Naïve Days Are Here Again


When I'm trying to get away from the Internet and the telephone to get some work done, I often end up in the University library. When in need of distraction, I often look at the old journals. One of my favorites is the London Times Imperial Trade and Engineering Supplement. Considering recent events, the era between 1929 and 1941 are of particular interest.

Between the advertisements for valves, the new wonder metal of aluminum, Vickers airplanes, coal mine ventilators and diesel motors there is a great deal of history and food for thought. In olden times, one could write a report in a general interest economic publication on the health of the local plywood industry, or the national fruit canneries. While this sort of thing sounds like total rot today, it's somehow a lot more satisfying than reading about the latest facebook swindle in Business Week. Personally, I would like to know how the local plywood industry is doing. The gouty old fussbudgets who could write a detailed (and interesting) report on the state of the British paraffin wax industry were actually far more perceptive and less susceptible to "deferring to the expert syndrome" than modern financial writer nincompoops.

If you start to think men who were actually alive in the 1930s may have had better insights into what was actually going on, well, that way lies heresy and madness, because they certainly said different things than the cartoon vision of the time we're given today. There are modern historians of the era who are reasonably honest if carefully read, but even they are misleading and the picture the vast majority of people keep in their heads is an almost complete fabrication. For example, the prevailing idea was that 1929 was a big surprise. Lots of people knew there was a credit bubble well before it burst. Months before black Monday, the Fed (yes, they had a Federal Reserve Banking system then, though it was a new idea) was warning about it, and they raised interest rates to help burst it. Weeks before the stock market crash, it was noticed that market conditions were actually a lot weaker than justified by stock prices. In early October 1929, it was noted, for example, that manufacturing was down and automotive inventory was building up on lots (Oct 12 1929 p 81).

The other prevailing historical idea that appears to be complete fiction is that the Hoover Administration was laissez-faire Republicans who sat on their hands and did nothing. Au contraire: Hoover was hardly a market fundamentalist: he wanted to ban short selling. The LondonTimes estimated that by 1929 the expenditures of the American government totaled 30 percent of the national GDP (April 23, 1932 p 117). They estimated this using a system doubtless obsolete now, but which makes perfect sense: they divided the national income by the national and local government budgets. They also talk about enormous public works projects funded by the Hoover administration to reduce unemployment. Finally, the Republican congress of the Hoover era passed all manner of legislation tinkering with the economy.

FDR, touted in the history books as a miracle worker who brought us the wisdom of Lord Keynes accompanied by angelic harp music, by contrast, took an axe to the economy: his policies were compared unfavorably with those of Stalin and Hitler. In fact, the economy only seemed to begin to recover once the Supreme Court put limits on what FDR's gang of imbeciles could do, such that business felt confident enough in future conditions to make investments. At least that's how the LondonTimes saw it. Brad Delong somehow sees it differently. Who is right? I don't know: everyone else seems to talk like Brad Delong, but the anonymous authors of London Times Imperial Trade and Engineering Supplement, being British, had no political axe to grind, and they were there. Certainly they all agree that unemployment was still nearly 18 percent in 1939.

The other spooky thing about reading "primary source material" is you start to notice how much the past is like the present. I won't bore you with all the interest rate and bond buyback maneuvers that look eerily like the last year. People who aren't bond traders are generally only dimly aware of such things today. It is fun to read some of the predictions of immanent recovery though. These provide cheap entertainment for ironists, and are useful reminders in gauging the veracity of our "green shoots" and the various declarations of recovery and economic victory in our modern era of troubles.

Recently, as has been noted there was very heavy liquidation in the New York stock market, and money rates fell. Commenting upon this in Berlin on October 8, Mr. Charles E. Mitchen, chairman of the national city bank and a director of the Federal Reserve Bank of New York is reported to have said that he was not looking for lower money rates and that the break in the stock market would not have any lasting effect.

~Oct 26 1929 p 130 (two days before the "Black Monday" crash)

The Secretary of Commerce who cited these figures in the middle of February as proof that the country was getting on its feet again, emphasized the fact that the total of new construction was in excess of what his department had estimated four weeks previously, and he predicted that expenditures for the building and maintenance of public works and public utility properties this year would total or exceed $7b. But in other quarters there was a disposition to wonder where the money was coming from which were to put through, not the public utility enterprises which are financed with private capital, but the public works.

~March 8 1930 p 584

Recovery, in a sense, has already begun, but the pace is slow. "The buying of goods by ultimate consumers has for several months past been running at a greater rate than production by factories." Dr. Benjamin M. Anderson, Jun. recently told the Kansas City Chamber of Commerce "The year 1930 to date stands well above the first ten months of the year 1921, and the worst of 1930 is not as bad as the worst of (the depression of) 1921."

~ Nov 22, 1930 p 226

At the beginning of March the Administration in Washington was much cheered to hear from business men and bankers calling at the White House that there had been "a distinct improvement" in business conditions throughout the country "a 10 per cent improvement" as some of them said. Unhappily, however, actual figures of business activity did nothing to bear out these blithe observations. It is true that bank failures decreased until here were only one or two a day instead of 10 to 15, and that hoarding of currency seemed to have diminished somewhat; but sales of goods in stores and by wholesalers, production and sales of motor cars and steel, loadings of freight cars on railways, electric power production, new business operations, commodity prices, and a number of other common indices of business activity showed no change what ever for the better.'

~March 19 1932 p 13

Therefore only the most cautious use is being made of the credit which the Reserve banks have been pumping into the market, for many weeks past at the rate of $100 million or so a week. Where the credit is being used at all, it is mainly for the paying off by member banks of their indebtedness at the Reserve banks.

~ May 28, 1932 p229


business contraction less marked (headlines)

~ July 23, 1932 p 399

Such expansion in business as has occurred since the beginning of September has been slightly less than is usual at this season. A year ago, however, there was no improvement at all in the autumn -- excepting an insignificant upturn in mid-September which was followed by a precipitous decline a month later. On balance, therefore, a more cheerful feeling is justified. But unfortunately, political exigency has operated to exaggerate what improvement has occurred thus far, representing recovery as actually here, although it is still doubtful that the corner really has been turned. ... It has frequently been asserted that one of the difficulties in business today has been the refusal of banks to give credit freely.

~October 15, 1932 p 90


The feeling appears to be growing among business men that the belated spring recovery now is no mere "flash in the pan" but a beginning of a genuine revival. "Whatever may be thought about inflation," as one commentator put it, "deflation is at an end." If this is not the fact, it is at least the feeling.'

~ June 3 1933 p 263

To be sure, it has long been evident that a broad movement of recovery is in progress and that in many material ways the country has strikingly improved, and is continuing to improve, its position of a year ago.

~June 30 1934 p 331

The reason for the prevailing business optimism is simply that the conditions are genuinely improved for the great majority of business men.

~December 1935 p 24 (Unemployment remained in the double digits until the Second World War)