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- [00:02]
Annabe Sofa Advertiser
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- [01:01]
Oregon Home Care Jobs Advertiser
You can make a difference in someone's life, including your own with a job in home care. These jobs offer flexible schedules, health care, retirement options and free training. They also provide paid time off and opportunities for overtime. Visit oregonhomecarejobs.com to learn more and apply. That's oregonhomecarejobs.com.
- [01:30]
Ryan Seacrest
Hey, it's Ryan Seacrest for Albertsons and Safeway. It is hot out there this summer, right? But don't sweat it. We got tons of ways to save on your family's favorite personal care items to keep yourself feeling cool and smelling good. Now through September 9th, earn four times points when you shop for items from your favorite brands like Right Guard Raw, Sugar Free, Dove Soft Soap and Olay. Then use your points for discounts on groceries or gas on future purchases. Offer end September 9th. Restrictions apply. Offers may vary. Visit albertsons or safeway.com for more details.
- [02:03]
Gabriel Matthy
December 29, 1975 LaGuardia Airport the holiday rush.
- [02:10]
Narrator
Parents hauling luggage, kids gripping their new Christmas toys. Then everything changed.
- [02:17]
Law and Criminal Justice System Narrator / Eli Lilly Advertiser
There's been a bombing at the TWA terminal. Just a chaotic, chaotic scene.
- [02:22]
Narrator
In its wake, a new kind of enemy emerged. Terrorism. Listen to the new season of law and criminal justice System on the iHeartRadio app, Apple Podcasts or wherever you get your podcasts.
- [02:41]
Bob Crawford
You've reached American History Hotline. You ask the questions, what is political technology?
- [02:46]
Law and Criminal Justice System Narrator / Eli Lilly Advertiser
Did George Washington really cut down a cherry tree?
- [02:48]
Annabe Sofa Advertiser
Were JFK and Marilyn Monroe having an affair?
- [02:50]
Bob Crawford
We get the answers. I'm so gl glad you asked me this question.
- [02:53]
Annabe Sofa Advertiser
This is such a ridiculous story that.
- [02:55]
Narrator
We tell ourselves because we don't want to know the real story.
- [02:59]
Bob Crawford
Leave a message. Hey there, American History Hotliners. Your host, Bob Crawford here. Happy to be joining you again for another episode of American History Hotline. You're the ones with the questions. I'm a guy trying to get you some answers. And keep those questions coming, please. The best way to get us a question is to record a video or a voice memo on your phone and and email it to AmericanHistoryHotlinEmail.com that's AmericanHistoryHotlinEmail.com and remember, we are American History Hotline. I love talking about the Spanish Inquisition as much as the next guy or gal, but hey, let's talk about this continent. Okay? Today's question is about the Great Depression. Here to help me answer this question is Gabriel Matthy. He is an economic historian at American University with a special focus on studying the Great Depression. I think we found the right guest for today. Gabe, thanks for joining me.
- [04:03]
Gabriel Matthy
Thanks so much for the invitation. Looking forward to it.
- [04:06]
Bob Crawford
Okay, Gabe, here's the question we're hoping you could help us answer.
- [04:10]
Gabriel Matthy
Hi, this is Mackenzie from Santa Barbara.
- [04:13]
Annabe Sofa Advertiser
Hi.
- [04:13]
Gabriel Matthy
Why did the stock market crash in 1929, and is that what led to the Great Depression? Could that happen again?
- [04:20]
Bob Crawford
Now, Gabe, let's start by defining some terms. How is a depression different from a recession? We hear a lot about a recession these days. What's the difference between depression and recession?
- [04:33]
Gabriel Matthy
So that's a great question. I was just teaching that a few weeks ago in my macroeconomics class. So the Great Depression was named that because they had a long history of thinking about economic, economic downturns and calling them depressions. But they used to call any economic downturn a depression. The terminology of recession comes a bit later. So that's really going to date to the 20th century. So in the 1920s, by the end, the Great Depression is starting and people are comparing it to the other depression that they had in the 1870s after the Civil War. There's a whole decade where the economy is depressed. So in general today we call a depression as a kind of big recession. And so we talk about the Great recession starting around 2007, 2008 as great because it's a bad recession, but it's not on the order of a depression. So the terminology has changed a little bit. But in 1929, you would have used depression just like you used recession.
