The Great Depression: Crash Course US History #33 — Transcript

Full transcript

1. 0:00Hi, I'm John Green, this is Crash Course U.S. history
2. 0:02and Herbert Hoover's here, which is never a good sign.
3. 0:05Today we're gonna return to two of my favorite topics:
4. 0:07economics and inaccurate naming conventions.
5. 0:10That's right, we're gonna be talking about the Great Depression,
6. 0:13which was only great if you enjoy, like, being a hobo or selling pencils.
7. 0:17Now some of you might get a bit frustrated today because there's no real consensus about the Great Depression,
8. 0:22and simple, declarative statements about it really say much more about you than they do about history.
9. 0:27Why are you looking at me, Mr Green? I didn't say anything. I thought it.
10. 0:31Because, Me From the Past, you always want things to fit into this simplistic narrative:
11. 0:34she loves me, she loves me not, the Great Depression was caused by x or was caused by y.
12. 0:38It's complicated!
13. 0:39(Intro Music)
14. 0:48Many people tell you that the Great Depression started with the stock market crash in October 1929,
15. 0:53but a) that isn't true and b) it leads people to mistake correlation with cause.
16. 0:57What we think of as the Great Depression did begin AFTER the stock market crash,
17. 1:01but not because of it. Like, as we saw last week, the underlying
18. 1:04economic conditions in the U.S. before the stock market crash weren't all moonshine
19. 1:08and rainbows. The 1920s featured large-scale domestic consumption of relatively new consumer
20. 1:13products, which was good for American industry. But much of this consumption was fueled by
21. 1:17credit and installment buying which, it turned out, was totally unsustainable.
22. 1:21The thing about credit is that it works fine unless and until economic uncertainty increases
23. 1:26at which point POW. That's a technical historian term, by the way.
24. 1:31Meanwhile the agricultural sector suffered throughout the 1920s and farm prices kept
25. 1:35dropping for two reasons. First, American farms had expanded enormously during World
26. 1:39War I to provide food for all those soldiers, and second, the expansion led many farmers
27. 1:45to mechanize their operations. As you'll know if you've ever bought a
28. 1:48tractor, that mechanization was expensive, and so many farmers went into debt to finance
29. 1:52their expansion. And then a combination of overproduction and low prices meant that often
30. 1:57their farms were foreclosed upon . And other signs of economic weakness appeared
31. 2:00throughout the decade. Like by 1925, the growth of car manufacturing slowed, along with residential
32. 2:05construction. And, worst of all was what noted left wing
33. 2:07radical Herbert Hoover labeled "an orgy of mad speculation" in the stock markets
34. 2:12that began in 1927. By the way I'm kidding about him being a left wing radical. Just
35. 2:16look at him. According to historian David Kennedy, "By
36. 2:191929, commercial bankers were in the unusual position of loaning more money for stock market
37. 2:24and real estate investments than for commercial ventures."[1]
38. 2:28I wonder if we would ever find ourselves in that position again. Oh right we did in 2008.
39. 2:31Anyway, it's tempting to see the stock market crash as the cause of the depression, possibly
40. 2:35because it turns American economic history into morality play, but the truth is that
41. 2:39the stock market crash and the depression were not the same thing. A lot of rich people
42. 2:44lost money in the market, but what made the Great Depression the Great Depression was
43. 2:48massive unemployment and accompanying hardship, and this didn't actually begin until, like,
44. 2:541930 or 1931. The end of 1929 was actually okay. Unless
45. 2:58you were a farmer. Or a stockbroker obviously. So what did actually cause the Depression?
46. 3:02Well that's a big question and it's one that economists have struggled with ever since.
47. 3:06They want to find out so they can keep it from ever happening again. No pressure, economists.
48. 3:11Only 3% of Americans actually owned stock, and the markets recovered a lot of their value
49. 3:14by 1930, although they did then go down again because, you know, there was a depression
50. 3:18on. And even though big banks and corporations
51. 3:20were buying a lot of stock, much of it was with borrowed money, known as margin buying,
52. 3:24and all of that still was not nearly a big enough iceberg to sink the world's economy.
