04,160 faster than many expected and Europe no longer needed to buy 66 00:04:04,160 --> 00:04:06,320 America's surplus farm production. 67 00:04:06,640 --> 00:04:11,000 This led to a short depression in 1920 when American farm 68 00:04:11,000 --> 00:04:14,800 prices collapsed and the consumer price index fell by 69 00:04:14,800 --> 00:04:18,680 11.3%. Despite this downturn, at the 70 00:04:18,680 --> 00:04:22,680 start of the decade, America's economy was growing healthily. 71 00:04:22,680 --> 00:04:25,680 In the 1920's. The war had brought new 72 00:04:25,680 --> 00:04:28,800 inventions and innovations in mass production. 73 00:04:29,240 --> 00:04:33,360 When people think of the 1920s today, certain images come to 74 00:04:33,360 --> 00:04:36,000 mind. Speakeasies, flappers, the 75 00:04:36,000 --> 00:04:40,240 Charleston bathtub, gin, Duisenberg and Auburn cars. 76 00:04:40,520 --> 00:04:44,600 The 20s have been described as an era when America withdrew 77 00:04:44,600 --> 00:04:48,280 from the world and went into an orgy of self indulgence. 78 00:04:48,560 --> 00:04:51,720 The decade's been given many names like the Jazz Age, the 79 00:04:51,720 --> 00:04:56,680 Prosperity decade, the New Era, the Era of Excess, the Ballyhoo 80 00:04:56,680 --> 00:05:01,160 years, and the Dry decade. The good times all unfortunately 81 00:05:01,160 --> 00:05:06,280 ended with the 1929 crash, not just in the United States, but 82 00:05:06,280 --> 00:05:10,200 all over the world. So why did events on Wall Street 83 00:05:10,200 --> 00:05:14,000 reverberate around the world? And why did the Depression last 84 00:05:14,000 --> 00:05:17,080 so long? And how did America and the rest 85 00:05:17,080 --> 00:05:20,400 of the world eventually dig itself out of the financial 86 00:05:20,400 --> 00:05:25,120 hole? Between 1920 and 1929, the 87 00:05:25,120 --> 00:05:27,720 American economy was growing rapidly. 88 00:05:27,920 --> 00:05:31,480 Worker productivity soared by 63%. 89 00:05:31,760 --> 00:05:35,640 Henry Ford had perfected his assembly line to the point where 90 00:05:35,640 --> 00:05:39,360 a new Model T was being built every 10 seconds. 91 00:05:39,680 --> 00:05:43,720 Airplanes in the 1920s were becoming more widely used for 92 00:05:43,720 --> 00:05:47,320 commercial purposes, and the decade is known as the Golden 93 00:05:47,360 --> 00:05:52,080 Age of aviation. By 1929, there was one car to 94 00:05:52,080 --> 00:05:57,120 every five Americans, and 1/3 of American homes had a radio. 95 00:05:57,480 --> 00:06:00,960 This new invention, which would have sounded like magic a decade 96 00:06:00,960 --> 00:06:05,600 earlier, was now being seen as essential from a tiny base. 97 00:06:05,600 --> 00:06:11,480 In 1922, sales of radios had increased by 1400%. 98 00:06:11,480 --> 00:06:16,400 By 1929, there was a similar, if not quite so spectacular, 99 00:06:16,520 --> 00:06:20,560 explosion in the sales of household appliances like vacuum 100 00:06:20,560 --> 00:06:23,640 cleaners, electric irons, refrigerators and washing 101 00:06:23,640 --> 00:06:26,440 machines. All of these new industries 102 00:06:26,560 --> 00:06:29,480 explained the economic boom of the decade. 103 00:06:29,760 --> 00:06:33,320 The way people spent their leisure time was changing too. 104 00:06:33,640 --> 00:06:37,040 Recreational activities like travelling, going to the movies 105 00:06:37,040 --> 00:06:42,240 and professional sports became major businesses if the economy 106 00:06:42,240 --> 00:06:46,200 was to keep growing. Someone of course had to buy all 107 00:06:46,200 --> 00:06:50,400 of these products, and a culture of consumerism grew as more 108 00:06:50,400 --> 00:06:53,080 goods reached more people than ever before. 109 00:06:53,400 --> 00:06:57,160 Despite the booming economy, many bought the new goods on 110 00:06:57,160 --> 00:07:01,280 credit, leading to a significant increase in household debt by 111 00:07:01,280 --> 00:07:04,600 the end of the decade. There was a mild recession in 112 00:07:04,600 --> 00:07:10,800 1924 and another in 1927, which is blamed on Ford closing all of 113 00:07:10,800 --> 00:07:14,360 its production auction lines for six months to retool for the new 114 00:07:14,360 --> 00:07:17,240 Model A. That gives you an idea of how 115 00:07:17,240 --> 00:07:20,520 important the automobile industry was at the time. 116 00:07:20,720 --> 00:07:24,120 Not everyone shared in the benefits of America's rapid 117 00:07:24,120 --> 00:07:28,640 industrialization. In 1810, eighty 1% of Americans 118 00:07:28,720 --> 00:07:33,640 had worked in agriculture. By 1920, agricultural employment 119 00:07:33,640 --> 00:07:38,560 had declined to 22% as farming became more mechanized and 120 00:07:38,560 --> 00:07:41,280 people moved to the cities to work in factories. 121 00:07:41,680 --> 00:07:46,520 In 1920, the farmers that made-up 22% of the population 122 00:07:46,720 --> 00:07:49,880 received 15% of the national income. 123 00:07:50,240 --> 00:07:55,800 Eight years later, in 1928, farm families accounted for just 9% 124 00:07:55,800 --> 00:07:59,560 of national income as the price of farm produce was falling. 125 00:07:59,880 --> 00:08:06,080 By 1929, the annual income of a farm worker was 36% of what was 126 00:08:06,080 --> 00:08:08,360 being earned by the average American. 127 00:08:08,680 --> 00:08:11,280 While farm workers suffered heavily during the Great 128 00:08:11,360 --> 00:08:14,000 Depression, it's worth remembering that they'd been 129 00:08:14,000 --> 00:08:17,520 suffering in the decade leading up to the Great Depression, too. 130 00:08:18,240 --> 00:08:21,880 It's argued that the Great Depression had roots in a number 131 00:08:21,880 --> 00:08:25,760 of global economic dislocations that arose when European 132 00:08:25,760 --> 00:08:29,320 agricultural production came back online after the First 133 00:08:29,320 --> 00:08:32,480 World War. The chronic overproduction of 134 00:08:32,480 --> 00:08:36,559 agricultural produce both in Europe and the United States 135 00:08:36,840 --> 00:08:40,600 drove produce prices down, making it even harder for 136 00:08:40,600 --> 00:08:44,680 countries with large external war debts, like Germany, to earn 137 00:08:44,680 --> 00:08:48,400 the hard currency they needed to make interest payments to their 138 00:08:48,400 --> 00:08:51,440 foreign creditors. Overproduction from the 139 00:08:51,440 --> 00:08:55,240 perspective of farmers doesn't mean producing more food than 140 00:08:55,240 --> 00:08:58,200 the planet can eat. There was a severe famine in 141 00:08:58,200 --> 00:09:02,000 Russia in the early 20s. Overproduction from a farmer's 142 00:09:02,000 --> 00:09:05,840 perspective just means producing more food than there was a 143 00:09:05,840 --> 00:09:09,000 paying market. For farmers, difficulties were 144 00:09:09,000 --> 00:09:13,080 compounded by the rise of the automobile in the 20s, as cars 145 00:09:13,080 --> 00:09:17,160 replaced the demand for beasts of burden that farmers had bred 146 00:09:17,160 --> 00:09:21,440 and provided to the country. The First World War had also 147 00:09:21,440 --> 00:09:25,720 increased the power of organised labour in Europe, much more so 148 00:09:25,720 --> 00:09:28,920 than in the United States. This made it difficult for 149 00:09:28,920 --> 00:09:33,080 European employers to cut wages when deflation was boosting the 150 00:09:33,080 --> 00:09:37,160 real income of workers and wiping out the profit margins of 151 00:09:37,160 --> 00:09:40,280 employers. European businesses were forced 152 00:09:40,280 --> 00:09:44,640 at the time to choose between worker layoffs or bankruptcy, 153 00:09:44,880 --> 00:09:48,760 and they chose layoffs. While the cultural memory of the 154 00:09:48,760 --> 00:09:53,040 1920s and 30s is of a great economic boom in the 20s 155 00:09:53,040 --> 00:09:57,360 followed by depression in the 30s, that is a very US centred 156 00:09:57,360 --> 00:10:00,200 view of history. In Britain the economic 157 00:10:00,200 --> 00:10:04,360 experience was reversed. The 1920s were hard years for 158 00:10:04,360 --> 00:10:07,760 the British economy, particularly in industrial 159 00:10:07,760 --> 00:10:11,640 regions which were plagued by high unemployment, weakly growth 160 00:10:11,640 --> 00:10:14,920 and deflation. The British economy started its 161 00:10:14,920 --> 00:10:19,680 recovery in 1931 when it came off the gold standard and the 162 00:10:19,680 --> 00:10:22,480 pound was allowed to fall to its natural level. 