- [05:36]
Bob Crawford
So when I study 19th century American history, I read about panics, right? The panic of 1836, 1837, 38, and there's another one in 39. So are panics, essentially, depressions. How do we compare those for those of us who love history and go back?
- [05:58]
Gabriel Matthy
So that's a great question too. So the 19th century through the Great Depression is really going to see a lot of financial panics and other financial crises that are usually the trigger for economic downturns, what we might call recessions today. So in general, those are almost going to be the same thing, because almost every recession in the 19th century is going to correspond to a financial panic of some kind, where you see bank runs, people taking their money out of the bank, some banks failing, and so on and so forth. So in general, those are really closely linked. After the Great Depression, then we're going to have a period where there's almost no financial panics that are corresponding to big recessions until we get to 2007. So that's why people really started looking at the Great Depression around 2007, 2008, because we had a kind of old fashioned recession that really corresponded to these financial crises. Whereas after World War II, recessions really had other causes.
- [06:59]
Bob Crawford
Let's talk about the causes of the Great Depression and I want to start in the 1920s. This is the period after World War I. What was happening in terms of global cooperation at this time?
- [07:13]
Gabriel Matthy
So that's also a really great question. The roots of the Great Depression, of course, lie in the 1920s and the post World War I period. And so we really want to look internationally. So after World War I, the big financial hegemon or economic hegemon in the United Kingdom has really been worn out by World War I. And so now the US is really the leading player in the world. But the thing is, after World War I, Americans thought that entering in the war was largely a mistake, that it had been costly. The view And World War I is very different than World War II. And so Americans really thought that was a mistake and that the US should look more domestically rather than abroad. So the US Is kind of the leading nation in the world, but it's not willing to really engage with the world to the same degree. The US Wants to make sure that the war doesn't come back, but they're not really interested in making sure that the global system functions in the same way that the UK did, where they were really economically integrated globally. They had a global empire and they're a small island that needs to trade, so they really need to be engaged internationally, whereas the US has two oceans that separate it from most of the major countries. And so then the US Wanted to retreat more domestically. And so it wasn't willing to cooperate to the same degree to make the international system worsen. And so one aspect of the Great Depression is really the international aspect that you're seeing the end of the gold standard. So the gold standard really worked well before World War. It really created a lot of globalization and integration after World War I. Then countries try to go back on the gold standard, but it doesn't work. And so while the US has economic boom in the 1920s, the United Kingdom actually sees economic weakness throughout the 1920s, even before the Great Depression. And so the problems with the global economic system after the 1920s really lay the foundation for the Great Depression that starts in 1929.
- [09:12]
Bob Crawford
Yet for a minute, when you were talking about America not wanting to cooperate with the rest of the world and separated by two oceans, and I had a moment where I thought we were talking about, like, 2025.
- [09:28]
Gabriel Matthy
Yes. I mean, there are definitely similarities in terms of the US Wanting to sort of retreat, retreat inward, though, you know, World War I really is very costly for the U.S. right. There's very little upside to entering the war directly. Whereas we didn't really have the same kind of trigger for why the US Was retreating inward in the last few years. The US Hegemony over the globe in terms of global leadership of the economic system was working well in a lot of ways. There obviously were some cost to that, but there was no clear crisis that needed a big change, in my opinion. Whereas after World War I, the world system really is broken.
- [10:07]
Bob Crawford
So let me snap people's heads back to the Roaring Twenties, the 1920s, which we called the Roaring Twenties. Were there factors that caused the boom, like what caused the Roaring Twenties, that ultimately caused the bust.