53. 3:29But if I had to name a single cause of the Great Depression, it might be America's
54. 3:33weak banking system. Alright. Let's go to the ThoughtBubble.
55. 3:35Although the Federal Reserve system had been created in 1913, the vast majority of America's
56. 3:40banks were small, individual institutions that had to rely on their own resources. When
57. 3:45there was a panic and depositors rushed to take the money out of the bank -- like they
58. 3:48do in the obscure arthouse movie Mary Poppins -- the bank went under if it didn't have
59. 3:52enough money on reserve. So in 1930, a wave of bank failures began
60. 3:56in Louisville that then spread to Indiana, Illinois, Missouri, and eventually Arkansas
61. 4:00and North Carolina. As depositors lined up to take their money out before the banks went
62. 4:05belly up, banks called in loans and sold assets. Ultimately this meant that credit froze up,
63. 4:11which was what really destroyed the economy. A frozen credit system meant that less money
64. 4:15was in circulation, and that led to deflation. Now you're probably thinking, "Big deal,
65. 4:19deflation, can't be as bad as inflation right?" No. Deflation is much worse, as
66. 4:24anyone who has ever slept on an air mattress knows.
67. 4:26When prices drop, businesses cut costs, mainly by laying off workers. These workers then
68. 4:31can't buy anything so inventories continue to build up and prices drop further. Banks
69. 4:36weren't lending money, so employers couldn't borrow it to make payroll to pay their workers
70. 4:40and more and more businesses went bankrupt leaving more and more workers unable to purchase
71. 4:45the goods and services that would keep the businesses open.
72. 4:48So if we have to lay the blame for the Great Depression on someone we can blame the banks,
73. 4:52which isn't completely wrong, and it gives us a chance to shake our fists at Andrew Jackson
74. 4:56whose distrust of central banking got us into this mess in the first place. That's probably
75. 5:00too simple, but the Federal Reserve does deserve a good chunk of the blame for not rescuing
76. 5:05the banks and not infusing money into the economy to combat this deflationary cycle.
77. 5:10Thanks, Thoughtbubble. So, economics fans out there might be saying, "Why didn't
78. 5:13the Hoover administration engage in some good old fashioned Keynesian pump priming?"
79. 5:18The thinking there is that if governments do large-scale economic stimulus and a bunch
80. 5:21of infrastructure projects, it can kind of create a bottom that stops the deflationary
81. 5:26cycle. And that does often work, but unfortunately
82. 5:28the Hoover Administration did not have a TARDIS. John Maynard Keynes' great work The General
83. 5:32Theory of Employment, Interest and Money (he wasn't very good at titles) wasn't published
84. 5:36until 1936, when the Depression was well under way.
85. 5:39Venturing into the green nightmare of not-America for a moment, Herbert Hoover offered a global
86. 5:44explanation in his memoirs for the global phenomenon that was the Great Depression.
87. 5:48He claimed that its primary cause was World War One. And to be fair, the war did set the
88. 5:52stage for a global economic disaster because of the web of debts and reparations that it
89. 5:58created. Like, under the Versailles Treaty, Germany
90. 5:59had to pay $33 billion in reparations mostly to France and Britain, which it couldn't
91. 6:04pay without borrowing money from ... American banks. In addition the U.S. itself was owed
92. 6:09$10 billion by Britain and France, some of which those countries paid back with German
93. 6:13reparations. But then once American credit dried up, as
94. 6:16it did in the wake of the stock market crash and the American bank failures, the economies
95. 6:20of Germany, France, and Britain also fell off a cliff.
96. 6:23And then with the largest non-U.S. industrial economies in total turmoil, fewer people abroad
97. 6:28could buy American products, or French wine, or Brazilian coffee, and world trade came
98. 6:33to a halt. And then when what the world really needed
99. 6:36was more trade, America responded by raising tariffs to their highest levels ever with
100. 6:41the Hawley Smoot tariff, a law that was as bad as it sounds.