163 00:10:22,960 --> 00:10:26,240 So why was Europe so different to the United States? 164 00:10:26,720 --> 00:10:30,240 Well, World War One had destroyed the economies of 165 00:10:30,240 --> 00:10:34,520 Europe and left the European powers heavily indebted. the US 166 00:10:34,520 --> 00:10:38,200 had displaced the UK as the world's banker, and Britain was 167 00:10:38,200 --> 00:10:42,080 struggling to repay its wartime debt while trying to restore the 168 00:10:42,080 --> 00:10:46,160 British pound to its former role as the world's reserve currency. 169 00:10:46,480 --> 00:10:51,000 In 1925 Winston Churchill, the British Chancellor of the 170 00:10:51,000 --> 00:10:54,720 Exchequer at the time, made his first significant policy 171 00:10:54,720 --> 00:10:58,400 initiative to restore the gold standard after the country had 172 00:10:58,400 --> 00:11:02,680 suspended convertibility 9 years earlier so that it could freely 173 00:11:02,680 --> 00:11:06,320 finance its war effort. The Bank of England were pushing 174 00:11:06,320 --> 00:11:09,480 this idea, which Churchill initially opposed. 175 00:11:09,720 --> 00:11:12,720 He consulted a number of economists, which is always a 176 00:11:12,720 --> 00:11:17,200 mistake, who endorsed the change and so in his first budget he 177 00:11:17,200 --> 00:11:21,040 controversially announced the return to the gold standard at 178 00:11:21,040 --> 00:11:26,240 the pre war exchange rate of £4.25 to the ounce, the rate 179 00:11:26,240 --> 00:11:30,000 that had been set by Isaac Newton when he had been Master 180 00:11:30,000 --> 00:11:34,920 of the Royal Mint in 1717. The British pound had fallen to 181 00:11:34,960 --> 00:11:41,080 as low as $3.40 in gold based dollars in 1920 and while it was 182 00:11:41,080 --> 00:11:45,880 rising back to its old value it was still about 10% overvalued 183 00:11:45,880 --> 00:11:49,160 at that price. John Maynard Keynes wrote to 184 00:11:49,160 --> 00:11:52,600 Churchill at the time explaining the consequences of this 185 00:11:52,600 --> 00:11:55,160 decision. It meant that British exports 186 00:11:55,160 --> 00:11:58,120 would be too expensive and imports too cheap. 187 00:11:58,360 --> 00:12:01,360 This would harm British businesses and workers. 188 00:12:02,040 --> 00:12:06,080 During this period, due to physical gold shortages, most 189 00:12:06,080 --> 00:12:09,600 nations other than the United States had stopped domestic 190 00:12:09,600 --> 00:12:13,240 circulation of gold and held their international reserves in 191 00:12:13,240 --> 00:12:16,440 the form of either U.S. dollars or British pounds. 192 00:12:16,800 --> 00:12:20,640 International transactions used dollars or pounds and sometimes 193 00:12:20,640 --> 00:12:24,880 French francs, all of which were pegged to gold at fixed exchange 194 00:12:24,880 --> 00:12:27,680 rates. The Overvaluation of the pound 195 00:12:27,680 --> 00:12:31,320 and the undervaluation of the franc at the same time caused 196 00:12:31,320 --> 00:12:35,040 all sorts of problems. The British trade deficit led to 197 00:12:35,120 --> 00:12:38,640 a capital outflow, higher interest rates, and a weak 198 00:12:38,640 --> 00:12:41,800 economy. The French trade surplus led to 199 00:12:41,800 --> 00:12:45,400 the importation of gold that the French government didn't allow 200 00:12:45,400 --> 00:12:48,920 to circulate so that it wouldn't expand the money supply. 201 00:12:49,520 --> 00:12:53,200 The International Monetary arrangements of the 20s were 202 00:12:53,200 --> 00:12:57,120 destabilizing because they were not allowed to operate as a 203 00:12:57,120 --> 00:13:00,960 price mechanism promoting equilibrating adjustments. 204 00:13:01,440 --> 00:13:05,440 Gold convertibility had historically constrained trade 205 00:13:05,440 --> 00:13:09,840 in important ways, as trade imbalances were limited by the 206 00:13:09,840 --> 00:13:13,800 ability of a country to maintain convertibility into gold. 207 00:13:14,120 --> 00:13:18,080 Large trade imbalances like exporting too much or importing 208 00:13:18,080 --> 00:13:21,680 too much, threatened convertibility as each country's 209 00:13:21,680 --> 00:13:26,040 promise to exchange currency for gold became less credible when 210 00:13:26,040 --> 00:13:29,880 foreign holdings of the country's currency rose relative 211 00:13:29,880 --> 00:13:32,160 to its central bank's gold reserves. 212 00:13:32,480 --> 00:13:36,760 This system, despite its many problems, did keep global trade 213 00:13:36,760 --> 00:13:40,120 broadly balanced. Countries that exported more 214 00:13:40,120 --> 00:13:43,880 than they imported would experience an inflow in gold, 215 00:13:44,120 --> 00:13:47,680 raising the supply of money, which would spark inflation. 216 00:13:47,880 --> 00:13:51,960 In response, exports from that country would decrease and 217 00:13:51,960 --> 00:13:55,280 imports would increase as foreign products became more 218 00:13:55,280 --> 00:13:58,880 competitively priced. The opposite would occur when 219 00:13:58,880 --> 00:14:02,200 countries imported more than they export supported, as the 220 00:14:02,200 --> 00:14:06,120 outflow of gold would cause deflation, making goods more 221 00:14:06,120 --> 00:14:09,960 attractive for export. Because of this mechanism, 222 00:14:10,200 --> 00:14:14,720 demand contraction in deficit countries was always matched by 223 00:14:14,720 --> 00:14:17,480 demand expansion in surplus countries. 224 00:14:17,760 --> 00:14:22,240 Everything balanced out. This system changed in the wake 225 00:14:22,240 --> 00:14:25,680 of the First World War, as there were massive reconstruction 226 00:14:25,680 --> 00:14:28,760 costs which the victors had imposed on Germany. 227 00:14:29,080 --> 00:14:33,840 Germany made its first reparations payment in 1921, but 228 00:14:33,840 --> 00:14:37,320 after that paid little in cash and fell behind in its 229 00:14:37,320 --> 00:14:40,480 deliveries of commodities like coal and timber. 230 00:14:40,760 --> 00:14:45,320 When Germany defaulted in 1923, French and Belgian troops 231 00:14:45,360 --> 00:14:49,480 occupied the roar. Germany responded with passive 232 00:14:49,480 --> 00:14:53,280 resistance to the occupation and the government printed money to 233 00:14:53,280 --> 00:14:57,640 pay the idle workers which fuelled the hyperinflation which 234 00:14:57,640 --> 00:14:59,600 was destroying the German economy. 235 00:15:00,040 --> 00:15:04,920 The DOS plan of 1924 was set in place to ease the problem. 236 00:15:05,240 --> 00:15:09,040 Under the plan, Americans lent money to Germany to pay 237 00:15:09,040 --> 00:15:12,920 reparations to the European allies, who in turn made debt 238 00:15:12,920 --> 00:15:16,800 payments to the United States. This arrangement kicked off 239 00:15:16,800 --> 00:15:21,280 American foreign lending on a massive scale. the US was 240 00:15:21,280 --> 00:15:25,680 running a large trade surplus at the time, exporting much more 241 00:15:25,680 --> 00:15:29,400 than they imported, not unlike what China does today. 242 00:15:29,720 --> 00:15:34,200 Finished goods left the country and gold came in, and America 243 00:15:34,200 --> 00:15:36,400 could afford to lend money abroad. 244 00:15:36,680 --> 00:15:40,760 This lending financed foreign purchases of American goods. 