- [10:21]
Gabriel Matthy
So the US Has a Roaring Twenties, but many countries in Europe are not doing so well. So the US Is going to be a major exporter during the First World War. All the major European economies are going to be focused on the war. So a lot of their agricultural production falls in France. There's just a lot of land that's behind the trenches. And even in the UK they're devoting all their manpower to the war, so they're not able to produce as much agricultural production. So the US Is exporting lots of agricultural products to Europe. And of course, US Manufacturing is really the world leader at that point. So the US Is exporting lots and lots of products to Europe, and so the U.S. is booming. The European countries, though, after World War I, they see a lot of inflation. So given that they're on the gold standard, countries like The UK Are going to go back to the old exchange rate before World War I. And so there's a big discussion between Keynes, the famous economist, and Churchill, who at that point is the Treasury Secretary of the uk The Chancellor of the Exchequer. He's not Prime Minister yet. So Keynes says going back to the old exchange rate is a mistake. Churchill wants to go back to the old exchange rate. But given that the UK has had so much inflation, then all their products are uncompetitive. It's much more expensive to buy British products because you're essentially having the same exchange rate with the dollar, but British prices are much higher. So that that really causes the British to be uncompetitive. And so the US can export lots of goods to Western Europe because given that they went back on the gold standard, then their products are going to be uncompetitive. So it's going to be very good for the U.S. but then the major economies in Europe are going to be suffering because they've got this deluge of American products. So it's again, with analogy to today, the US Is running big trade pluses back then, whereas now it's running big trade deficits.
- [12:15]
Bob Crawford
This is American History Hotline. I'm your host, Bob Crawford. Today my guest is Gabriel Matthy. He's a professor of economics at American University with a specialty in the Great Depression. We're talking about the 1929 stock market crash and the depression that followed. So October 28, 1929, it's come to be known as Black Monday. The Dow Jones average declined nearly 13% in one day. Within three years, at the peak of the financial crisis, the nation's public companies had lost nearly 90% of their value. So let's take each of those. Okay. What would it be like if tomorrow the dow Jones declined 13% in one day? What would that. That trigger?
- [13:08]
Gabriel Matthy
Yes, I mean, this is one of the biggest crashes of U.S. history. But we've had other economic crashes. There was one big one in 1987 that doesn't correspond to a recession. And we had them in 2008, which obviously were part of that financial crisis. But what makes 1929 different is that it's sort of the start of the stock market falling a lot. So there's kind of a recovery. It looks like maybe things will turn around in 1930. So people with the benefit of hinds. We think it's obvious in 29 that it's going to keep going. The economy will keep shrinking till 33. At the time, they thought it would be like those Panics you talked about in the late 19th century, you have a financial crisis, the economy goes down, banks fail. But then what usually happened back then is, remember, the British were really the leading economic player and there's this global gold standard. So if you've got a financial panic, your interest rates skyrocket, everybody wants cash, but then money comes in from abroad because you've got this global gold standard. And so what's different in 29 is that nobody has any gold because of all the disruptions of World War I. And the US is the leading player. So there's no big UK market to bring in gold to reset things. And so people think it's going to be like a 19th century crisis, that things will get better by 1930, and they keep getting worse and worse and worse. So you talked about the 90% decline. If you bought at the peak in 20, it takes you until 1954 to get your money back.
- [14:41]
Bob Crawford
Oh, my gosh.
- [14:42]
Gabriel Matthy
And if you bought Manhattan real estate at the peak, some estimates. One paper I read said it takes till the 70s to make your money back.
- [14:50]
Bob Crawford
Oh, my. So anybody who has a financial advisor, who's talked, spoken with a financial advisor, if times get rough, they send you this historical data, you know, that say they hang in there, just stay in the market, stay in the market for the people who stayed in the market on October 28, 1929, you're telling me that they weren't made whole until 1954 if they stayed in the market.
- [15:16]
Gabriel Matthy
So, you know, you would get dividends. But in terms of the price recovering to that level, it took you a quarter of a century. So all those kind of historical data, you know, our data is not as good in the Great Depression. So a lot of times our data series will only go back to the 70s or the 50s. So we had that, you know, with the housing bubble and bust in the mid-2000s, people said housing prices never go down. Well, they only had data back to the 50s, which is, you know, relatively stable period. If you look historically, of course, if you look to the Great Depression, housing prices get clobbered. And so it really depends how long back you're looking. Whether you think like the questioner asked, can the Great Depression happen again or not? And so I think the financial advisors are kind of assuming that we're in a world where the Great Depression can't happen. If it can, then you do face these tail risks. There's a small probability that you just get wiped out.
