laura@utzoo.UUCP (Laura Creighton) (01/31/85)
Here we go again. I have received several requests for my posting on the great depression. I am going to reheat it, 'cause I have learned a few more important things since I wrote it, and because it was written with a slant to discuss what a gold standard is, what inflation is, and what deflation is. It will get posted in a few days. It is going to be *LONG*. But first, some more general comments.... You write: You have your facts wrong. No. I really *don't* have my facts wrong. It is conceivable that I have my interpretation wrong (but I don't think so) but either there is a global conspiracy to change historical records everywhere, or I have my facts right. You are the one that said: The main reason social security was formed was to provide protection for all the hard working folks who worked their asses off being good citizens. This was a statement of fact. This was wrong. You continue: Social Security was first started in Germany under Bismark. By the 1920's "The most advanced capitalist country [USA] lacked a system of social security that every advanced industrial country in Europe took for granted..." (Encyclopedia Britannica, 1978). Yes, I know of Townsend and his role in the USA. However, you site only one of Townsend's claims. He also claimed exactly what I claimed, ie. that people needed protection from economic set backs occurring when they had gotten older. I never said there was only one reason for SS. Read what you said. The notion that people needed protection from economic set-backs had been going on since the first guy discovered the idea of ``bank''. The idea of ``charity'' predates SS as well. The reason that the US got SS (something it had wisely resisted up until that point) was that it was claimed to *cure the depression*, which was real bad. If just ``people need protection'' was enough, how come the US hadn't adopted SS decades earlier? This is an interesting view since US government policies prior to the depression can be characterized as "laisez-faire" which is hardly meddling. NO! NO! NO! NO! NO! This is a lie. I don't know whether it is your lie, or whether it is Galbraith's lie (I have 5 books by Galbraith, but not that one) but there is no way that you can characterise the activities of the government up until the great depression as Laissez-Faire. If you want to characterise the government's economic activities you can say that from the time of the depression of 1909 it followed a belief that Manipulating the Money Supply was the key to a strong economy, whereas after the depression it flip-flopped to a belief akin to ``the money supply does not matter''. Never did it leave things alone. Economist John Kenneth Galbraith in "The Great Crash" says there are five main factors causing the depression. They are 1) Unequal income distribution, Economist John Kenneth Galbraith brings up this one whenever possible. Unless he is using this one as ``there were too many banks and some of them didn't have enough money in them'' he is going to have to substantiate that one. Do you have any idea what ``equal income distribution'' would do to an economy? Especially if you forced it to remain equal? 2) Fraudulent business This one is a distortion. What JKG is probably (if he follows his other books) talking about is that it was really awful of those businesses to go bankrupt and cause all that unemployment. However, the businesses weren't *trying* to go bankrupt, remember! There have always been business failures. (Look around! There still are!) How come it was so awful this time? Was there an epidemic which caused the business community to all become currupt, evil and fraudulent? Nope. Their problem was that the banks wouldn't give them extensions on their loans, or new loans, and worse were failing and calling in their loans. They had the same problem as everybody else in the depression. 3) The banking structure This is a valid complaint. However, it is interesting to note that the banking structure coped with depressions and runs on banks before the great depression -- so this cannot be the whole answer. 4) Unwise foreign lending and the creditor position of the US Well, this didn't help, but it sure as hell wasn't a cause. Remember that the US *caused* the world Depression, rather than received it from abroad. (Look at where the gold went during the early years of the depression -- but this in in my large article). 