245 00:15:41,200 --> 00:15:47,960 American foreign lending hit $900 million in 1924 and 1.25 246 00:15:47,960 --> 00:15:53,440 billion in both 1927 and 1928. This financing of foreign 247 00:15:53,440 --> 00:15:57,160 purchases of American goods helped the unbalanced U.S. 248 00:15:57,200 --> 00:16:00,640 economy where more goods were being produced and could be 249 00:16:00,640 --> 00:16:04,520 consumed domestically, and it helped it avoid collapse for a 250 00:16:04,520 --> 00:16:07,640 few years. But ultimately it made the crash 251 00:16:07,640 --> 00:16:10,080 even worse when it eventually came. 252 00:16:10,520 --> 00:16:14,080 The British had fulfilled the role of the world's banker 253 00:16:14,080 --> 00:16:18,800 before the First World War, and British lending in the 1800s had 254 00:16:18,800 --> 00:16:22,720 generally been counter cyclical. When times were good at home, 255 00:16:22,960 --> 00:16:25,720 domestic investment opportunities drew British 256 00:16:25,720 --> 00:16:28,280 capital away from international loans. 257 00:16:28,560 --> 00:16:31,720 But during slumps in the domestic economy, the British 258 00:16:31,720 --> 00:16:35,920 expanded foreign lending. This ebb and flow had a globally 259 00:16:35,920 --> 00:16:39,440 stabilizing influence. American foreign lending in the 260 00:16:39,440 --> 00:16:43,200 20s and early 30s followed an opposite pattern. 261 00:16:43,960 --> 00:16:49,400 In the late 1920's, the US was a huge exporter, but the American 262 00:16:49,400 --> 00:16:53,320 farmer was still suffering as overproduction had continued to 263 00:16:53,320 --> 00:16:55,960 depress the prices of agricultural goods. 264 00:16:56,400 --> 00:17:00,720 In the lead up to the 1928 election, Senators Smoot and 265 00:17:00,720 --> 00:17:05,440 Hawley put forth the idea that raising tariffs on imports would 266 00:17:05,440 --> 00:17:07,920 alleviate the overproduction issue. 267 00:17:08,400 --> 00:17:11,359 Now, while there had been an increase in imports of 268 00:17:11,359 --> 00:17:16,480 manufactured goods, manufactured exports were rising even faster. 269 00:17:16,720 --> 00:17:20,920 Food exports had been falling, but the value of food imports 270 00:17:20,920 --> 00:17:23,720 from abroad was actually very small. 271 00:17:24,079 --> 00:17:28,800 Overall, the United States was a huge exporter, and these tariffs 272 00:17:28,800 --> 00:17:33,160 made no sense whatsoever. Herbert Hoover, who was running 273 00:17:33,160 --> 00:17:38,120 for election in 1928, pledged that as part of his program to 274 00:17:38,120 --> 00:17:42,040 help farmers, he would seek higher duties on agricultural 275 00:17:42,040 --> 00:17:44,600 imports. And once elected, he called a 276 00:17:44,600 --> 00:17:48,440 special session of Congress for the purpose of selective 277 00:17:48,440 --> 00:17:52,040 revision of the tariffs. Public discussions about the 278 00:17:52,040 --> 00:17:56,680 tariffs centred on helping the American farmer and equalizing 279 00:17:56,680 --> 00:17:58,920 production costs at home and abroad. 280 00:17:59,280 --> 00:18:03,200 These arguments couldn't have been more wrong, as once trade 281 00:18:03,200 --> 00:18:07,040 partners retaliated, farmers ended up losing more from 282 00:18:07,040 --> 00:18:10,960 increased costs on items they import than they gained from 283 00:18:10,960 --> 00:18:14,800 price increases for their products, most of which faced 284 00:18:14,800 --> 00:18:17,280 almost no foreign competition anyhow. 285 00:18:18,040 --> 00:18:22,360 An American Farm Bureau Federation study indicated that 286 00:18:22,360 --> 00:18:26,920 American farmers would gain $30 million from the increases in 287 00:18:26,920 --> 00:18:32,600 agricultural tariffs and lose 330 million in increased costs. 288 00:18:33,400 --> 00:18:36,960 Hoover's special session dragged on, and the House of 289 00:18:36,960 --> 00:18:41,640 Representatives eventually passed the act in May 1929. 290 00:18:42,120 --> 00:18:45,120 If the United States wasn't going to buy goods from other 291 00:18:45,120 --> 00:18:49,080 countries, there was no way for other countries to earn dollars 292 00:18:49,080 --> 00:18:53,960 to buy from Americans, and, more importantly, no way to earn 293 00:18:53,960 --> 00:18:57,600 dollars to meet the interest payments on American loans. 294 00:18:58,000 --> 00:19:02,560 By September 1929, Hoover's administration had received 295 00:19:02,560 --> 00:19:06,240 protest notes from 23 trading partners. 296 00:19:06,680 --> 00:19:10,960 Some countries just protested, while others also retaliated 297 00:19:10,960 --> 00:19:13,760 with trade restrictions and tariffs of their own. 298 00:19:14,120 --> 00:19:19,440 American exports to the protesting nations fell 18% and 299 00:19:19,440 --> 00:19:23,720 exports to those who retaliated fell by 31%. 300 00:19:24,200 --> 00:19:28,360 Many scholars have argued that while the Smoot Hawley tariff 301 00:19:28,520 --> 00:19:32,720 had disastrous economic effects that it can't be blamed for the 302 00:19:32,720 --> 00:19:37,560 stock market collapse of October 1929 since it wasn't signed into 303 00:19:37,560 --> 00:19:42,080 law until the following June. Others argue that investors were 304 00:19:42,080 --> 00:19:45,200 aware that the tariffs were in the pipeline and would have 305 00:19:45,200 --> 00:19:48,560 tried to anticipate the likelihood of the ACT passing 306 00:19:48,720 --> 00:19:51,080 and it's expected economic effects. 307 00:19:51,480 --> 00:19:55,400 If investors did anticipate the effects of the tariffs and sold 308 00:19:55,400 --> 00:19:59,520 their stocks, they might have been wise to do so as exports 309 00:19:59,520 --> 00:20:06,080 fell from $7 billion in 1929 to 2 1/2 billion dollars by 1932. 310 00:20:06,400 --> 00:20:12,880 Federal spending was only $2.6 billion in 1929 and reached 3.2 311 00:20:12,880 --> 00:20:16,920 billion in 1932. The tariffs didn't exactly help 312 00:20:16,920 --> 00:20:21,440 the American farmer either. Trade accounted for 17% of 313 00:20:21,440 --> 00:20:26,120 farming come before the tariffs, and farm exports were slashed to 314 00:20:26,120 --> 00:20:30,240 a third of their 1929 level by 1933. 315 00:20:30,840 --> 00:20:34,680 On the eve of the crash, the United States was actually in 316 00:20:34,680 --> 00:20:37,560 good economic shape. There was no shortage of 317 00:20:37,560 --> 00:20:41,200 productivity enhancing technological innovation, which 318 00:20:41,200 --> 00:20:44,960 meant that the same amount of Labor now produced significantly 319 00:20:44,960 --> 00:20:48,280 more goods. Businesses like Ford were doing 320 00:20:48,280 --> 00:20:50,840 well and were able to pay their workers well. 321 00:20:51,120 --> 00:20:55,280 America was applying science and invention to industry like never 322 00:20:55,280 --> 00:20:58,200 before, and even management practices were being 323 00:20:58,200 --> 00:21:02,440 revolutionized by men like Alfred Sloan at General Motors. 324 00:21:03,000 --> 00:21:09,720 RCA, which was the hottest tech stock of the 1920s, rose by 940% 325 00:21:09,880 --> 00:21:15,800 between 1925 and 1929. It's PE ratio at the peak was 326 00:21:15,800 --> 00:21:20,600 73, which is high, but we've also seen higher and for slower 327 00:21:20,600 --> 00:21:25,000 growing companies the stock bubble encouraged A rush of new 328 00:21:25,000 --> 00:21:28,240 IP OS. It's not true, however, that 329 00:21:28,240 --> 00:21:31,480 everyone was speculating madly in 1929. 330 00:21:31,760 --> 00:21:36,240 Just 3% of Americans owned any stock at the time, and only 331 00:21:36,240 --> 00:21:40,320 around 1% owned enough stock to keep an account with a broker. 332 00:21:40,600 --> 00:21:43,560 The majority owned only a few shares. 333 00:21:44,120 --> 00:21:47,920 The Great Depression can't be simply blamed on the bursting of 334 00:21:47,920 --> 00:21:51,040 the stock bubble or the imposition of tariffs. 335 00:21:51,320 --> 00:21:55,000 Real life is, of course, a bit more complicated than that. 336 00:21:55,360 --> 00:22:00,440 By 1920, the United States held around 40% of the world's 337 00:22:00,440 --> 00:22:03,480 monetary gold. France had been accumulating 338 00:22:03,480 --> 00:22:08,480 gold too, and its share of the world's gold supply rose from 9% 339 00:22:08,480 --> 00:22:16,440 in 1927 to 17% by 1929 and reached 22% in 1931. 