- [16:11]
Bob Crawford
Okay, so let's get back to October 28, 1929 and the years that followed. How did those massive losses on Wall street impact Main street in America?
- [16:23]
Gabriel Matthy
Yeah, so one feature of the 1920s is that you started to get more broad based stock ownership. So stock market is really cooking throughout the 1920s. And you have one feature that's different than today because remember, you have countries going back on the gold standard and you don't have the same kind of regulatory system where you try to buy stocks abroad. You have to comply with local regulation. Some countries have capital controls where it's hard to move money in and out, like China and India. So at the time we have the gold standard and it's a fairly laissez faire system. So if you're in Belgium or the Netherlands or Switzerland or the UK or other countries like that, even the Philippines or South Africa, if you buy stocks in the U.S. well, everybody's got fixed exchange rates on the gold standard, so you don't face any exchange rate risk. So buying a stock in New York is the same as buying a stock in, in Brussels or London in terms of your exchange rate risk. So that means you're getting lots of inflows from other countries. Remember, the European economies are not doing well, so everybody's buying US stocks across the globe. So you know, given the regulatory barriers that kind of developed over time, not saying they're bad, but that's going to really slow down the amount of international investment. So the US economy is really benefiting from both Americans, but also foreigners buying stocks because US economy is doing so well in the 20s.
- [17:45]
Bob Crawford
Help me understand the Federal Reserve. What was it doing at this time and why was it unable to stop the Depression?
- [17:52]
Gabriel Matthy
Yeah, so the Federal Reserve is a central actor, of course, but I think perhaps we focused a bit too much on it, given those international aspects I like to focus on. But the Fed is set up very differently back then. So it's set up in the wake of the 1907 panic, which is one of these. It's in the 20th century, but it follows that kind of 19th century pattern of a very, of a financial panic in New York that then causes a brief recession, but a sharp one. So then the US had seen all these late 19th century crises and the US says we need to change things, we've got to do something different. Lots of countries are getting central banks. Even Canada doesn't have a central bank, but their system has almost no panics. So they just have a very different banking system. So we've got to do something different. So eventually that leads to the creation of The Fed. And the Fed is meant to alleviate those kind of panics like you talked about, where everybody's scrambling for cash and so people are withdrawing money from banks and so on. So the Fed will essentially do something called rediscounting. So if a bank made a loan, then the Fed will lend money to the bank. So now the bank is liquid again. So that is going to help provide for when you have these liquidity squeezes during the panics. The issue with the depression is that, well, the economy starts doing really badly, so nobody's borrowing, so interest rates are low. So the Fed says, look, our mandate is to deal with these late 19th century crises. When interest rates spike in the panic, we're seeing low interest rates. So everybody can access money. If you want to borrow, you can borrow at low interest rates. So that was one reason why they didn't really intervene to try to stop the panic. They also don't have the same mandate like they do today to really deal with financial crises. They were just meant to deal with these liquidity squeezes that would arise in the late 19th century. So in the wake of the depression, then the Federal Reserve has given a much bigger mandate to try to deal with economic crises. That's one reason why we haven't seen a Great Depression since then, because the Fed now has a lot more tools and a lot more authority to try to, to intervene in the economy to try to deal with these kind of crises. So if you look at the 2008 crisis, arguably the initial shock is bigger than in 29. But because the Fed responds much more aggressively, you don't see as deep of a downturn.
- [20:16]
Bob Crawford
I'm curious, do we know what interest rates were before the crash and after?
