America's Great Depression (52 page)

Meanwhile, more and more economists and politicians were advocating credit expansion, some as a means of “reflating” the price level back to pre-depression levels. Curiously enough, the price-level stabilizationists, headed by Irving Fisher, whom we
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309

have discussed above, no longer wanted mere stabilization: they, too, wanted to reflate the price level back to pre-depression standards, and only
then
to stabilize. There is no better proof that these economists were always inflationists first, and stabilizationists second. Norman Lombard and the Stable Money Association continued to call for stabilization; before it closed down, it helped to start and was superseded by the powerful Committee for the Nation, dedicated frankly to reflation, and highly influential in finally getting the country off the gold standard in 1933–34. The Committee for the Nation was founded by veteran stabilizationist Frank A.

Vanderlip, former President of the National City Bank of New York, and by James H. Rand, Jr., President of Remington Rand Company. Others cooperating in founding the Committee in late 1932 were Vincent Bendix, General Robert E. Wood of Sears-Roebuck, Magnus W. Alexander of the National Industrial Conference Board, Fred H. Sexauer, a farm leader, E.L. Cord, and Frederic H. Frazier, Chairman of the General Baking Company.

When the Committee for the Nation organized formally in January, 1933, its executive secretary was Edward A. Rumely, and another of its leaders was Lessing J. Rosenwald.

Inflationist efforts in Congress during these years included: Representative Wright Patman’s bill for a soldiers’ bonus with fiat money (see above); Senator Walsh’s plan for fiat money; Representative Burtness’ (N. Dak.) plan to “stabilize the buying power of money,” and another bill to “raise the commodity price level to the debt-incurring stage and to stabilize it thereafter.” Burtness’s bill was introduced in December, 1931, and, in the same month, Rep.

Christian Ramseyer of Iowa introduced a bill to “restore and maintain the level of wholesale prices,” directing the Federal Reserve to inflate prices back to 1926 levels. A similar bill was presented by Rep. Kent Keller of Illinois.

The most important inflationist bill came before the House Banking and Currency Committee in March, 1932. The Goldsborough Bill charged the Federal Reserve System with the duty of reflating to pre-depression price-levels and then stabilizing; also, the Fed was to be given power to raise or lower the gold weight of the dollar when it deemed necessary, a harking back to Irving Fisher’s old
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America’s Great Depression

scheme of the “compensated dollar.” Supporting the Goldsborough Bill in the hearings were: Edward A. O’Neal, President of the Farm Bureau Federation, which had established a Committee on Stabilization of the Unit of Value, for reflating the price level; Louis J. Taber of the National Grange; and John A. Simpson of the National Farmers’ Union, all of whom doubted that the bill went far enough; Henry A. Wallace; ex-Senator Robert L. Owen; Professor Willford I. King, who also wanted the bill to go further; Alvin T. Simonds, President of the Simonds Saw and Steel Company; Colonel Malcolm C. Rorty; W.C. Hushing of the American Federation of Labor; Professor Irving Fisher; and George H. Shibley. The House frightened the administration and conservative opinion by passing the Goldsborough Bill on May 2 by the overwhelming margin of 289 to 60. The stabilizationists had reached their high water mark. The New York Merchants’ Association strongly attacked the bill, and the
Commercial and Financial Chronicle
—throughout the 1920s a bellwether of sound money—

attacked both the Goldsborough Bill and the opposing Federal Reserve authorities in its issue of May 7:

It seems useless to argue against follies such as those embodied in the Goldsborough Bill, when our legisla-tors have lost all sense and reason, and the only hope is that the movement can be held under definite control before it is carried too far. We grieve to have to say that the Federal Reserve authorities are chargeable with a portion at least of the blame in inculcating the unsound doctrines which are finding such wide acceptance today through the Reserve policy of the largescale purchases of United States Government Securities.

The Federal Reserve authorities strongly opposed the Goldsborough Bill (now Fletcher Bill) in the Senate. The best of these antagonists was Dr. Adolph C. Miller, who cogently charged that a reflation attempt could only aggravate the depression. Miller asserted that if the Federal Reserve had been operating under this bill during the late 1920s, the depression would now be even worse than it is. The Bill was stopped in committee by the efforts of Secretary Mills and Senator Glass.