101. 6:45The idea of the high tariff was to protect American industry, but since Europe responded
102. 6:49with their own high tariffs, that just meant that there were fewer buyers for American
103. 6:53goods, less trade, fewer sales, and ultimately fewer jobs.
104. 6:57So what did Hoover do? Not enough. It's important to remember that the American government
105. 7:01is not just the President. Hoover couldn't always get Congress to do what he wanted but
106. 7:06his political ineptitude was not particularly surprising because the first elected office
107. 7:11that he ever held in his life was President of the United States.
108. 7:14Like, let's take the foreign debt issue. Hoover proposed a moratorium on intergovernmental
109. 7:18debt payments and he actually got Congress to go along with it, but it wasn't enough,
110. 7:22mainly because the central bankers in Europe and America refused to let go of the gold
111. 7:27standard, which would have allowed the governments to devalue their currency and pump needed
112. 7:31money into their economies. And when Britain, rather heroically I might
113. 7:34add, did abandon the gold standard in 1931 and stopped payments in gold, the U.S. did
114. 7:39not follow suit, which meant that world financial markets froze up even further.
115. 7:43Like this is a little bit complicated, but if you and I have always used Cheetos as currency
116. 7:47to exchange goods and services and one day I announce that we can't do that anymore
117. 7:51because it doesn't give us the flexibility that we need to pull ourselves out of this
118. 7:54deflationary spiral. If I don't also agree to abandon Cheetos,
119. 7:57then it's going to be a total disaster, which it was.
120. 8:00And then, even worse, the Fed raised its discount rate, making credit even harder to come by.
121. 8:05By the end of 1931, 2,294 American banks had failed, double the number that had gone under
122. 8:12in 1930. Now, it's easy to criticize poor Herbert
123. 8:14Hoover for not doing enough to stop the Great Depression, and he probably didn't do enough,
124. 8:18but part of that is down to our knowledge of what happened afterward: the New Deal.
125. 8:23That FDR at least tried to do something about the Depression makes us forget that when Hoover
126. 8:28was president, orthodox political and economic theory counseled in favor of doing nothing.
127. 8:33And at least Hoover didn't follow the advice of his treasury secretary who, according to
128. 8:37Hoover anyway, argued that that the solution was to "liquidate labor, liquidate stocks,
129. 8:42liquidate the farmers, liquidate real estate," which sounds like the worst milkshake ever.
130. 8:46Instead, Hoover believed that the best course of action was to "use the powers of government
131. 8:50to cushion the situation"[2] and in a White House meeting he persuaded a large number
132. 8:54of industrialists to agree to maintain wage rates.
133. 8:58He also got the Federal Farm Board to support agricultural production, and got Congressional
134. 9:01approval for $140 million in new public works. Overall, he nearly doubled the federal public
135. 9:07works expenditures between 1929 and 1931. It just wasn't nearly enough.
136. 9:13Because what Hoover didn't allow was for the federal government to take over the situation
137. 9:17completely. He relied primarily on private businesses
138. 9:20and state and local governments to stimulate the economy, and that was insufficient. It's
139. 9:24not surprising when you consider that in 1929 Federal expenditures accounted for 3% of our
140. 9:30gross domestic product. Today it's more like 20%.
141. 9:32So, it was just really hard to imagine the Federal government doing anything on such
142. 9:37a large scale to address a national problem because it had never really done that much
143. 9:42before. Hoover also hiked taxes as part of a plan
144. 9:45to stabilize the banks by balancing the federal budget, providing confidence for foreign creditors,
145. 9:50and stopping them from buying American gold. This would support bonds and also keep the
146. 9:55federal government out of competition with private borrowers. The Revenue Act of 1932
147. 9:59passed Congress, but it didn't do much to stop the Depression. In fact, arguably it
148. 10:03made it worse. Though ultimately, this dire situation forced
149. 10:06Hoover into a truly radical move. In January 1932 he and Congress created the Reconstruction
150. 10:12Finance Corporation, which was basically a federal bailout program that borrowed money
151. 10:17to provide emergency loans to banks, building-and-loan societies, railroads, and agricultural corporations.