- [20:24]
Gabriel Matthy
Yeah, so you can look at the Federal Reserve discount rate, which is the interest rate that banks can borrow from. The Fed had been tightening monetary policy. It was raising interest rates because of the stock market boom. So like we said, there's a already the economy is seeing a downturn by the summer, even before October 1929. And so that's because the stock market is really booming after, after 27, 28. Arguably it's in a bubble where stock prices are just shooting to the moon. And so the Fed is worried about this. And so they start to try to raise interest rates to try to cool down the bubble, because back then there's no regulation on margin lending. So you can borrow from the bank overnight to try to buy stocks. So then if you have a hundred dollars, rather than buying a hundred dollars in stock, you can use your hundred dollars as collateral and borrow $900. Now you've got a thousand dollars to invest in the stock market. And so because of that, that's going to market up because you're able to borrow very easily to invest in stock. So after the Great Depression, then there's very tight regulations on margin lending. So that way you can't borrow as much money because the margin lending is going to feed the bubble on the way up. But then what happens once stock prices start going down in October 29th? Well then the bank says, okay, you're underwater, you need to sell your stocks because we don't want to take bigger losses. So you concentrate the buying on the way up and then you concentrate the selling. So then everybody's selling at the same time, the prices go down further. More people are underwater on their loans, there's more selling and so on. And so that really drives the bubble up and drives the bubble down. The Fed is trying to raise interest rates to try to deal with the bubble. But the thing is, if you're expecting 10 or 20% gains on the stock market, if the the cost of you your borrowing goes up 1 or 2%, it's not really going to deter you. Whereas if a solid business that's not speculative sees 1 or 2% or 3% higher borrowing costs, that might make the difference between investing or not. So that rate policy is going to start to slow down investment and harm the economy while not really deterring the speculators.
- [22:29]
Bob Crawford
On Wall street, people stay on the sidelines, right?
- [22:32]
Annabe Sofa Advertiser
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- [23:34]
Oregon Home Care Jobs Advertiser
You can make a difference in someone's life, including your own. With a job in home care. These jobs offer flexible schedules, health care, retirement options and free training. They also provide paid time off and opportunities for overtime. Visit oregonhomecarejobs.com to learn more and apply. That's oregonhomecarejobs.com.
- [24:03]
Ryan Seacrest
Hey, it's Ryan Seacrest for Albertsons and Safeway. Feel good and look good this summer with savings on your personal care favorites and earn four times points. Points now through September 9th. Shop in store or online for items like Dollar Shave Club razors, Hydro Silk razors and Edge Shave Gel. Plus some favorite brands like Tampax, Pearl, Depend and Poise to earn four Times points to use for later discounts on groceries or gas. Hurry in before these deals are gone. Offer end September 9th. Restrictions apply. Offers may vary. Visit albertsons or safeway.com for more details.
- [24:37]
Gabriel Matthy
December 29th, 1975 LaGuardia Airport.
- [24:42]
Narrator
The holiday rush. Parents hauling luggage, kids gripping their new Christmas toys. Then at 6:33pm everything changed.
- [24:54]
Law and Criminal Justice System Narrator / Eli Lilly Advertiser
There's been a bombing at the TWA terminal.
- [24:57]
Gabriel Matthy
Apparently the explosion actually impelled metal glass.
- [25:02]
Law and Criminal Justice System Narrator / Eli Lilly Advertiser
The injured were being loaded into ambulances. Just a chaotic, chaotic in its wake.
- [25:08]
Narrator
A new kind of enemy emerged. And it was here to stay. Terrorism, law and criminal justice system is back. In season two, we're turning our focus to a threat that hides in plain sight that's harder to predict and even harder to stop. Listen to the new season of law and criminal justice System on the iHeartRadio app, Apple Podcasts or wherever you get your podcasts.
- [25:44]
Bob Crawford
This is American History Hotline. I'm your host, Bob Crawford. Today my guest is Gabriel Matthy. He's an economic historian at American University. We're talking about the perfect storm that created the Great Depression nearly 100 years ago. And remember, send us your burning questions about American history. You can record yourself using the voice memo app on your phone or take a video and email it to AmericanHistoryHotlinemail.com that's AmericanHistoryHotlinemail.com now back to the show. Smoot Hawley. This is a phrase coming up in a lot of conversations these past few weeks and months.
- [26:28]
Gabriel Matthy
Months.
- [26:29]
Bob Crawford
Let's talk about Smoot Hawley. What is it?
