"The Great Depression: A Diary"

Discussion in 'Economics' started by makloda, Oct 18, 2009.

  1. This sounds like a great read. Note the constant inflation fear mongering and the "worst is over" analysis by the experts back then.

    This will go in my next Amazon.com order:


    In January 1931, a lawyer named Benjamin Roth, 38 years old, solidly Republican, a solo practitioner in Youngstown, Ohio, decided to start a diary. Realizing that he was “living through an historic thing that will long be remembered” — as he put it in one early entry — he wanted to keep a record for posterity.

    Mr. Roth’s diaries have just been published in book form — “The Great Depression: A Diary” — edited by his son Daniel, who worked in his father’s law practice for many years, and James Ledbetter, the editor of The Big Money, a financial site run by Slate. It is an eye-opening read, though not necessarily in the ways you might think.

    Because it was written in the 1930s, Mr. Roth’s diary is not the kind of tell-all we’ve come to expect in this less restrained age. Although he mentions repeatedly the struggles of lawyers and other “professional men” during the depression — Mr. Roth always uses the lower-case “d” — he never shares how his family struggled through it, or how he was able to send his daughter to college in 1937. (Daniel Roth told me that his father, who died in 1978, later divulged that he had had a good life insurance policy, which he borrowed against to keep food on the table.)

    Instead, every few days — or every few weeks during some stretches — Mr. Roth jotted down his thoughts and fears as the Depression deepened. “Banks are absolutely terrible in their insistence on payments of notes and mortgages,” he wrote in 1931. “It is the old story of lending you an umbrella when the sun is shining and then demanding it back when it rains.”

    He recounts painful conversations with friends and acquaintances who had accumulated some wealth by speculating in the stock market, and then lost everything when stocks plummeted and they couldn’t meet margin calls. He is obsessed with the stock market; he is constantly noting the prices of the blue chips of his day, and his writing shows him to have the instincts of a good value investor, a term that hadn’t yet been invented. But, as he also constantly points out, he never has any money to invest, much to his chagrin.

    Mr. Roth is horrified when the local banks fail (“I still cannot believe that the Dollar Bank — the Gibraltar of Youngstown — has closed its doors”) and points out that even after the banks reopen, customers aren’t allowed to withdraw more than a small fraction of their savings. He explains how entrepreneurs with money buy up people’s frozen passbook accounts for 50 cents on the dollar and how barter and scrip come to replace the money people no longer have.

    Events that we know about from the history books he was reacting to in real time. He was furious to learn, thanks to a series of highly publicized Congressional hearings, that some of the nation’s most prominent bankers did terrible things during the Roaring Twenties. (“By manipulation the officers boosted and unloaded on the public their own stock in National City Bank as high as $650 per share when its book value was only $60.”) But he makes no mention of the Securities and Exchange Commission, whose birth was the direct result of those incendiary hearings.

    Mr. Roth is skeptical of President Franklin D. Roosevelt’s New Deal programs, and worries that the president’s fondness for deficit spending will ultimately be disastrous. He keeps thinking inflation is right around the corner. He worries about the rise of Hitler. He writes about gangs of farmers who threaten sheriffs, judges and anyone else who tries to foreclose on a farm. He watches the rise of unions, another trend he finds troubling.

    Mr. Roth, of course, is writing without the benefit of hindsight. Today, when we look back on the Great Depression, we have a clear narrative in mind — a narrative that has been fine-tuned this last year or so, as we’ve re-examined it through the prism of the current crisis. On Wednesday, for instance, I attended a forum at Columbia University, where one of the speakers was the historian Alan Brinkley, who has written several fine books about the Depression.

    “The only way to break the economic deadlock brought on by the Depression was to shock it back to life,” said Mr. Brinkley, who then added that for all of Roosevelt’s willingness to experiment and spend, the reason the Depression lasted so long was that the president didn’t spend enough.

    That, of course, is what most people believe today — and that dogma is the reason the government last year threw literally trillions of dollars at the banking system to keep it from collapsing.

    Mr. Roth’s diaries have no narrative. But they are compelling reading nonetheless, because they force readers to reflect on both the similarities and the differences between then and now. What particularly struck me was watching Mr. Roth, in his diaries, grope from day to day, and year to year, searching for an answer that wouldn’t be clear until long afterward. He’s like the proverbial blind man who feels an elephant’s trunk and thinks elephants look like a rope. Not unlike the way we are today, as we grope our way through our own financial crisis.

    Mr. Roth’s inflation fears are one good example. A rock-ribbed Republican, he can’t understand why Roosevelt’s New Deal programs — and the spending they require — don’t bring with them the kind of scary inflation that had occurred in Germany after World War I. He keeps waiting for it, predicting it, ever fearful that it will make an awful economic situation even worse. He is baffled that inflation remained subdued. He can’t get outside of his mental framework and see — as we can today — that Roosevelt’s programs are the only things keeping the economy alive.

    But an even more wrenching example of his groping in the dark is his desperate wish for the Depression to end. His diaries are filled with tentative predictions, usually based on experts’ opinions, that the worst is over. Yet every time he thinks that, he turns out to be wrong. He begins studying the charts of previous Depressions to see how long they lasted. “I have done considerable reading about the depressions of 1837 and 1873 and I am struck by the similarity to the present crisis,” he writes in early 1933. “If history repeats itself then we still have 2 or 3 years of bad times ahead.”