152. 10:23The problem was that by 1932 bailing out the banks wasn't enough and the Great Depression
153. 10:28started to take shape. By early 1932 well over 10 million people were out of work, 20%
154. 10:34of the labor force. And in big cities the numbers were even worse, especially for people
155. 10:38of color. Like, in Chicago, 4% of the population was African American, but they made up more
156. 10:44than 16% of the unemployed. Although Hoover famously claimed that no one
157. 10:48starved, which was a little bit let-them-eat-cake-y, people did search trash cans for food. And
158. 10:53many Americans were forced to ask for relief. Hoover's response was to try to encourage
159. 10:58private charity through the unfortunately acronymed President's Organization on Unemployment
160. 11:02Relief. Or "POUR." New York City's government relief programs
161. 11:06rose from $9 million in 1930 to $58 million in 1932, and private charitable giving did
162. 11:12increase from $4.5 million to $21 million, and that sounds great until you realize that
163. 11:17the total of $79 million that New York City spent on relief in 1932 was less than ONE
164. 11:23MONTH's lost wages for the 800,000 people who were unemployed.[3]
165. 11:28Oh, it's time for the Mystery Document? I hope it's a break from the unrelenting
166. 11:31misery. Probably not. The rules here are simple. I guess the author
167. 11:35of the Mystery Document and then usually fail and get shocked with the shock pen, which
168. 11:39is a real shock pen no matter what you people say.
169. 11:42Alright, what do we got here?
170. 11:43"We sit looking at the floor. No one dares think of the coming winter. There are only
171. 11:47a few more days of summer. Everyone is anxious to get work to lay up something for that long
172. 11:52siege of bitter cold. But there is no work. Sitting in the room we all know it. This is
173. 11:56why we don't talk; much. We look at the floor dreading to see that knowledge in each
174. 12:01other's eyes. There is a kind of humiliation in it. We look away from each other. We look
175. 12:06at the floor. It's too terrible to see this animal terror in each other's eyes."
176. 12:11I mean, Stan, unemployment was 25% and this could be literally any of those people. I'm
177. 12:16gonna guess that it's a woman, because men were usually on the road trying to find work
178. 12:20while women would go to these offices to look. I - I mean it could be many - I have no idea.
179. 12:30Ummm Janet Smith. Meridel Le Sueur? She's a good writer. Maybe
180. 12:33we should hire her. AH! So, often at Crash Course we try to show how
181. 12:37conventional wisdom about history isn't always correct. But in the case of the hardships
182. 12:41experienced during the Great Depression, it really is.
183. 12:44The pictures of Dorothea Lange and Walker Evans, and Steinbeck's description in Grapes
184. 12:48of Wrath of Okies leaving the dust bowl in the usually vain hope of a better life in
185. 12:54California, they tell the story better than I can.
186. 12:56Thousands of Americans took to the road in search of work and thousands more stood in
187. 13:00breadlines. There were shantytowns for the homeless called Hoovervilles, and there were
188. 13:04protests, like the Bonus March on Washington by veterans seeking an early payment of a
189. 13:08bonus due to them in 1945. A lot of the debate around the Great Depression
190. 13:12revolves around the causes, while still more concerns the degree to which the federal government's
191. 13:17eventual response, the New Deal, actually helped to end the Depression.
192. 13:20Those questions are controversial because they're still relevant. We're still talking
193. 13:24about how to regulate banking. We're still talking about what the government's
194. 13:27role in economic policy should be and whether a strong federal government is ultimately
195. 13:31good for an economy or bad for it. And how you feel about the government's
196. 13:34role in the Great Depression is going to depend on how you feel about government in general.
197. 13:39That said, we shouldn't let our ideological feelings about markets and governments and
198. 13:43economics obscure the suffering that millions of Americans experienced during the Great
199. 13:48Depression. For generations of Americans, it was one of
200. 13:50the defining experiences of their lives. Thanks for watching. I'll see you next week.
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