- [26:33]
Gabriel Matthy
All right, so Smoot Hawley refers to big tariff bill passed by Congress in 1930. So if I could, I'd like to back up a little bit about the kind of political economy of tariffs. In the 19th century when the US or maybe even the 18th when the US is set up, the federal government's given very little power under the Constitution to impose taxes. So one tax authority it has is tariffs. And so that's going to fund most of the federal government.
- [27:00]
Bob Crawford
Wait, I'm sorry, did you say that Congress has the power?
- [27:04]
Gabriel Matthy
Yes. You might not know it recently, but back then it's supposed to be Congress having power. So after actually the back jumping back after 1930, the Republicans are in control, as they had been basically unbroken since the Civil War, more or less, they were the dominant party. Then in 1932, the Democrats come in in a wave election because of the Great Depression. People are dissatisfied. But the Democrats, their economic basis, farmers, they export agricultural products. So they don't like tariffs because they need to pay the import tariffs. And then they're going to face retaliation in foreign markets. So the Democratic Party then under FDR starts lowering tariffs after Smoot Hawley. And so then Congress tries to give the President more leeway to try to pass these tariffs. Since Congress, you know, there's always some districts that are going to be hurt by tariff reductions. So they try to give the President more power to negotiate tariff reductions in the wake of Smoot Hawley. And so that power continues to be concentrated in the President, even though that's not how the Constitution set things up, that Congress was supposed to pass tariffs. And so then it's reached its kind of apex today where essentially the President has unchecked power effectively to set tariffs despite the law. But at the, in the 1930, the president didn't have that power, but it was passed by Congress, though Hoover at the time supported it. The Republicans were the party of kind of the north and manufacturing. And so they were facing competition from foreign producers of manufactured goods, especially the UK which was the leading manufacturing country from the start of the Industrial Revolution till about the late 19th century. So the Republicans, with their base in the north and manufacturing, wanted to have a high tariff wall to try to develop our own manufacturing. So that continues through 1930. And so the US is going to set up very high tariff barriers in 1930. They had been higher in the 1890s.
- [29:03]
Bob Crawford
And correct me if I'm wrong, that was 16%.
- [29:07]
Gabriel Matthy
That's kind of average. The thing with calculating tariffs is the easy way is to kind of look at the taxes paid at the port and then divide it by the value of the goods. And so you can get an average that way. The thing is, if you've got a really high tariff, like was proposed for China recently in 5%. Exactly right. Triple digits. I mean, nobody's really going to trade except if it's something essential. So then you're not going to measure that because there won't be any imports. So you won't measure that very high level. You'll measure the very low level of things which are traded. But 16, 17% is probably about right.
- [29:46]
Bob Crawford
And so what was the impact of Smoot Hawley of those tariffs?
- [29:50]
Gabriel Matthy
Right. So it's going to set off kind of global retaliation. It's really harmful for Canada. Like the tariffs are today. Canada very, very economically integrated with the U.S. not only is it neighboring the U.S. but almost all the economic activity in the population is really close to the U.S. border. And so you get a massive retaliation. It's part of what I talked about earlier in terms of American hegemony, that the US Rather than trying to have a global trading system that works, now is active in breaking down the trading system. So there we could see an analogy to today. And the key difference there is that that the world is on a gold standard. So if you're on a gold standard, you need to have enough gold, but you pay for imports with gold. If you're running low on your gold reserves, if gold is leaving your country, then tariffs can help because you're going to discourage imports. And so then you're not going to lose as much gold. So what the US should have done, the US Had a lot of gold. The countries in Western Europe, as we said, they're uncompetitive. They can't export and get more gold because their prices are elevated after the inflation in World War I. So the US really should have left, let gold flow abroad. Instead, it puts on these Bootholi tariffs, which worsens the economic crisis internationally. So then 1931, you see a wave of panics across the major economies of Europe, countries like Austria and Germany. And 1931, then the year after, Smoot Hawley really sees perhaps the worst year macroeconomically of the 20th century.
- [31:22]
Bob Crawford
So explain it to me like, I just don't know anything. A +B +C +D = the greatest depression.