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Also agitating for inflation were Professors Commons, Edie, Friday, Kemmerer, Persons, and Rogers, Colonel Leonard P. Ayres, Father Charles Coughlin, broker Robert M. Harriss, and Dr. Ivan Wright. Donald Richberg urged emergency loans to the unemployed. Undoubtedly the wildest of all the monetary schemes were those that envisioned Federal support for some sort of separate
barter
system among the unemployed. Here, at last, the absurd schemes of statists and inflationists reached an apogee: a virtually conscious withdrawal from the civilized monetary economy, and a step toward return to the primitive realm of barter.

It is particularly astounding that many famous economists, undoubtedly nonplussed by the depression, lent their names to barter schemes. Professor Frank D. Graham, of Princeton University, concocted an elaborate plan for an Emergency Employment Corporation (EEC), to be established by the federal government, for putting the unemployed to work in producing consumer goods, in return for scrip, based apparently on labor-hours, issued by the EEC.27 Similar plans were suggested by Professor Willford I. King of New York University, and Howard O. Eaton of the University of Oklahoma. And finally, a whole battery of economists, headed by Professor J. Douglas Brown, director of the industrial relations section of Princeton University, and former member of the President's Emergency Committee for Employment, signed a petition for federal and state aid for establishing barter systems, where the unemployed would produce for their
own
consumption, outside of the civilized market economy.28

27See Frank D. Graham,
The Abolition of Unemployment
(1932), and Dorfman,
The Economic Mind in American Civilization,
vol. 5, pp. 720–21.

28It is instructive to record the names and affiliations of the more prominent signers of this monumental inanity. They were: Willard E. Atkins, New York University

Frank Aydelotte, President of Swarthmore College C. Canby Balderston, University of Pennsylvania George E. Barnett, Johns Hopkins, President of the American Economic Association

John Bates Clark, Columbia University

Miss Joanna C. Colcord, The Russell Sage Foundation Morris A. Copeland, University of Michigan

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America’s Great Depression

It is a sobering lesson on how the country was being governed, that of the signers, Mallery, Willits, and Wolman were members of the Hoover Emergency Committee for Employment; Willits was an adviser to the Pennsylvania state unemployment committee; Leiserson was chairman of the Ohio State Commission on Unemployment Insurance; Douglas had been technical adviser to the New York State Unemployment Relief Committee; and Graham had been an adviser of the Federal Farm Board.29

Paul H. Douglas, University of Chicago

Howard O. Eaton, University of Oklahoma

Frank Albert Fetter, Princeton University

Frank Whitson Fetter, Princeton University

Irving Fisher, Yale University

Walton H. Hamilton, Yale University

Paul U. Kellogg, Editor of
Survey Graphic
Willford I. King, New York University

William M. Leiserson, Antioch College

Richard A. Lester, Princeton University

Harley Leist Lutz, Princeton University

James D. Magee, New York University

Otto Tod Mallery

Broadus Mitchell, Johns Hopkins University

Sumner H. Slichter, Harvard University

Charles T. Tippetts, University of Buffalo

Jacob Viner, University of Chicago

Charles R. Whittlesey, Princeton University

Joseph H. Willits, Dean of Wharton School, University of Pennsylvania Leo Wolman, Columbia University

29
New York Times
(January 16, 1933): 23. The barter movement had previously been tried voluntarily on local levels, and had, of course, failed ignominiously, a fact which almost always spurs ideologues to urge that the same scheme be imposed coercively by the federal government. The barter movement as local cooperative had begun with the Unemployed Citizens’ League of Seattle in July, 1931, and soon spread to more than half the states. They all failed quickly. Similar local “scrip exchanges” failed rapidly, after each issuance of the supposedly mirac-ulous scrip. The most prominent scrip exchange was the Emergency Exchange Association of New York, flamboyantly organized by Stuart Chase and other intellectuals and professional men. See Dorfman,
The Economic Mind in American
Civilization,
vol. 5, pp. 624–25, 677.