340 00:22:16,920 --> 00:22:22,640 Before the crash in 1928, the US Fed was worried about its loss 341 00:22:22,640 --> 00:22:25,680 of gold and also about the ongoing boom in the stock 342 00:22:25,680 --> 00:22:29,840 market, and so it hiked interest rates to stop the outflows. 343 00:22:30,200 --> 00:22:33,680 As the US and France accumulated more and more of the world's 344 00:22:33,680 --> 00:22:38,000 monetary gold, other central banks took measures to stem the 345 00:22:38,000 --> 00:22:42,040 outflow of gold too. In country after country, these 346 00:22:42,040 --> 00:22:46,760 deflationary strategies began contracting economic activity, 347 00:22:47,000 --> 00:22:51,680 and by 1928 some countries in Europe, Asia, and South America 348 00:22:51,840 --> 00:22:55,480 had fallen into recession due to a shortage of money. 349 00:22:55,880 --> 00:23:00,840 More countries economies began to decline in 1929, including 350 00:23:00,840 --> 00:23:05,280 the United States, and by 1930 a depression was in force for 351 00:23:05,280 --> 00:23:08,040 almost all of the world's market economies. 352 00:23:08,600 --> 00:23:13,320 Contrary to popular beliefs, the 29 crash was not a two day 353 00:23:13,320 --> 00:23:16,160 event. Instead it was a long rolling 354 00:23:16,160 --> 00:23:20,440 downward slide that went on for weeks from September the 3rd 355 00:23:20,600 --> 00:23:24,760 until November 13th. There were brief upsurges after 356 00:23:24,760 --> 00:23:27,960 some of the worst days, but down and down it went. 357 00:23:28,560 --> 00:23:32,600 A week before Black Thursday, Irving Fisher, an economics 358 00:23:32,600 --> 00:23:36,280 professor at Yale, announced that the US stock prices had 359 00:23:36,280 --> 00:23:38,840 reached a permanently high plateau. 360 00:23:39,120 --> 00:23:42,600 Given the growth in productivity and technology, it was 361 00:23:42,600 --> 00:23:46,360 reasonable for earnings to only trend higher, he said. 362 00:23:46,920 --> 00:23:50,200 The stock market had unfortunately been slipping for 363 00:23:50,200 --> 00:23:55,400 over a month at that point, and on Black Monday dove 13% in a 364 00:23:55,400 --> 00:23:59,080 day, falling a further 12% the next day. 365 00:23:59,440 --> 00:24:03,440 Over the next three years, the US stock market declined almost 366 00:24:03,440 --> 00:24:07,920 90%, reaching its low in July 1932. 367 00:24:08,360 --> 00:24:14,040 The market didn't return to its prior peak until November 1954 / 368 00:24:14,040 --> 00:24:18,040 25 years later. This collapse if it didn't 369 00:24:18,040 --> 00:24:22,280 actually 'cause it coincided with the start of the worst 370 00:24:22,280 --> 00:24:25,760 economic shock in the history of the industrialized world. 371 00:24:26,040 --> 00:24:30,120 In the United States, economic output collapsed by a third. 372 00:24:30,440 --> 00:24:35,680 Unemployment reached 25%, or closer to 33% if a modern 373 00:24:35,680 --> 00:24:37,920 definition of unemployment was used. 374 00:24:38,280 --> 00:24:42,640 The Depression was a global catastrophe that saw prices and 375 00:24:42,640 --> 00:24:46,080 output decline in almost every economy in the world. 376 00:24:46,480 --> 00:24:49,920 Only Germany saw a severe and economic decline. 377 00:24:49,920 --> 00:24:55,280 As in America, international trade shrunk by 2/3 as countries 378 00:24:55,280 --> 00:24:59,640 tried to hide behind tariffs and import quotas to defend their 379 00:24:59,640 --> 00:25:02,920 internal economies. The Soviet Union, with its 380 00:25:02,920 --> 00:25:06,400 planned economy, was the only country that appeared to be 381 00:25:06,400 --> 00:25:09,800 unaffected. The deflation that took place in 382 00:25:09,800 --> 00:25:13,080 the first three years of the Great Depression was the most 383 00:25:13,080 --> 00:25:16,640 dramatic deflation that the US has ever experienced. 384 00:25:16,960 --> 00:25:23,480 Prices dropped an average of 7% per year between 1930 and 1933. 385 00:25:23,840 --> 00:25:27,560 Deflation led to business bankruptcies, bank runs and 386 00:25:27,560 --> 00:25:32,440 rising rates of unemployment. Between the summer of 1929 and 387 00:25:32,440 --> 00:25:37,800 early 1933, the wholesale price index fell 33%. 388 00:25:38,280 --> 00:25:42,520 President Hoover, in trying to boost American spirits after the 389 00:25:42,520 --> 00:25:46,480 crash, told journalists that the fundamental business of the 390 00:25:46,480 --> 00:25:50,680 country, that is the production and distribution of commodities, 391 00:25:50,920 --> 00:25:53,640 is on a sound and prosperous basis. 392 00:25:54,080 --> 00:25:58,520 A year later, in 1930, he told Americans that prosperity was 393 00:25:58,520 --> 00:26:02,480 just around the corner, and he likely believed it at the time, 394 00:26:02,720 --> 00:26:06,600 as recessions and depressions had always come and gone within 395 00:26:06,600 --> 00:26:09,360 a year or two. Other than during the First 396 00:26:09,360 --> 00:26:13,720 World War, business activity had fallen in only seven of the last 397 00:26:13,720 --> 00:26:18,520 60 years, and the only two year set back had been nineteen O 7 398 00:26:18,520 --> 00:26:22,120 to 19 O 8. Historically, the average annual 399 00:26:22,120 --> 00:26:28,160 decline in real GDP during a slowdown was 1.6%, and the worst 400 00:26:28,160 --> 00:26:33,320 decline had been 5 1/2 percent. This time around it was a lot 401 00:26:33,320 --> 00:26:38,600 worse. Production fell 9.3% in 1930 and 402 00:26:38,600 --> 00:26:44,120 a further 8.6% in 1931. At the very bottom, in June 403 00:26:44,120 --> 00:26:52,720 1932, GDP was 55% below its 1929 peak, so roughly 10 times worse 404 00:26:52,880 --> 00:26:56,760 than the worst example that had been seen up until that point. 405 00:26:57,000 --> 00:27:00,360 And rather than lasting one or two years, the downturn would 406 00:27:00,360 --> 00:27:04,120 last a decade. Even during the boom of the 407 00:27:04,120 --> 00:27:08,960 1920s, American economic growth had been below its long term 408 00:27:08,960 --> 00:27:12,280 growth trend. Starting in 1870 when the United 409 00:27:12,280 --> 00:27:16,480 States was in its hyper growth phase, a number of recessions 410 00:27:16,480 --> 00:27:19,760 and depressions had hit the United States during that prior 411 00:27:19,760 --> 00:27:22,320 period of growth. But the historian Robert 412 00:27:22,320 --> 00:27:26,560 Mcelvain, in his excellent book The Great Depression, notes that 413 00:27:26,560 --> 00:27:30,920 each slowdown over that period had hit harder than the prior. 1 414 00:27:31,200 --> 00:27:35,160 He argues that as the United States became less agrarian and 415 00:27:35,160 --> 00:27:40,120 more industrial, less rural and more urban, an ever increasing 416 00:27:40,120 --> 00:27:43,920 percentage of the population became susceptible to the 417 00:27:43,920 --> 00:27:48,160 vagaries of the market economy. In the less industrial era, 418 00:27:48,320 --> 00:27:52,240 Americans had of course been victims of economic collapse, 419 00:27:52,440 --> 00:27:55,400 but they had mostly been able to feed themselves and their 420 00:27:55,400 --> 00:27:59,160 families during hard times as they were mostly farmers. 421 00:27:59,560 --> 00:28:04,360 By the 1930s, Americans were more dependent on wages as the 422 00:28:04,360 --> 00:28:08,280 nation had industrialized. Urban working class people who 423 00:28:08,280 --> 00:28:11,920 rented their homes and worked in factories found themselves in 424 00:28:11,920 --> 00:28:15,480 desperate straits when they lost their jobs and couldn't find new 425 00:28:15,480 --> 00:28:18,000 ones. And over time there were more 426 00:28:18,000 --> 00:28:21,720 and more of these people, and the population was sensitive to 427 00:28:21,720 --> 00:28:25,000 economic conditions rather than growing conditions. 