On How the “Great” Got In the Depression

CC Mellon

Coolidge would write about this very subject in retirement leading up to the 1932 campaign, making clear even then that the causes of the Depression following the Stock Market crash were far more complex than many simplistically and ignorantly tout today. The Crash did not occur in a vacuum, he would note, it was the result of many bad investments in Europe and the United States. No government could have prevented the law of cause and effect enacted by thousands of individuals investing on credit, “get-rich-quick” schemes, and dubious returns. It would have to assume total control of its population and that would be neither moral nor in accord with the principles of America, Coolidge knew.

It should be obvious that Wikipedia outline points do not compensate for the lack of an argument over at the intellectually lazy Slate. They regard FDR to be his own standard of right and wrong. WWFDRD (What would FDR do?) is hardly a reliable guide when one actually studies the 1930s. After seven years of constant attempts to rescue the economy with progressivism, it was no coincidence that FDR’s Treasury secretary, Morgenthau, would admit the New Deal had been an unmistakable failure. Conditions were worse than they had been in 1932. The fact that FDR abandoned Coolidge’s approach – which had first been jettisoned by Hoover – no more condemns Cal and Mellon than it rationally follows that Senator Cruz’s opposition is to blame for the results already underway from the endless stream of stimulus spending, paper printing, debt raising, tax-inflicting collaboration between “Big Government Republicans” and socialist-collectivist Democrats.

Studies like James Grant’s The Forgotten Depression, Burt Folsom’s New Deal or Raw Deal? and Amity Shlaes’ Forgotten Man as well as Thomas Sowell’s essay here and Robert P. Kirby’s essay on Coolidge and the Great Depression as well as other studies here, here and here demonstrate:

1. The depression of 1920-1 was far worse yet it was allowed to liquidate wasteful uses of capital (no “too-big-to-fail” stimuli by Harding-Coolidge), spending was actually cut, and reduction in taxes fueled recovery, curing itself;

2. The handful of minor downturns during the 1920s are mere footnotes in history because Coolidge’s normalization policy equipped the economy to bounce back quickly each time;

3. His adherence to the gold standard – keeping money closest to its intrinsic value, thus defeating inflation with all its attendant misery;

4. His use of a progressive tax policy, which actually took more from the wealthiest and enabled most people to pay no income tax at all (directly opposite of what is claimed by many today), enabled the boom. The stock speculation that heated up as the decade wound down was perpetrated by thousands of new investors – many of whom were regular people – choosing high risk over sound judgment to obtain dubious rates of return that, in the end, never materialized. Coolidge knew rescuing people from the consequences of poorly used freedom does not keep people free. Government cannot rescue us from the burden of being careful and wise with what is our own. It would be akin to trusting the traffic lights will compensate for a driver’s watchfulness and judgment on the roads. Responsible citizenship is simply the price of freedom.

5. His wise use of the appointive power at the Federal Reserve while leaving Mellon fully in charge at Treasury, gave the country the tools and the blueprint to survive the Stock crash.

These did not cause the Depression, the Hoover-FDR response did. The policies of Harding-Coolidge had been the response to downturns for years without any of the long-term, enduring impact that occurred in the entire decade of the 1930s. The market crash was seven months into the term of Cal’s successor, Herbert Hoover, who not only came into office with sweeping economic changes but who built the foundations of the “Big Government Republican” response to market downturns: spend more, raise the debt, assume Presidential micromanagement, bail out those too important to fail, and create more regulatory layers and overseeing agencies.

Hoover failed to learn what Coolidge and Mellon understood about market recovery from 1921 (and before, from as far as back as the 1870s), that the worst thing government can do in a downturn is to loose the strings of the public Treasury and attempt to spend toward recovery, rescuing the unsound and rewarding the wasteful. Coolidge and Mellon knew this was like bleeding a patient with a cold, robbing the individual of the means to withstand and get over the illness rapidly. It only prolonged sickness and delayed health. It was out of the 1921 Depression, which had been the “Great” one in the lives of Coolidge’s generation, that the recipe for recovery would be demonstrated throughout the rest of Cal’s tenure. It is incredible that Hoover missed so important a lesson.

FDR would only accentuate Hoover’s feverish activity and together put the “Great” in the Depression. FDR took spending, stimulus, and intervention to an art form. He took us off the gold standard of money with intrinsic value and unleashed the suffering of inflation and stagnation. It is no more Coolidge’s fault for what happened in the 30s than blaming Cruz for what the current policies of the administration (with the help it receives from — you guessed it — “Big Government” Republicans) are doing to the country now.

Senator Cruz is right about what made the twenties roar. It is telling that while the Senator mentioned Reagan and Kennedy also, it is Coolidge’s name that provoked Slate’s parade of desperate fear-mongering and deep-seated prejudices. If what they are claiming is true – that Coolidge caused the Great Depression of the 1930s – how could we dare ever go back and learn anything worthwhile from the Coolidge Era, let alone replicate its successes? It is hoped that you’ll focus your hostility against Coolidge in their simplistic and partial retelling of what is supposed to be known and understood about the Twenties. Many have bought into it over the years and reflect how little they know in their voting choices. This is changing because more and more are beginning to peel back the layers of misinformation that have been heaped upon Cal Coolidge for decades. They are recognizing how Coolidge’s successors repudiated the policies that worked so well. It was this repudiation that both poured the foundation for Depression in 1929 and built a tower of needless misery and suffering upon it in the decade that followed. They now see his example and ideals, his integrity and principled courage, his fiscal discipline and constitutional leadership. They see what the Presidency is supposed to be and they expect it of our candidates again. Coolidge is once more serving as the teacher and guide he was as Chief Executive. Credit to Senator Cruz for reminding us of Coolidge’s central importance in our future.

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