Since Yesterday

"Screw FDR, screw Hoover. They're all the same. I come home one day I'm standing in my living room, and between the mortgage and the market and the goddamn lawyer that was supposed to be working for me, it stopped being mine. It all stopped being mine. FDR hasn't given me my house back yet."
--Mike Wilson (Cinderella Man)

After the Fed's ill-conceived actions to achieve general price stability during the 1920s brought on the Great Depression, the correct response would have been to get out of the way and let prices fall to permit market excesses to clear.

Unfortunately that is not what occurred.

1934-S 50c PCGS MS66+ CAC

Many New Deal policies, initiated by the Hoover administration and then escalated by FDR, sought to maintain prices at artificially high levels. Wage rates, commodity prices, you name it. Programs came out of the woodwork to restrain market forces from taking prices where they needed to go: lower.

Paradoxically, many onlookers understood that these price stability policies were ill-conceived--even if these people were committed New Dealers. For example, Frederick Lewis Allen, a journalist who penned what in my view was an even-handed review of the 1920s, betrayed his neutrality with a sequel about the 1930s (Allen, 1939) that was clearly sympathetic toward the New Deal. Despite his bias, however, Allen did admit several times during the book that the interventionary policies did not seem to be working. Unusually high unemployment persisted. Private investment remained stubbornly low. Prosperity had not returned.

1937-S 50c PCGS MS66+ CAC

At one point, Allen explained the problem this way:

"Throughout the early years of the New Deal the levels of prices and wages and the structure of corporate and private debt were being artificially supported by government spending...If it had been possible for the law of supply and demand to work unhindered, prices and wages--and the volume of corporate and private debt--would theoretically have fallen to a 'natural' level and activity would have been resumed again. But it was not possible for the law of supply and demand to work unhindered. In a complex twentieth-century economy, deflation was too painful to be endured. Hoover had set up the RFC because banks couldn't take it; Roosevelt had set up the Federal relief systems because human beings couldn't take it." (223)

1939-S 50c PCGS MS67+ CAC

Near the end of his work, Allen pondered the economic malaise that endured into 1939:

"Must America at last be reconciled to the dictum that as its population growth slowed up it economic growth must slow up too? Must it accept either a continuance of this twilight prosperity, with the burden of carrying the unemployed becoming progressively greater, or else a grim deflation of prices and wages and debts till the labor surplus could be absorbed--a deflation which might be even less endurable than that of 1929-33? No one could relish either of those prospects." (334)

Allen and others knew what was needed. But they couldn't take the pain associated with letting markets clear.

That same pain avoidance policy--euphemistically labelled  price stability--endures Since Yesterday.

Reference

Allen, F.L. (1939). Since yesterday. New York: Harper & Row.