    At various points in the early 1930s, the stock market spikes — and he starts to think it’s a good time to buy stocks. Indeed, he writes, many experts are advising people to get into the market, and some of his wealthier friends do so. But six months later, the experts invariably turn out to be wrong, and his friends wind up losing their money. During the Depression, optimism was ruinous.

    And yet — and this is something we tend to forget — between 1935 and 1937, business began to boom again, and a sense of growing prosperity took hold in the country. In Youngstown, the steel and rubber factories were operating at near capacity, just as they had in the 1920s. On Christmas Eve in 1936, Mr. Roth wrote: “Just came back thru the stores on my lunch hour. People are spending like drunken sailors.”

    A week later, he added, “It seems to me that the time has come where we can formally and officially announce that the depression of 1929 has ended.”

    This, of course, turned out to be completely wrong. That September, the market crashed, and the Depression took hold once again. Today, most economists believe that the downturn was caused by Roosevelt, who turned off the spigot too soon, trying to balance the budget instead of continuing to pump money into the economy. Not understanding the reason for the downturn, Mr. Roth was deeply discouraged by the reappearance of the Depression. “It is terrible to contemplate that we are in the 9th year of depression and still cannot see clearly ahead,” he wrote in March 1939.

    A few months later, he wrote: “As I re-read some of the predictions made by outstanding economists in past few years, I must laugh. They were all wrong. None of them foresaw the 1937-1939 collapse and many predicted inflation before this.” Mr. Roth comes to the conclusion that relying on experts is a waste of time.

    Today, we’re all a little like Benjamin Roth, asking questions we don’t know the answer to, and wondering, as he did 70 years ago, whether the crisis is, indeed, over.

    Maybe the fact that the Dow crossed the 10,000 mark this week really does signal that the crisis has ebbed, as The Journal put it on Thursday. Or maybe the poor earnings by Bank of America and Citigroup this week suggest we’re merely in the eye of the hurricane, as 1935 and 1936 turned out to be.

    There are plenty of experts who will tell you the worst is over, and I hope they’re right. But as Mr. Roth discovered in the 1930s, the experts can’t predict the future any better than the rest of us. When you are living through a financial crisis, all you can do is wait and see. Governments take action they hope will have the desired effect — but who knows if they really will? It only becomes clear much later, and far too late for those of us living through it.

    On that same day in early 1937 that Mr. Roth mistakenly wrote that the Depression had ended, he concluded that instead of relying on experts, the only proper course was to “use your own judgment and do your own thinking.”

    In the fall of 2009, those remain words to live by.
  2. pma


    Excellent read,thank you :)
  3. Thanks for posting.

    I've held off reading any "books" on the depression but this one looks good.

    The fact people could withdraw only a small portion of their savings sounds just about right. I could see this happening today.

    The concern with inflation is in the news every day, like the magician who waves a wand and keeps your attention focused on one point to distract you.
  4. I read this too and it looks good.

    Another point I take is that life went on, just at a lower level. Businesses were still formed - some failed and some went bust. Folks started families, went to ball games, etc ... Bull markets occurred in stocks, bonds and various commodities. Life just wasn't some kind of continual bread line.

    I've been reading the Snowball book about Warren Buffet's life (Buffet was born in 1930). His Dad lost his job and his savings when the bank he was working at closed. Omaha, being a farm town, was absolutely devestated by the Dust Bowl. So what did Buffet's Dad do? ... he and a couple of other guys started a brokerage business, literally going door to door opening accounts and getting their clients in bonds, utility stocks, and other coupon type instruments. He did very well, sailed through the collapse of 1937, and, after starting the 30s w/3 kids, no money and no job in the craphole town of Omaha, ended the decade in a state of reasonable prosperity.

    Success and prospertiy are there for the taking no matter how bad things get. Folks looking for some kind of epic collapse in the economy or the system are just going to have to keep on waiting.
  5. There is moral dilemma for saving banks on tax payer expensive. On top of that, Back in 1930s, there weren't any other countries which can lend back into US.

    Look at today's banking, people who wracked the system were getting bonus on top of bonus, which was unheard in 1930s, and majority of people suffered fair and square. Of course, it is not the case today.
  6. Good reason why:

    1) you should not keep your money at one bank
    2) you should not keep large amounts IN banks
    3) there is a lot of wisdom in keeping a lot of your wealth (if you have it) unknown to government, bank or friends. Such as well-concealed, in multiple places, food/grain, gold, junk silver, gemstones, etc.
  7. They should print an extra 50 trillion USD and pump it in the economy so we can get the more or less stimulus question answered once and for all.
  8. maxpi


    They don't want it answered. As long as they have their grubby hands on the stimulus money spigot they are good to go.. they can pass out trillions to their friends and allies and claim responsibility for the turn around when it finally happens, it's all good for politicians.... Keynes was never right, it's just that politicians love the guy's ideas...
  9. the1


    The last stimulus package was a complete joke. Put me in charge on the next one and we'll by flying around on double decker freeways, building bridges across bodies of water (think San Franscisco -- if there was ever a city that needs more roads/bridges to relieve the congestion), rebuilding the electrical infrastructure, exploring new sources of energy, putting a man on mars in 10 years.....the list goes on. People, put on a hard hat, we're going to work :mad:

  10. the1


    Politicians love Keynes because it gives them incredible power. If Classical Economists got their way the government has to take their hands off the wheel.

    #10     Oct 18, 2009