WHERE DID THE MONEY GO?
I think that in Chapter V from Alvin H. Hansen's Economic Stablization in an Unbalanced World (1932) Hansen put his finger on what triggered the Great Depression, so I am going to post the whole chapter here. From what I've gleaned on the Net, Dr. Hansen at that time taught political economy at the University of Wisconsin, and appears to have been a classical economist at the time. Later he taught at Harvard, became a Keynsian, a New Dealer, and was appointed to the Federal Reserve Board by FDR. But that's ok, he wrote this before he "converted", and the best part of this chapter comes from our old friend Benjamin Anderson.
>>THE TARIFF, CAPITAL MOVEMENTS, AND THE MALDISTRIBUTION OF GOLD
Conflicting American Policies. In the preceding chapter we have presented a brief survey of the historical development of capital exports and the more general economic consequences that have followed therefrom. In the present chapter we shall discuss the peculiar international financial tension that has developed during the last decade, particularly as a result of the gigantic sums owing to the United States on the one side, and the American tariff policy on the other.
We have noted that American private investments abroad amount to about $15,200,000,000. If we add to that the present value of the war-debt annuities (about $7,700,000,000) we get a total capital sum of $23,000,000,000* which foreign nations and foreign citizens owe either to private American investors or to the United States Government. The annual sum flowing to the United States from these two sources amounts to about$1,380,000,000.
This annual sum, constantly increasing, can be paid, as every student in elementary economics learns, in one of three ways:(1) by shipments of gold; (2) by selling us goods and services;(3) by selling us securities. All three methods have in fact been used. The first method, however, has intensified the maldistribution of the world's gold; the second has been made difficult by the American tariff policy; the third indeed lessened the tension up to 1929, but the present and prospective financial status of foreign governments, the political unrest, and world-wide depression do not give any confidence that for some years to come foreign Securities can or will be sold in the United States in sufficient volume to afford adequate relief. Thus a strain of increasing intensity has developed that is partly responsible for the breakdown of the world economic structure in 1929-30 and which threatens the continued prosperity not only of the United States but of the whole world.
Dr. B. M. Anderson, Jr., of the Chase National Bank, describes the tension strikingly as follows:
"I like to use a homely figure of speech in describing our foreign investment and trade policy situation. The debts of the outside world to us are ropes about their necks, by means of which we pull them toward us. Our trade restrictions are pitchforks pressed against their bodies, by means of which we hold them off. This situation can obviously involve a very painful strain for the foreign debtor. But for the period from the middle of 1924 to the middle of 1928, we steadily eased the strain by feeding out more rope. Then, in the second half of 1928, what rope we did feed out we fed out painfully and slowly. We ceased to lend very much to the outside world. "<<
Continued next post . . . .
[* Question by CB - where did all that money come from? US GDP was around $100 billion/year at that time.] |