428 00:28:25,720 --> 00:28:29,760 Herbert Hoover is often accused of doing nothing for the people 429 00:28:29,760 --> 00:28:32,600 in the early days of the Depression, but that's not 430 00:28:32,600 --> 00:28:36,160 really fair to say. He did spend heavily on public 431 00:28:36,160 --> 00:28:40,240 works, schools, roads and hospitals, and in fact engaged 432 00:28:40,240 --> 00:28:44,320 in more peacetime spending than any president had done before 433 00:28:44,320 --> 00:28:46,600 him. But it simply wasn't enough. 434 00:28:46,920 --> 00:28:51,760 The international part of the crisis began in 1931 when the 435 00:28:51,760 --> 00:28:55,640 credence styled Bank of Vienna collapsed, starting a domino 436 00:28:55,800 --> 00:28:58,400 effect that spread to the rest of Europe. 437 00:28:58,760 --> 00:29:02,480 The reason this collapse was so impactful is that it was not 438 00:29:02,480 --> 00:29:05,840 just the largest bank in Austria, but it was larger than 439 00:29:05,880 --> 00:29:08,600 all of the other Austrian banks combined. 440 00:29:08,760 --> 00:29:12,760 It had a strong ties to the rest of Europe and it's collapse led 441 00:29:12,760 --> 00:29:17,440 to a Europe wide crisis. The runs on gold in Europe LED 442 00:29:17,440 --> 00:29:21,800 Britain to leave the gold standard in 1931 and devalue the 443 00:29:21,800 --> 00:29:25,120 pound. Leaving the gold standard was a 444 00:29:25,120 --> 00:29:27,800 politically controversial move at the time. 445 00:29:27,960 --> 00:29:32,520 It was by no means a cure all, but overall devaluation helped 446 00:29:32,520 --> 00:29:36,600 Britain to become more competitive and the 1930s proved 447 00:29:36,760 --> 00:29:41,080 a far less painful period for the UK than they were for most 448 00:29:41,080 --> 00:29:43,160 other major economies at the time. 449 00:29:43,560 --> 00:29:47,400 A more competitive British pound allowed for a strong British 450 00:29:47,400 --> 00:29:51,600 recovery and significantly greater middle class prosperity. 451 00:29:52,000 --> 00:29:54,680 While on the gold standard standard Britain had been forced 452 00:29:54,680 --> 00:29:58,720 to slash spending and raise taxes, which were not exactly 453 00:29:58,720 --> 00:30:02,400 flowing in due to the depressed business environment and high 454 00:30:02,400 --> 00:30:05,520 unemployment. While things were now improving 455 00:30:05,520 --> 00:30:08,920 in the UK, they were only getting worse in the United 456 00:30:08,920 --> 00:30:11,680 States. Technological improvements in 457 00:30:11,680 --> 00:30:15,640 the 1920s, like mechanized plowing and harvesting, had made 458 00:30:15,640 --> 00:30:19,160 it possible to operate larger farms in the United States 459 00:30:19,360 --> 00:30:23,520 without higher labor costs. With insufficient understanding 460 00:30:23,520 --> 00:30:27,400 of the ecology of the Great Plains, farmers had been plowing 461 00:30:27,400 --> 00:30:31,600 the virgin topsoil, displacing the native deep rooted grasses 462 00:30:31,600 --> 00:30:35,920 that normally trapped soil and moisture even during periods of 463 00:30:35,920 --> 00:30:40,040 drought and high winds. The Plains entered an unusually 464 00:30:40,040 --> 00:30:44,800 dry era in the summer of 1930, and over the next decade the 465 00:30:44,800 --> 00:30:48,760 Northern Plains suffered 4 of their seven driest calendar 466 00:30:48,760 --> 00:30:52,880 years in recorded history. The dry weather caused crops to 467 00:30:52,880 --> 00:30:57,240 fail, leaving the plowed fields exposed to wind erosion. 468 00:30:57,600 --> 00:31:01,440 The soil eroded and was carried eased by strong continental 469 00:31:01,440 --> 00:31:05,120 winds. This catastrophe intensified the 470 00:31:05,120 --> 00:31:08,960 economic impact of the Great Depression in the region, and 471 00:31:08,960 --> 00:31:13,080 farming families who had already been suffering for a decade were 472 00:31:13,080 --> 00:31:16,560 forced to abandon their farms and migrate to other parts of 473 00:31:16,560 --> 00:31:20,440 the country seeking work. The catastrophe led to 474 00:31:20,440 --> 00:31:23,480 widespread hunger, homelessness and poverty. 475 00:31:23,880 --> 00:31:27,840 Over the decade of the Great Depression, about 3 1/2 million 476 00:31:27,840 --> 00:31:32,040 people migrated as Dust Bowl refugees out of the Plains 477 00:31:32,040 --> 00:31:35,360 state. Robert Mckelvin writes in his 478 00:31:35,360 --> 00:31:39,160 book on the Depression that history is usually viewed from 479 00:31:39,160 --> 00:31:42,680 the top or through the eyes of elites by examining the 480 00:31:42,680 --> 00:31:45,360 activities of governments and intellectuals. 481 00:31:45,600 --> 00:31:49,000 But the Great Depression, he argues, needs to be examined 482 00:31:49,000 --> 00:31:53,000 through the eyes of the ordinary person to understand how it 483 00:31:53,000 --> 00:31:56,480 caused a fundamental shift in the values of the American 484 00:31:56,480 --> 00:31:59,760 people. Older Americans will remember 485 00:31:59,840 --> 00:32:02,440 how their parents or grandparents who lived through 486 00:32:02,440 --> 00:32:06,800 these times scrimped and saved even when times were good, and 487 00:32:06,800 --> 00:32:10,480 were careful not to waste anything in case hard times were 488 00:32:10,480 --> 00:32:13,720 to come again. Mckelphain writes that the 489 00:32:13,720 --> 00:32:17,120 initial reaction to the depression by its many victims 490 00:32:17,280 --> 00:32:20,160 was bewilderment, defeat and self blame. 491 00:32:20,440 --> 00:32:23,520 People who had taken credit for the success that they had 492 00:32:23,520 --> 00:32:27,520 enjoyed in the 20s felt that they had little choice but to 493 00:32:27,520 --> 00:32:31,960 accept responsibility for their unfortunate circumstances in the 494 00:32:31,960 --> 00:32:36,200 30s as they tried to understand the calamity that had befallen 495 00:32:36,200 --> 00:32:39,120 them. Conditions were particularly bad 496 00:32:39,120 --> 00:32:42,720 for farmers who were now in the second decade of their 497 00:32:42,720 --> 00:32:46,960 depression. By 1932, a bushel of wheat would 498 00:32:46,960 --> 00:32:51,360 fetch only 10% of what it had bought 12 years earlier. 499 00:32:51,680 --> 00:32:55,360 The farmer now had to deal not only with low prices for his 500 00:32:55,360 --> 00:32:58,400 products, but also with general deflation. 501 00:32:58,640 --> 00:33:02,120 Farmers crushed by long term debt were threatened with 502 00:33:02,120 --> 00:33:05,880 foreclosure. Penny auctions were one example 503 00:33:06,080 --> 00:33:08,520 of how bankrupt farmers stuck together. 504 00:33:08,840 --> 00:33:12,440 Neighbours of a bankrupt farmer would prevent, by thread of 505 00:33:12,440 --> 00:33:17,240 force if necessary, realistic bids to buy a foreclosed farm. 506 00:33:17,480 --> 00:33:21,840 They would then buy it back for a nominal fee, often $1.00, to 507 00:33:21,840 --> 00:33:26,760 return it to its original owner. Workers lined up hopelessly 508 00:33:26,760 --> 00:33:30,760 outside factories looking for work, knowing full well that 509 00:33:30,760 --> 00:33:34,120 none was available. Hardworking Americans, used to 510 00:33:34,120 --> 00:33:37,920 supporting themselves and their families, felt great shame 511 00:33:37,920 --> 00:33:40,920 lining up in bread lines and at soup kitchens. 512 00:33:41,240 --> 00:33:45,120 In rural areas, hungry people sometimes turned to eating 513 00:33:45,120 --> 00:33:49,240 weeds, and urban dwellers turned to rooting through garbage cans 514 00:33:49,240 --> 00:33:53,400 and city dumps for food. A Chicago widow reported that 515 00:33:53,400 --> 00:33:57,440 she would remove her glasses before eating spoiled meat as 516 00:33:57,440 --> 00:33:59,480 the sight of it was so revolting. 517 00:34:00,400 --> 00:34:05,320 Records of the time describe how the lack of money, work and self 518 00:34:05,320 --> 00:34:09,800 esteem caused problems at home too, as when a father's dignity 519 00:34:09,800 --> 00:34:13,320 was based on his occupation and his role as a provider. 