- [31:30]
Gabriel Matthy
Well, I would love to give you that, but the Great Depression, really, like I said, you want to think about it in terms of multiple punches. Also, really, you have different macroeconomic schools of thought. You've got Keynesian, you've got Milton Friedman style monetarists, you've got Austrian economists like Friedrich Hayek. Marxists have their own view on the depression, that it's kind of the last crisis of capitalism. At the time, that's what it was looking like because the USSR is seeing its economy really boom. It's economically connected. So each different school of thought has got its own views. There's also kind of under consumptionists, the view that inequality had gotten too high. You actually have American economists, Foster and Ketchings talking about that economic inequality in the 20s got too high, so then middle class people couldn't buy enough products, which led to the Great Depression. And actually Herbert Hoover really liked this theory a lot, though he didn't really do much to deal with the kind of root causes in that theory of inequality. But it's really hard to give a pat answer. But if I had to, I would say the flaws in the gold standard are really at the cause. If you look at the recovery, the faster countries leave the gold standard that really corresponds to their recovery. Because the gold standard is really golden handcuffs. It really constrains your policies. You can't really cut interest rates because then people are going to bring gold out of your country to go to high interest rate countries. So in terms of dealing with the crisis, then you have to keep really high, high interest rates to try to attract gold, which kills your economy. You also want to be able to depreciate your exchange rate to try to export more. So that's what the US does in 1933 when it leaves the gold standard under the FDR administration and the Democratic Congress. And so it's really the flaws in the gold standard that caused the Depression. And so as countries leave the gold standard, you can see that their recoveries start. And so it's unfortunate that at the time we're getting closer to World War II. And so unfortunately, the fascist powers like Japan and Germany are going to leave the gold standard early. They're going to see really rapid growth because they've got big fiscal stimulus from all their spending on weapons which they're going to use to invade the world. And then a lot of the liberal democracies like France are going to stay on the gold standard. Their economies stay weak. And then of course, France is defeated in 1940. So unfortunately, because a lot of the liberal democracies stayed with the gold standard, they had weaker economies. Luckily, the US leaves the gold standard in 33, the UK leaves in 31. And so they're able to recover a bit before World War II. But really the gold standard is the culprit.
- [34:05]
Bob Crawford
What has the government done in the intervening years to make sure this does not happen again?
- [34:11]
Gabriel Matthy
Well, there's been a lot of things done, of course, you know, there's, there's lots of discussion about that. There's a famous book by the economist Hyman Minsky can it happen again where it is? The Great Depression? You know, for one thing, we don't have the gold standard and I would advise not to bring it back. Those kind of arrangements are really.
- [34:28]
Bob Crawford
Do people talk about that? Is that, is that on the table?
- [34:31]
Gabriel Matthy
You know, we could talk about the modern time too. But you know, I think some of the crypto enthusiasts see cryptocurrencies as the new gold. And there's always been a strain of thought in Austrian economics that the gold standard is beneficial. There was a commission during the Reagan administration to talk about going back to the gold standard. But you know, the issues with the gold standard are that they really constrain policymakers in dealing with these crises. In many ways, the euro, the European currency or arrangement, the handcuffs are even tighter in some ways because if you're the US dollar on the gold standard, you can just say, well, now it's more dollars per gold and that's going to help our exports. So you don't need to reintroduce a new currency if you're on the euro. If you're Greece and you want to try to depreciate your currency to try to export more and stimulate the economy, well now you need to reintroduce the drachma, the Greek money, and that's a lot harder. And we saw that Greece did see essentially a Great Depression event. And actually their unemployment took longer to fall than the US did during the Great Depression. So in some ways the Eurozone was even worse than the gold standard. Not to say that there's not benefits, but in terms of dealing with crises, the Eurozone provides governments with fewer options than the gold standard did in the 1920s and 30s.
- [35:51]
Bob Crawford
When did. I mean, I was born in 1971. I've always known the term Great Depression. When did Great Depression come into to our parlance?
