Looking in on “The Forgotten Man”
We’re just about to crack open Amity Shlaes’ new book on the Great Depression, The Forgotten Man, and chanced upon Brad DeLong’s review of John Updike’s review of the book for the New Yorker. In the course of his piece, DeLong quotes Herbert Hoover on Andrew Mellon, citing one of the worst policy statements ever made by a US government official:
the “leave it alone liquidationists” headed by Secretary of the Treasury Mellon…felt that government must keep its hands off and let the slump liquidate itself. Mr. Mellon had only one formula: “Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate.” He insisted that, when the people get an inflation brainstorm, the only way to get it out of their blood is to let it collapse. He held that even a panic was not altogether a bad thing. He said:
“It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people”…
“It will purge the rottenness out of the system.” Based on that statement, Mellon would perhaps have made a fine medieval doctor, but these do not appear to be very helpful sentiments for a Secretary of the Treasury.
Regarding The Forgotten Man, we have read commentary both pro and con. Our bias going in is that it is hard to understand just how shattering were the changes from 1929 to 1932 — when unemployment climbed from 3% to over 20%, and GNP fell by around 40%. A situation that could have been managed in the late twenties had spiraled out of control during the Hoover administration. However, none of that is an excuse for the tax increases, price fixing, and other mistakes that effectively prolonged the Depression until WWII.
The recession and credit crunch that became the Great Depression could have been effectively dealt with perhaps as late as the failure of the Bank of the United States in December 1930, by a combination of aggressive monetary policy and strong steps to buttress the banking system. But it is really hard to know what similar steps could have been taken in a devastated America two or three years later. It is perhaps meaningful, as one reviewer noted, that Ronald Reagan voted for FDR four times.
July 1st, 2007 at 7:35 pm
It is perhaps worth remembering that FDR’s policies were in many ways a continuation and expansion of the failed policies of Hoover. These policies served to worsen the situation by increasing taxes and tigthening credit. Warring on the rich and attacking private industry did not revive the country. Its clear what brought the country out of the Depression was WWII. The legacy of FDR’s utopian schemes still haunt us and will haunt future generations perhaps providing an even greater replay of the economic disaster that he couldn’t cope with. Thanks FDR.