520 00:34:13,600 --> 00:34:17,199 The loss of his job meant a decline in his status within the 521 00:34:17,199 --> 00:34:20,320 family. People often withdrew socially 522 00:34:20,320 --> 00:34:24,360 to hide the shame of being out of work, not realizing how many 523 00:34:24,360 --> 00:34:26,760 of their friends were in the same situation. 524 00:34:27,280 --> 00:34:30,840 Men over the age of 40 became unemployable. 525 00:34:31,040 --> 00:34:34,080 They would often spend their last few pennies on a second 526 00:34:34,080 --> 00:34:37,080 hand suit of clothes so that they would look decent when 527 00:34:37,080 --> 00:34:40,520 applying for jobs. They began to look and feel 528 00:34:40,520 --> 00:34:44,199 older than they actually were. The lack of nutrition left them 529 00:34:44,199 --> 00:34:47,520 underweight, and their shabby clothes with frayed collars, 530 00:34:47,520 --> 00:34:51,360 worn shoes, and their missing teeth added decades to their 531 00:34:51,360 --> 00:34:55,120 appearance. Women lost proportionally fewer 532 00:34:55,120 --> 00:34:58,840 jobs than men during the Great Depression, as the type of work 533 00:34:58,840 --> 00:35:03,160 that they did at the time was more personal in nature. 534 00:35:03,400 --> 00:35:06,920 School teachers, domestic servants, and clerical workers 535 00:35:07,120 --> 00:35:11,120 were more valued by their employers as individuals, and 536 00:35:11,120 --> 00:35:14,000 they weren't considered interchangeable like factory 537 00:35:14,000 --> 00:35:17,440 workers and farmhands were. When the New Deal was 538 00:35:17,440 --> 00:35:21,000 introduced, even more roles which were considered women's 539 00:35:21,000 --> 00:35:24,880 work, like social work and clerical work, were created than 540 00:35:24,880 --> 00:35:27,120 had existed before the Depression. 541 00:35:27,880 --> 00:35:31,360 Additionally, because women earned less than men, they were 542 00:35:31,360 --> 00:35:34,120 cheaper to keep on during hard times. 543 00:35:34,560 --> 00:35:39,240 A 1940 study found that in the five most depressed sectors, 544 00:35:39,360 --> 00:35:42,880 women represented only 2% of the workforce. 545 00:35:43,080 --> 00:35:47,640 In stark contrast, women held 30% of the jobs in the 546 00:35:47,640 --> 00:35:50,640 industries which experienced the least layoffs. 547 00:35:50,840 --> 00:35:55,040 Employment discrimination, both in terms of what constituted a 548 00:35:55,080 --> 00:35:59,880 female job as well as the wage gap, kept more women in steady 549 00:35:59,880 --> 00:36:03,720 work than men. Racial minorities fared the 550 00:36:03,720 --> 00:36:07,200 worst during the Depression, often being the first to be laid 551 00:36:07,200 --> 00:36:12,560 off and the last to be rehired. I should mention that many today 552 00:36:12,720 --> 00:36:16,200 only see the bleakness of the Great Depression, and it was a 553 00:36:16,200 --> 00:36:20,040 bleak time, but this is partially due to the stark black 554 00:36:20,040 --> 00:36:22,960 and white photographs that remain to this day. 555 00:36:23,240 --> 00:36:27,480 The novelist Josephine Herbst writes that there was also an 556 00:36:27,480 --> 00:36:31,640 almost universal liveliness that countervailed universal 557 00:36:31,760 --> 00:36:34,600 suffering. The home, she says, became a 558 00:36:34,600 --> 00:36:38,400 center of leisure activity, with an evening by the radio, a 559 00:36:38,400 --> 00:36:42,520 reading aloud from books, which provided a cheap form of family 560 00:36:42,520 --> 00:36:46,080 entertainment. She went on to say that talking 561 00:36:46,080 --> 00:36:48,080 was the Great Depression pastime. 562 00:36:48,360 --> 00:36:50,680 Unlike the movies, talk was free. 563 00:36:51,400 --> 00:36:56,400 By the election of 1932, the American voter had had enough 564 00:36:56,400 --> 00:36:59,520 with Herbert Hoover, who they blamed for the economic 565 00:36:59,520 --> 00:37:02,760 downturn. Franklin D Roosevelt aligned 566 00:37:02,760 --> 00:37:06,600 himself with the growing public hostility to bankers and greedy 567 00:37:06,600 --> 00:37:11,840 businessmen and swept to power in 1933 when his party won its 568 00:37:11,840 --> 00:37:15,720 biggest advantage in the Senate and the House since the Civil 569 00:37:15,720 --> 00:37:18,680 War. Even in the prosperous 20s, 570 00:37:18,840 --> 00:37:21,960 nearly 7000 American banks had failed. 571 00:37:22,240 --> 00:37:25,520 Most of these had been small country banks, and their 572 00:37:25,520 --> 00:37:27,640 failures had hardly been noticed. 573 00:37:27,920 --> 00:37:31,240 In 1930, the situation got a lot worse. 574 00:37:31,520 --> 00:37:37,080 There were 1345 failures that year, including a large bank, 575 00:37:37,080 --> 00:37:40,080 the Bank of the United States, in New York. 576 00:37:40,360 --> 00:37:45,640 More than 2000 banks failed in 1931, and depositors of the time 577 00:37:45,840 --> 00:37:49,080 were unable to distinguish good banks from bad. 578 00:37:49,320 --> 00:37:53,880 As his first act in office, FDR declared a nationwide bank 579 00:37:53,880 --> 00:37:57,960 holiday where banks were closed until examiners could decide if 580 00:37:57,960 --> 00:38:01,040 they were good or not. He submitted to Congress an 581 00:38:01,040 --> 00:38:05,880 emergency banking bill drawn up largely by bankers, and both 582 00:38:05,880 --> 00:38:08,480 houses passed the bill without debate. 583 00:38:08,840 --> 00:38:12,400 A rolled up newspaper was used to symbolize the proposed 584 00:38:12,400 --> 00:38:16,480 legislation until the still wet copies of the bill arrived. 585 00:38:16,760 --> 00:38:20,840 Roosevelt signed it into law 8 hours after its introduction in 586 00:38:20,840 --> 00:38:23,960 Congress. The ACT provided assistance to 587 00:38:23,960 --> 00:38:27,800 private bankers and gave them a government stamp of approval. 588 00:38:28,000 --> 00:38:32,800 It created the FDIC, which began insuring bank accounts at no 589 00:38:32,800 --> 00:38:37,520 cost for deposits of up to $2500 per customer. 590 00:38:38,120 --> 00:38:42,080 The ACT additionally gave the president executive power to 591 00:38:42,080 --> 00:38:46,200 operate independently of the Federal Reserve during times of 592 00:38:46,200 --> 00:38:51,160 financial crisis. In 1933, Roosevelt abandoned the 593 00:38:51,160 --> 00:38:54,680 gold standard, delinking the value of the dollar to gold, 594 00:38:54,880 --> 00:38:58,160 which caused the dollar to fall 11 1/2%. 595 00:38:58,600 --> 00:39:02,280 In 1934. He relinked it at a lower gold 596 00:39:02,280 --> 00:39:06,760 content than before. Roosevelt was elected for four 597 00:39:06,760 --> 00:39:10,720 consecutive terms, while there was a tradition of only serving 598 00:39:10,720 --> 00:39:13,320 2 terms. There were no presidential term 599 00:39:13,320 --> 00:39:18,200 limits in law at the time. Roosevelt's first 100 days in 600 00:39:18,200 --> 00:39:22,080 office saw an unprecedented amount of legislation being 601 00:39:22,080 --> 00:39:24,520 passed. He established a number of 602 00:39:24,520 --> 00:39:28,440 agencies and measures designed to provide relief for the 603 00:39:28,440 --> 00:39:30,880 unemployed and to end the Depression. 604 00:39:31,320 --> 00:39:35,120 The Federal Emergency Relief Administration distributed 605 00:39:35,120 --> 00:39:39,000 relief to state governments. The Public Works Administration 606 00:39:39,000 --> 00:39:42,960 oversaw the construction of large scale public works like 607 00:39:42,960 --> 00:39:47,040 dams, bridges, and schools. The Rural Electrification 608 00:39:47,040 --> 00:39:51,200 Administration brought electricity to rural homes, and 609 00:39:51,200 --> 00:39:56,680 the Civilian Conservation Corps hired 250,000 unemployed man for 610 00:39:56,680 --> 00:40:00,720 rural projects. FDR expanded Hoover's 611 00:40:00,720 --> 00:40:04,160 Reconstruction Finance Corporation, which financed 612 00:40:04,160 --> 00:40:07,360 railroads and industry. He gave the Federal Trade 613 00:40:07,360 --> 00:40:11,520 Commission broad regulatory powers and provided mortgage 614 00:40:11,520 --> 00:40:14,200 relief to millions of farmers and homeowners. 