- [36:00]
Gabriel Matthy
That's a good question. You can start to see it soon after. I mean, there are people talking about the 1870s, so in the 1930s they just call it the 70s because there were no 1970s yet. But I think it's roughly contemporaneous. I didn't quite note exactly if I saw it in kind of newspaper articles, but I think it's really thinking about this crisis is worse than the 1870s, which is sort of our benchmark for a really bad depression. And so this one is actually greater because it's unambiguous that the 1930s is a worse crisis than the 1870s, which is actually also a global economic crisis, that you see crises in Western Europe Too.
- [36:40]
Bob Crawford
Sitting here listening to all this, I can't help but imagine that our listeners are drawing the same parallels I am to today. Are economists concerned a depression could happen again?
- [36:54]
Gabriel Matthy
In general, there was a lot of talk in 2008. I mean that was genuinely a huge economic crisis crisis. People thought a lot about 1907 in terms of having another crisis with a financial panic and a recession in the wake of the Great Depression. You asked earlier about what was done by policymakers. There's basically a kind of laissez faire system, very loose regulation in the Depression, things like margin borrowing. So that's really tightly regulated by the New Deal. So they put in place a lot of regulations to lock down the system. You could think about the pros and cons of that. But it definitely is going to avoid any kind of financial crises because there's just not much you can do. Think about a Mad Men world of the 1950s. You can't buy options on Robinhood, can't buy cryptocurrency. Your options are basically a checking account which doesn't give you interest and a savings account. There's not even money market funds. So there's just really not very many shenanigans you can get into. The Wall street is very inaccessible. You need a broker who's part of some New England WASP family that's inherited the seat on the board and so on. So it's a lot harder to get access to things like even stock owners ownership. And so because you have this really tightly regulated financial system, then you don't get financial crises. So the recessions after World War II are really not going to have the same kind of financial panic aspect. But then by the 80s and 90s, we're starting to deregulate. American policymakers say we regulated too much. It created inefficiencies in our economy. We need to let the financial sector have more rain to provide funds to businesses to invest and so on. We want to let people buy stocks, have more access to different assets. And so then the possibility of some kind of big financial panic really reasserted itself, especially in 2008. But I think given that we have the Federal Reserve and other central banks, we don't have the gold standard. So I think the prospects for another Great Depression are pretty remote. Even the prospects of a global economic shock, like the kind of high tide of Trump's reciprocal tariffs, well, that's really self inflicted. So then, you know, as, as the Trump administration sees the cost starting to develop, that people are forecasting recessions and so on the administration can reverse its the financial panics are not self inflicted so the politicians can't just reverse themselves. So I think that for that reason, you know, it would never get as bad because eventually there'll be an election if it's a self inflicted crisis like from the tariffs. And so I don't see it being as bad as it as it was. But you know, you never say never. There's always that possibility lurking out there, the kind of comet hitting the dinosaurs.
- [39:31]
Bob Crawford
I've been talking with Gabriel Matthy. He is an economic historian at American University University. He specializes in studying the Great Depression. Thank you Gabriel for joining us today on American History Hotline. We hope we can call on you again.
- [39:46]
Gabriel Matthy
Thanks. I would love to. I've got an interest in Huey Long. So if you ever get any questions on Huey Long, I've got my own theory on his assassination.
- [39:53]
Bob Crawford
Oh my gosh.
- [39:53]
Gabriel Matthy
Happy to riff with you for another hour.
- [39:55]
Bob Crawford
I would love to talk about Huey Long. All right, thanks so much.
- [39:58]
Gabriel Matthy
Thank you.
- [40:01]
Bob Crawford
You've been listening to American History Hotline, a production of iHeart podcasts and Scratch Track Productions. The show's executive producer is James Morrison. Our executive producers from Iheart are Jordan Runtal and Jason English. Original music composed by me, Bob Crawford. Please keep in touch. Our email is americanhistoryhotlinemail.com if you like the show, please please tell your friends and leave us a review in Apple Podcasts. I'm your host, Bob Crawford. Feel free to hit me up on social media to ask a history question or to let me know what you think of the show. You can find me at bobcrawford Bass, thanks so much for listening. See you next week.
- [40:58]
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Gabriel Matthy
Talk about stepping up.
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