Dear Dr. A,
I would like to take issue with a couple of the things you posted, which doesn't necessarily mean I agree with the rest of it. -g- Your statement that prices were stable in the 1920's is inaccurate. You're looking at the CPI - you need to look at commodity prices, especially agricultural prices.
Right after World War I there was a speculative bubble in farm land prices, fueled by a skyrocketing price for agricultural products, due to demand in Europe. Remember that Hoover was asked by Wilson to become Farm Administrator during the war, and after the war he directed the American Relief Administration which fed 350 million people in 21 countries in the aftermath of the war.
If you look at a chart of world commodity prices you can see the spike, it's incredible. According to Wilhelm Abel, who compared the price of grain to the price of silver from 1201 to 1960, the price of 100 kgm of grain went from a little more than 50 grams of pure silver to about 225 and back down again in the space of about 4 years.
All over rural America, doctors, lawyers, ministers, and other non-farmer types were driving around the countryside buying up farm land in a speculative frenzy. The price of an acre went from $100 to $400. When the price of grain plummeted, the inevitable defaults began. During the two year period 1931-1932, about 25% of farm land was lost in foreclosures, which led to the collapse of small rural banks.
But the slump in agriculture began in the mid-1920's, due, in part, to overproduction, and in part to mechanization, and in part to higher labor costs. Coolidge vetoed a Farm Relief bill in 1926 and 1927. Hoover ran on a platform which included farm relief, and called a special session of Congress immediately after he was inaugurated to enact a Farm Relief bill in 1928. The main purpose was to buy up wheat and hold it until the price stabilized. Before that farmers tried to set up wheat pools to keep wheat off the market until the prices went up, but they all wound up going bust.
This isn't trivial - 50% of the country either lived on farms or in small rural communities. Wheat had been one of our most important exports.
With respect to whether or not the Fed instituted a tight money policy in 1929 - 1930 - take a look at the rate of bank clearings.
nber.org
I don't have the software to read the file so I printed it out and wrote the month and year in the margin. In millions - and I'll just pick out some highlights.
01/29 2126.00
02/29 1951.00
03/29 2034.00
04/29 1838.00
05/29 1834.00
06/29 1799.00
07/29 1987.00
08/29 1938.00
09/29 1971.00
10/29 2518.00
11/29 2172.00
12/29 1719.00
01/20 1629.00
02/30 1484.00
03/30 1648.00
04/30 1690.00
05/20 1469.00
06/30 1653.00
07/30 1513.00
08/30 1251.00
09/30 1344.00
10/30 1472.00
11/30 1205.00
12/30 1370.00
01/30 1629.00
01/31 1279.00
01/32 853.00
03/33 531.00 (that's the trough)
Where did the money go? If it all vanished in a puff of smoke in the Great Crash, then why did bank clearances slowly decline? |