615 00:40:14,640 --> 00:40:19,720 Roosevelt passed 2 securities acts, one in 1933 and another in 616 00:40:19,720 --> 00:40:23,440 1934, establishing the Securities and Exchange 617 00:40:23,440 --> 00:40:27,280 Commission and the securities regulations that we have today. 618 00:40:27,640 --> 00:40:31,400 He set up the Agricultural Adjustment Administration to 619 00:40:31,400 --> 00:40:35,640 increase commodity prices by paying farmers to leave land 620 00:40:35,640 --> 00:40:40,120 uncultivated and cut herd. This was probably his most 621 00:40:40,120 --> 00:40:44,120 controversial act, as in order to drive up agricultural 622 00:40:44,120 --> 00:40:48,560 commodity prices, he ordered the slaughter of over 6,000,000 623 00:40:48,560 --> 00:40:53,440 pigs, the plowing under of 10 million acres of crops, all at a 624 00:40:53,440 --> 00:40:56,800 time when Americans were struggling to feed themselves. 625 00:40:57,080 --> 00:41:01,000 There had been 30 deaths from starvation in America in the 626 00:41:01,000 --> 00:41:05,280 very year when all of this food was being ordered to be spoiled. 627 00:41:05,600 --> 00:41:09,560 The Agricultural Adjustment Administration concept of 628 00:41:09,560 --> 00:41:13,800 limiting agricultural production was no better in a country where 629 00:41:13,800 --> 00:41:17,160 people were able to feed their children and agricultural 630 00:41:17,160 --> 00:41:21,920 workers couldn't find work. Roosevelt tried to cut the 631 00:41:21,920 --> 00:41:25,400 federal budget too. This included a reduction in 632 00:41:25,400 --> 00:41:29,800 military spending and a 40% cut in spending on veterans 633 00:41:29,800 --> 00:41:32,560 benefits. Half a million veterans and 634 00:41:32,560 --> 00:41:36,240 widows were removed from the pension rolls and benefits were 635 00:41:36,240 --> 00:41:40,440 reduced for the remainder. Federal salaries were cut and 636 00:41:40,440 --> 00:41:43,920 spending on research and education was reduced too. 637 00:41:44,320 --> 00:41:48,480 The veterans were well organized, protested, and won 638 00:41:48,480 --> 00:41:52,400 the right to transform their benefits from payments due in 639 00:41:52,400 --> 00:41:55,160 nine years time to immediate cash. 640 00:41:55,520 --> 00:41:59,360 This change pumped enough money into the consumer economy to 641 00:41:59,360 --> 00:42:04,160 have a major stimulus effect in 1936 when it was paid out. 642 00:42:04,560 --> 00:42:09,000 In his second term, Roosevelt introduced the minimum wage and 643 00:42:09,000 --> 00:42:12,160 Social Security. While Social Security will have 644 00:42:12,160 --> 00:42:16,200 helped reduce elder poverty eventually, it was quite a 645 00:42:16,200 --> 00:42:20,080 flawed piece of legislation as it excluded the neediest 646 00:42:20,080 --> 00:42:24,400 workers, farm and domestic workers, and it worked as a form 647 00:42:24,400 --> 00:42:28,600 of payroll tax, taking spending money out of the economy where 648 00:42:28,600 --> 00:42:31,440 it was needed. Workers badly in need of 649 00:42:31,440 --> 00:42:34,760 spending money had to start paying into Social Security 650 00:42:34,760 --> 00:42:38,640 right away, and no future payments were scheduled until 651 00:42:38,640 --> 00:42:42,840 1941. The most important part of the 652 00:42:42,840 --> 00:42:47,320 Second New Deal was the Works Progress Administration, which 653 00:42:47,320 --> 00:42:52,240 divided $5 billion among several different agencies to create 654 00:42:52,240 --> 00:42:55,200 work for the unemployed. There were problems with the 655 00:42:55,200 --> 00:42:58,360 WPA. The pay was very low, amounting 656 00:42:58,360 --> 00:43:01,120 to half of the subsistence wage at the time. 657 00:43:01,640 --> 00:43:05,400 The reason for the low wages was that firstly there was not 658 00:43:05,400 --> 00:43:09,440 enough money to go around, but also because Roosevelt wanted to 659 00:43:09,440 --> 00:43:13,720 be sure that work relief was not attractive in comparison with 660 00:43:13,720 --> 00:43:17,240 private employment. So wages were kept low and the 661 00:43:17,240 --> 00:43:21,640 projects taken on were mostly unimportant as it was designed 662 00:43:21,640 --> 00:43:24,400 to not compete with private businesses. 663 00:43:24,880 --> 00:43:28,520 The Public Works Commission, on the other hand, was seen as a 664 00:43:28,520 --> 00:43:33,000 means of bringing about recovery but also providing valuable 665 00:43:33,000 --> 00:43:35,680 public infrastructure to the American people. 666 00:43:36,120 --> 00:43:41,160 The PwC was headed by Harold Ike, who refused to spend for 667 00:43:41,160 --> 00:43:44,360 the sake of spending, so much of the money was spent on 668 00:43:44,360 --> 00:43:47,120 materials, engineers and skilled workers. 669 00:43:47,520 --> 00:43:50,120 Private contractors often did the work. 670 00:43:50,440 --> 00:43:54,320 The agency was efficiently run and left public structures like 671 00:43:54,320 --> 00:43:57,880 bridges, dams, schools, municipal building, sewage 672 00:43:57,880 --> 00:44:00,720 systems, port facilities and hospitals. 673 00:44:01,240 --> 00:44:05,240 The clear purpose of PwC projects and the careful 674 00:44:05,240 --> 00:44:09,280 spending kept it above much of the criticism that was levelled 675 00:44:09,480 --> 00:44:13,800 at other New Deal programs. Scarcely anyone in government at 676 00:44:13,800 --> 00:44:18,160 the time, including Roosevelt, liked the idea of the dole. 677 00:44:18,320 --> 00:44:21,760 It was believed that direct relief payments stripped people 678 00:44:21,760 --> 00:44:25,360 of their sense of independence and their sense of individual 679 00:44:25,360 --> 00:44:28,640 destiny. Roosevelt, who spoke directly to 680 00:44:28,640 --> 00:44:33,080 the American people on the radio in his fireside chats, the first 681 00:44:33,080 --> 00:44:36,680 time an American president was able to communicate directly 682 00:44:36,680 --> 00:44:41,400 with voters, received masses of mail from the public, which were 683 00:44:41,400 --> 00:44:44,480 a treasure trove of information for historians trying to 684 00:44:44,480 --> 00:44:48,160 understand the times. Americans wrote to the president 685 00:44:48,320 --> 00:44:50,840 asking for work rather than Dole. 686 00:44:51,120 --> 00:44:54,320 Robert Mcgillvane provides excerpts from these letters in 687 00:44:54,320 --> 00:44:57,600 his book. My pride took an awful beating 688 00:44:57,600 --> 00:45:01,080 when I had to apply for relief, a Minneapolis man wrote. 689 00:45:01,320 --> 00:45:03,920 But I feel different about the WPA. 690 00:45:04,120 --> 00:45:09,080 Here I am working for what I'm getting, a woman wrote in saying 691 00:45:09,200 --> 00:45:12,640 it means that I can look people in the eye because I'm not on 692 00:45:12,640 --> 00:45:15,680 the dole. Another man wrote that the work 693 00:45:15,680 --> 00:45:19,280 allowed him to sleep nights instead of lying awake thinking 694 00:45:19,440 --> 00:45:24,320 of desperate things he might do. Roosevelt won his third term in 695 00:45:24,320 --> 00:45:28,640 1940, winning 55% of the popular vote. 696 00:45:29,000 --> 00:45:32,120 There was a strong class division in the vote, and a 697 00:45:32,120 --> 00:45:36,560 survey conducted after the election found that 80% of those 698 00:45:36,560 --> 00:45:41,120 on relief had voted for Roosevelt, as had 60% of those 699 00:45:41,280 --> 00:45:45,000 who said that they wouldn't get by without relief for one month 700 00:45:45,040 --> 00:45:49,680 if they lost their jobs. The unemployment rate in 1940 701 00:45:49,800 --> 00:45:56,440 was still at 14.6%, and even in 1941, as the defense industries 702 00:45:56,440 --> 00:46:00,320 moved into high gear exporting arms to Europe, the mean 703 00:46:00,320 --> 00:46:05,200 unemployment rate was still 9.9%, representing almost 704 00:46:05,200 --> 00:46:08,360 6,000,000 Americans who wanted to work. 705 00:46:08,640 --> 00:46:13,400 Industrial production, which had finally surpassed its 1929 706 00:46:13,400 --> 00:46:19,200 level, soared 30% above its 1929 level level in 1941. 