Actually wasn't the secretary of Treasury and a bunch of other top officials yelling, "Liquidate the debts, liquidate the banks, liquidate the farmers, liquidate the mortgages, liquidate, liquidate, liquidate!" about 1930? Guess it's somewhere in Galbraith's book. Think I'll try running "Lquidate, liquidate,liquidate" in Google . . .
Well, here's Peter Bernstein in an interview--not the original quote, but a good summary of what I take to be Austrian economics applied practically:
That's real, but it's not really real about 1929. The crash
itself in 1929 was on the order of 20-25 percent, which
when they used to be bear markets, not like today, 20-25
percent was a normal bear market. So it was bad and it was
painful and those few days were real panics. But then things
quieted down and 1930 was kind of a spooky year. I've always
thought it was a year that deserved more research and attention,
because the market rallied back. It didn't get back to 360 on the
Dow, which had been the 1929 high, but it rallied back in the
spring and there was a sense that maybe the worst was over and
everything was going to be all right. Business activity was getting
weaker. There was a genuine recession going on, again, nothing
bad, kind of conventional, but the business activity was getting
weaker. But at the end of 1930, a bank called Bank of United
States, not "Bank of the United" -- Bank of United States, a
small bank that was really what we called an uptown bank, but
had recently opened a Wall Street address, that bank had a run,
failed. And, there was some sense that the other banks should
have gotten together to support it, but they didn't. This was a
bank with Jewish ownership and largely Jewish customers. So a
lot of small people. And so when the Bank of United States
failed, not only was it a New York City bank, but it was a bank
of the United States, it triggered more runs. And then the banking
system began to go down and the bankers were already very
scared because they'd lost a lot of money on the broker's loans
when prices went down so fast, that they couldn't get back what
they had lent. And so following that, raw material prices were
falling, as happens in a business recession, but, business in
Europe was also slow. So price of copper and wheat and that
kind of thing were beginning to go down. So the banks were very
scared anyway and when the runs began to hit the banks, which
is really the story of 1931, that's when people really were getting
into trouble. And business firms couldn't refinance their own
loans and there was just a kind of a general wave to
liquidate-liquidate-liquidate-liquidate. And that's when people
really got frightened. And when people couldn't renew their
mortgages -- in those days a home mortgage was not an
amortizing mortgage the way it is now, where you pay a little bit
off every month. It all came due on a date and you either had to
refinance it or find the money or your house would get sold. And
the banks didn't want to refinance the mortgages at the old rates.
People couldn't find the money to pay down their loans. And so
all of that was added to the general desperation. The
government, in its wisdom -- this was not a Republican, a
parochial Republican view; the Democrats agreed, that the deficit
that was created -- the budget deficit was created because tax
revenues we're falling, was terrible. That was only gonna make
things worse. And so in 1931, income taxes were raised and then
in 1931, tariffs were raised. All the wrong things, in retrospect.
And there was concern that the dollar would be weak because
money would leave the United States and so the Fed Reserve
raised interest rates. Everything was done to make it worse |