5) Poor state of economic intelligence. Pure Lie. Take a look at the reports that the New York State Bank (which, up until Strong had dies had bullied the Fed into doing what was necessary to deal with recessions were sending to the Fed. There had been depressions before. The bankers in New York knew damn well what to do. They even got Congress to do it -- but once it started to work Congress ajourned and the Fed ***STOPPED***. Why didn;t the Fed listen? Because it wanted to eradicate the memory and power of (Ben?) Strong, the Governor of the New York Bank who was acknowledged to have been a financial genius, and up until his death in 1928 had manage the whole financial community and had kept things going. With his death there was considerable effort made to make sure that New York was crushed and made subject to Federal power. This is documented in minutes of the meeting. The Fed really sat around and said ``hey, that's a good idea, but it came from New York so we read the longer article when it comes out...) Economist Charles P. Kindleberger in "The World Depression 1929-1939" says the depression was caused by the unwillingness of US policymakers to take responsibility for international financial stability and intervene. This is a very good description of why the depression got worse and worse rather than better and better. It should have been a 1year recession, but it wasn't. What it leaves out is that the Fed was being urged and urged and urged to intervene by the Governors of Banks all over (but especially New York, the financial capital). It also leaves out the fact that the Fed didn't actually do nothing, but actually persued policies guaranteed to make things *worse*. Remember, to decide to do nothing is also to decide. Neither state that government meddling was a cause of the depression. So - they are hardly the final authority. Do you want the names of world famous Economists who disagree? You can start with Milton Friedman, who has done a hell of a lot of research into the subject. Ah, "TANSTAAFL" I like Heinlein, and he is one of my favorite fiction writers. I even believe in "There ain't no such thing as a free lunch." The problem that Townsend was addressing was that there are people who believe in free lunches and accumulate wealth without having "earned it." As you say "Frogs don't fly" and when all the wealth goes into the hands of nonproducers and the producers can no longer do anything then there are problems. What Townsend was suggesting was a means of getting some of the wealth back into the hands of the producers. Unless this happens capitalism will break down. The wealth was not sitting in the hands of non-producers. The unemployed *were* *not* *producers*. This is precisely what it means to be unemployed!! What was needed was *more employment*. People over 60 are traditionally unemployed. Townsend was suggesting a way to get some wealth redistributed, but *not to producers*. Remember, it is the people over 60 he wants to receive this stuff. What is it with this rhetoric? You make it sound like ``capitalism fails when all the money goes from the (poor) producers to the (rich) non-producers and then the poor people starve.'' This isn't what happened in the Depression. The wealth didn't go to the rich, it just *went*. Kaput! Gone! Look at the GNP -- except for the event of robots which wasn't an issue in the 1920s and 1930s there is no way a nation can have most of its bank fail and 25% unemployment and still be wealthy. Nobody is producing any goods -- so where is the wealth? (To be fair, a lot of the wealth that went was illusory, but still, a lot of it *wasn't*.) Transferrring the money around will not save a system where you have 25% unemployment and a rash of bank failures. What you need it to get people to keep having confidence in the banks, and *keep from withdrawing their money* so that the banks, firstly would not close, and secondly could invest in new enterprises which would hire more people. You also talk a lot about inflation. The depression was not a period of inflation in the USA, but one of deflation. People just didn't have money. Yes. I never said that the Depression was a period of inflation, but that it was *caused by a period of inflation*. Depressions can be caused by a few other things, but inflation is a terrific one. The post WW1 inflationary period directly caused the depression that began, not in October 1929 with the stock market crash, but months before, in August 1929. (And yes, the boys in the Bank of New York were on the ball, and sending wonderful economic intelligence to the Fed.) If I look at Germany between the wars and Latin America and Israel today, I see the causes of inflation. Overwhelming deficits and huge defense outlays. It seems to me that if the USA wishes to prevent another round of inflation these are the two problems that should be attacked, not social security. The US's defense bill is a pittance compared to its Social Security bill (or the interest on the national debt, or the subsidies paid to farmers.) I would love to see the defence bill come down. What deficits are you talking about -- what is generally called ``an unfavourable balance of trade'' is quite often a very, very good thing. It is SS which is *COSTING THE MOST MONEY*. There are a lot of things which the US government can't afford. It has to stop *all of them*. Laura Creighton utzoo!laura Larry Welsch houxu!welsch