707 00:46:19,800 --> 00:46:23,000 The Great Depression was a global phenomenon. 708 00:46:23,240 --> 00:46:27,480 By the late 1930s, every country had replied to economic 709 00:46:27,480 --> 00:46:31,720 difficulties by devaluing their currency and raising tariffs, 710 00:46:32,040 --> 00:46:35,840 all in an attempt to push economic distress from their 711 00:46:35,840 --> 00:46:39,280 country to others. The failure to cooperate on 712 00:46:39,280 --> 00:46:43,640 economic matters had said every country against its neighbors. 713 00:46:43,960 --> 00:46:47,320 Economic failures had led to political failures, and 714 00:46:47,320 --> 00:46:50,720 extremist governments took power in many countries. 715 00:46:51,320 --> 00:46:55,400 When war kicked off in Europe, nations around the world moved 716 00:46:55,400 --> 00:46:58,000 gold to the United States for safety. 717 00:46:58,200 --> 00:47:02,120 American banks filled with gold were now willing to land again. 718 00:47:02,520 --> 00:47:06,320 Military spending boosted American exports and possibly 719 00:47:06,320 --> 00:47:09,960 saved the reputation of the New Deal and the Roosevelt 720 00:47:09,960 --> 00:47:13,160 presidency. Without the military boom, 721 00:47:13,400 --> 00:47:16,320 Roosevelt's presidency might have been remembered as 722 00:47:16,320 --> 00:47:20,080 compassionate and helpful, but ineffective in solving the 723 00:47:20,080 --> 00:47:22,280 fundamental problems of the Depression. 724 00:47:22,760 --> 00:47:26,600 Whether you owned a business, had a job, invested, borrowed 725 00:47:26,600 --> 00:47:31,080 money, or even just had a bank account in the 1930's, the 726 00:47:31,080 --> 00:47:34,120 Depression found a way to hurt you financially. 727 00:47:34,680 --> 00:47:38,640 Globalization, and then the retreat from globalization meant 728 00:47:38,640 --> 00:47:41,880 that the effects of the Great Depression were felt around the 729 00:47:41,880 --> 00:47:44,880 world. The economic effects hit Germany 730 00:47:44,880 --> 00:47:49,000 particularly hard, leading to the rise of Hitler, who used the 731 00:47:49,000 --> 00:47:52,040 despair of the German people as a rallying call. 732 00:47:52,640 --> 00:47:56,800 In the 1950s, Milton Friedman and Anna Schwartz began 733 00:47:56,960 --> 00:48:00,400 compiling historical data on monetary variables. 734 00:48:00,720 --> 00:48:04,800 As they examined the data, they say that it became obvious that 735 00:48:04,800 --> 00:48:08,800 the data was at odds with the standard Keynesian explanation 736 00:48:08,800 --> 00:48:13,080 for the Great Depression. In their 1963 book Monetary 737 00:48:13,080 --> 00:48:16,920 History of the United States, they presented the evidence that 738 00:48:16,920 --> 00:48:20,920 led them to the conclusion that the Great Depression was not the 739 00:48:20,920 --> 00:48:24,680 necessary and direct result of the stock market crash of 740 00:48:24,680 --> 00:48:28,640 October 1929. Friedman and Schwartz argued 741 00:48:28,840 --> 00:48:32,000 that the Depression was brought about by the Fed's failure to 742 00:48:32,000 --> 00:48:36,240 carry out its role as the lender of last resort rather than 743 00:48:36,240 --> 00:48:38,440 providing liquidity through loans. 744 00:48:38,680 --> 00:48:41,960 They say that the Fed just watched as banks dropped like 745 00:48:41,960 --> 00:48:45,880 flies, oblivious to the effect this would have on the monetary 746 00:48:45,880 --> 00:48:48,920 supply. They say that the Fed could have 747 00:48:48,920 --> 00:48:52,840 offset the decrease created by bank failures by engaging in 748 00:48:52,840 --> 00:48:55,600 bond purchases, but it didn't do so. 749 00:48:55,920 --> 00:48:58,640 They say that the Federal Reserve System should have 750 00:48:58,640 --> 00:49:02,480 engaged in large scale, open market purchases of government 751 00:49:02,480 --> 00:49:06,160 bonds, providing banks with additional cash to meet the 752 00:49:06,160 --> 00:49:09,960 demands of their depositors. This would have ended or at 753 00:49:09,960 --> 00:49:13,400 least sharply reduced the stream of bank failures and would have 754 00:49:13,400 --> 00:49:17,240 prevented bank runs from reducing the quantity of money. 755 00:49:17,680 --> 00:49:21,720 Unfortunately, the Fed's actions were hesitant and small. 756 00:49:22,040 --> 00:49:26,000 In the main, it stood by idly and let the crisis take its 757 00:49:26,000 --> 00:49:30,280 course. In 2002, Ben Bernanke, then a 758 00:49:30,280 --> 00:49:34,200 member of the Federal Reserve Board of Governors, publicly 759 00:49:34,200 --> 00:49:37,720 acknowledged that the Federal Reserve's mistakes contributed 760 00:49:37,720 --> 00:49:41,920 to the worst economic disaster in American history. 761 00:49:42,520 --> 00:49:46,160 Michael Pettis, when writing about Chinese overproduction, 762 00:49:46,440 --> 00:49:50,240 compared it to American overproduction in the 1920s. 763 00:49:50,680 --> 00:49:55,760 He explained that the 1929 crash cut off funding for countries 764 00:49:55,800 --> 00:49:59,880 who are buying US exports. If foreign countries could no 765 00:49:59,880 --> 00:50:05,320 longer absorb US overcapacity, he argues, then the US needed to 766 00:50:05,320 --> 00:50:08,760 either increase domestic consumption or cut back on 767 00:50:08,760 --> 00:50:12,400 domestic production. One way or another, production 768 00:50:12,520 --> 00:50:15,080 and consumption needed to balance. 769 00:50:15,840 --> 00:50:19,000 He says that there was, of course, more to the story than 770 00:50:19,000 --> 00:50:22,640 just a drop in foreign demand for American goods, and that 771 00:50:22,640 --> 00:50:25,760 with the collapse of parts of the domestic U.S. banking 772 00:50:25,760 --> 00:50:29,280 system, domestic private consumption also fell. 773 00:50:29,520 --> 00:50:33,520 He says that the slack in demand should have been taken up by US 774 00:50:33,520 --> 00:50:37,720 fiscal expansion, but instead of expanding aggressively, both 775 00:50:37,720 --> 00:50:41,200 Hoover and Roosevelt expanded cautiously. 776 00:50:41,760 --> 00:50:46,960 Since US production exceeded US consumption, the need for demand 777 00:50:46,960 --> 00:50:51,120 creation most logically resided in the United States. 778 00:50:51,400 --> 00:50:55,640 But the US had other ideas. Rising unemployment pressures 779 00:50:55,640 --> 00:50:59,320 prompted US senators to respond with tariffs. 780 00:50:59,600 --> 00:51:03,200 With the tariffs, Washington was trying to create additional 781 00:51:03,200 --> 00:51:07,320 demand for American goods by upping the prices foreign made 782 00:51:07,320 --> 00:51:11,520 goods, forcing the brunt of the adjustment onto trading partners 783 00:51:11,760 --> 00:51:15,520 who of course retaliated, causing international trade to 784 00:51:15,520 --> 00:51:18,760 decline by nearly 70% in three years. 785 00:51:19,160 --> 00:51:22,800 Without global trade, each country had to adjust domestic 786 00:51:22,800 --> 00:51:28,280 supply to match domestic demand, but in such a situation, export 787 00:51:28,280 --> 00:51:31,640 driven economies, which the United States was at the time 788 00:51:31,640 --> 00:51:35,760 and China is today, are more vulnerable to a reduction in 789 00:51:35,760 --> 00:51:39,400 trade than countries who mostly buy foreign goods are. 790 00:51:40,080 --> 00:51:42,280 Thanks for tuning into this week's podcast. 791 00:51:42,400 --> 00:51:46,040 If you want to support making content like this, you can do so 792 00:51:46,040 --> 00:51:48,760 on Patreon using the link in the show notes. 793 00:51:48,920 --> 00:51:51,520 Have a great week and talk to you again soon. 794 00:51:51,640 --> 00:51:52,000 Bye.