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In the month of January, 1932, two important groups of economists gave their blessings to an expanded inflation program—

though not going as far as barter or scrip. Dr. Warren M. Persons, formerly of Harvard University, organized a statement asserting that there was fairly “general agreement” in the economics profession on two steps—credit expansion by the Federal Reserve in collaboration with commercial banks, and passage of the pending RFC. Among the signers of the Persons statement: Thomas Nixon Carver, John Maurice Clark, John R. Commons, Paul H. Douglas, Irving Fisher, David Friday, Jacob Hollander, Virgil Jordan, Edwin W. Kemmerer, Father John A. Ryan, Edwin R.A. Seligman, Frank W. Taussig, and Henry A. Wallace.30

One of the most important expressions of monetary and fiscal thought by economists in the depression was a conference of some of the nation’s leading economists in January, 1932, at the University of Chicago, under the aegis of the Institute on Gold and Monetary Stabilization.31 The Chicago meeting received wide notice, as well it might. Twenty-four economists there recommended the following to President Hoover: (1) what later became the Glass–Steagall Act; (2) a systematic campaign of FRB open-market purchases of securities; (3) RFC aid to banks with ineligible assets; (4) maintaining a public-works program; (5) Federal unemployment relief; and (6) lowering tariffs. With the exception of the last plank, President Hoover, as we have seen, adopted every one of these inflationary and interventionist proposals. Part of the responsibility for the Hoover program and its aggravation of the depression must therefore rest on these eminent advisers who steered him so incorrectly.32

30Ibid., pp. 675–76.

31See Quincy Wright, ed.,
Gold and Monetary Stabilization
(Chicago: University of Chicago Press, 1932).

32The group of economists included:

James W. Angell

Harold D. Gideonse

Arthur W. Marget

Garfield V. Cox

Alvin H. Hansen

Harry A. Millis

Aaron Director

Charles O. Hardy

Lloyd W. Mints

Irving Fisher

Frank H. Knight

Harold G. Moulton

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Unfortunately, these distinguished economists did not heed the words of two of the lecturers at the conference, who most emphatically did not sign the statement. One was Professor H. Parker Willis, who again proved prophetic in attacking the Federal Reserve’s past and projected future inflationary policy during the depression. Willis pointed out that the cheap money policy in late 1929 and in 1931 caused a dangerous outflow of gold, and led therefore to loss of confidence in the dollar and to bank failures, which accentuated the loss of confidence. He warned that any securities-buying program might indeed raise prices but: any such step at the present time would simply mean an aggravation of existing difficulties, due to the fact that we are already overburdened with construction work and fixed capital that are not likely soon to be employed.

In short, wasteful malinvestments would only be aggravated.

The gold standard would also be gravely endangered. In short, inflation and cheap money retard “progress toward the reestablishment of a solid . . . system of prices and values.” Willis called courageously for a hands-off policy by the Federal Reserve.33

The other notable contribution to the conference was delivered by Professor Gottfried von Haberler, at that time a follower of Ludwig von Mises. Haberler here presented for perhaps the first time in America the Misesian theory of the business cycle.34 He pointed out that the traditional monetary theory of the trade cycle emphasized stability of the price level, with an attack on falling prices as the remedy for depression. Such were the doctrines of Fisher, Cassel, and Hawtrey. The price level, however, is a misleading guide, since credit expansion also has a fundamental influence on the structure of production. Furthermore, the price-level theories err Ernest M. Patterson

Henry C. Simons

C.W. Wright

C.A. Phillips

Charles S. Tippetts

Ivan Wright

Henry Schultz

Jacob Viner

Theodore O. Yntema

33H. Parker Willis, “Federal Reserve Policy in Depression,” in Wright, ed.,
Gold and Monetary Stabilization,
pp. 77–108.

34Gottfried von Haberler, “Money and the Business Cycle,” in ibid.
,
pp. 43–74.

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by not distinguishing between a fall of price due to a contraction of money, and that due to a lowering of costs from increases in productivity. In 1924–1929, Haberler continued, there was a great growth in production, but wholesale commodity prices remained stable, because the volume of money increased.35 This inflation brought on the succeeding depression. First it lengthened the period of production, because interest was lowered artificially as credit expanded. The subsequent depression, Haberler continued, is the necessary adjustment and abandonment of these longer processes, and the restoration of the old consumption–investment proportions. Consequently, shifts of capital and labor must occur before recovery can be won. The “quacks . . . preaching inflationary measures,” charged Haberler, disregard the real dislocation of productive resources. Further inflation would make things worse by creating a greater artificial disproportion of consumers’ and producers’ goods. The worst step would be “a one-sided strengthening of the purchasing power of the consumer, because it was precisely this disproportional increase of demand for consumers’