Great Depression

F

flaja

New member
During the Great Depression it was often claimed that capitalism no longer worked. The cost of production for factories and farms often was greater that the retail price that consumers could afford to pay. Consumers literally went hungry and naked while farmers and factory owners found it cheaper to destroy their products rather than send them to market.

So was there any validity to the claim that capitalism didn’t work?
 
flaja said:
During the Great Depression it was often claimed that capitalism no longer worked. The cost of production for factories and farms often was greater that the retail price that consumers could afford to pay. Consumers literally went hungry and naked while farmers and factory owners found it cheaper to destroy their products rather than send them to market.

So was there any validity to the claim that capitalism didn’t work?
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It wasn't production costs but the desire of the producers to keep prices high to reflect the boom times of the late 1920's.
 
Southern Man said:
It wasn't production costs but the desire of the producers to keep prices high to reflect the boom times of the late 1920's.
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And just what history books have you been reading?

The boom times of the 1920s were based on money that didn’t exist except in bookkeeping records. Rich people bought corporate stock on margin meaning they didn’t have to have the money to pay for the stock they bought while everybody else bought what they needed or wanted on credit.

As long as stock prices went up nobody had to actually pay for the stock they bought because the stock ended up worth more than the purchase price. But the price for the stock only went up as long as there were people that wanted to buy it. But when the crash came stock prices fell below what they had supposedly been purchased for. The sellers then wanted the purchase price paid in full even though the market value was not worth the original purchase price. Millions upon millions of dollars that never really existed in the first place left the economy.

The same thing happened with consumer credit. Factories were built to supply the demand for consumer goods that were bought on credit. And when the stock market crashed the money for this consumer credit dried up. With no more money available to be borrowed consumers naturally stopped consuming because they didn’t have cash in hand and couldn’t borrow any more.

For both corporate stock and consumer goods the supply was unnaturally high because credit allowed buyers to buy more than really needed or wanted.
 
flaja said:
And just what history books have you been reading?

The boom times of the 1920s were based on money that didn’t exist except in bookkeeping records. Rich people bought corporate stock on margin meaning they didn’t have to have the money to pay for the stock they bought while everybody else bought what they needed or wanted on credit.

As long as stock prices went up nobody had to actually pay for the stock they bought because the stock ended up worth more than the purchase price. But the price for the stock only went up as long as there were people that wanted to buy it. But when the crash came stock prices fell below what they had supposedly been purchased for. The sellers then wanted the purchase price paid in full even though the market value was not worth the original purchase price. Millions upon millions of dollars that never really existed in the first place left the economy.

The same thing happened with consumer credit. Factories were built to supply the demand for consumer goods that were bought on credit. And when the stock market crashed the money for this consumer credit dried up. With no more money available to be borrowed consumers naturally stopped consuming because they didn’t have cash in hand and couldn’t borrow any more.

For both corporate stock and consumer goods the supply was unnaturally high because credit allowed buyers to buy more than really needed or wanted.
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In other words, high prices and boom times. *shrug*
 
Watermark said:
And what ended the great depression? WWII. The New Deal simply didn't do enough.
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I recently read that because of Great Britain’s welfare system the Great Depression there wasn’t as severe there as it was in the U.S. I would say that a welfare system would be a way to lessen the likelihood or the severity of an economic recession. But Germany had an even more extensive welfare system than Britain did- the Weimar Government would have eventually gone broke meeting its welfare obligations- but the Depression in Germany was as bad, if not worse, than it was in the U.S. during the Hoover administration.

Eventually both Britain and the U.S. ended the Depression with the same Keyenesian tactics that Germany used- government spending for military purposes. But in Germany’s case Hitler’s first economic chief, Hjalmar Schacht (who had American ancestry?), warned Hitler that government spending (of paper money with no gold or silver backing) was going to cause inflation that would ruin Germany’s economy; Hitler removed Schacht from power before World War II started and Schacht ended the War on a concentration camp.

Roosevelt believed that the Depression was caused by a lack of consumer demand that was caused by a lack of money in circulation. But Roosevelt took only timid steps to expand the money supply and his public works programs failed because he was afraid of the high taxes or the deficit spending that was needed to fully fund them.
 
Well, actually, the government had a policy of destroying food to prevent "overproduction". IMHO, they should have just bought it and given it to the hungry.
 
Watermark said:
Well, actually, the government had a policy of destroying food to prevent "overproduction". IMHO, they should have just bought it and given it to the hungry.
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But buying the surplus food would have required higher taxes or an inflationary monetary supply (either reducing the gold content of the dollar or using silver as money; the money supply was likely too small at the time to support government borrowing). FDR didn’t support either option. The Great Depression happened because an economy based on speculation went bust, so FDR didn’t want to create another bubble by spending good money or circulating bad money.
 
 
midcan5 said:
Flaja, FDR did one hell of a job and most here will feed you the slogans the corporate think tanks feed them. A few links are below and the book is excellent.

http://www.huppi.com/kangaroo/Summary.htm
http://www.hyperhistory.com/online_n2/connections_n2/great_depression.html
http://www.fsmitha.com/h2/ch15wd.html
http://gusmorino.com/pag3/greatdepression/
http://historymatters.gmu.edu/d/6787

Amazon.com: The Great Depression and the New Deal: A Very Short Introduction (Very Short Introductions): Eric Rauchway: Books

Interesting for today

http://www.project-syndicate.org/commentary/james27
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I do not like FDR and I believe that the New Deal put this country on the road to the social welfare state that has brought us to the point of ruination.

But at the same time I despise big business (read Wal-Mart and Home Depot) because big business leads to loss of economic freedom. Do not allow the libertarians you meet on the net and who present themselves as conservatives lead you to believe that conservatives support big business, laissez-faire capitalism; we don’t. The mass concentration of wealth or poverty can lead to societal upheaval and societal upheaval is the last thing any legitimate conservative wants. Neither do legitimate conservatives oppose government for government’s sake. As a conservative I have no qualms about letting the government do whatever needs to be done for the sake of preserving society when the private sector either cannot or will not do it. Conservatives do not accept the rabid dog-eat-dog individualism that libertarians crave. Our goal is to establish and maintain a stable, functional, self-sustaining and self-perpetuating society. We oppose anything that can disrupt society.

BTW: I have studied history almost since the time I learned to read over 30 years ago, and I took 40 credit hours in history courses in college while getting a bachelor’s degree in biology. I am likely better read on the subject of the Great Depression than most people you meet on the net are. The current economic troubles (and my growing disillusion with Ronald Reagan) have given me pause to study the Depression in more depth than I have before. I am currently reading Leuchtenberg’s book on FDR and the New Deal as well as Robert S. McElvaine’s The Great Depression America, 1929-1941. I don’t expect to end my current study as an admirer of FDR, but I won’t condemn him in toto just because I don’t like his politics.
 
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