Map Overlay of East Tennessee Cherokee Origins (1730-1838)

Map copyright by Joy Montgomery, 2017

Theories of the cause of the Great Depression with a view to the realities of its effects.

Many theories pervade about the Great Depression, such as: What caused it? Could it have been avoided? Were the measures used to end the devastation effective? To add fuel to the fire, the Dust Bowl of the early 1930s pushed already devastated farmers and laborers out of the plains pushing many westward to seek work in a region that was already overwhelmed with workers. What were the causes of all this devastation and how did we recover?

Dorothea Lange, Migrant Agricultural Worker’s Family. Seven Children without Food. Mother Aged Thirty-Two. Nipomo, California, March 1936, Photograph, March 1936, LC-USF34- 009095-C [P&P] LOT 344, Library of Congress, https://www.loc.gov/item/2017762905/.

Eugene White explains that after World War I and a postwar recession, prosperity returned from 1922 to 1929 with unemployment at 3.7 percent and GNP growing at an annual rate of 4.7 percent primarily due to great economic improvements such as science to industry, modern management techniques, and mergers of scale and scope.[1] Much of this was due to the expansion of large-scale industrial enterprises that could not draw long-term loans from commercial banks due to new federal regulations. Commercial banks set up securities affiliates that grew rapidly and became big distributors and underwriters of stocks and bonds. These stocks and bonds were thus substituted for commercial bank loans and many new investors were not experienced in monitoring firms and buying stocks. Add to this there were new and emerging industries that had “potentially high but uncertain returns” and many were advertised with overvalued stock add to this there was a large amount of stock market credit available.[2]

According to Rockoff, the beginning of the fall came in July 1929 the first signs of a recession, interest rates began to rise, and the dissension of stock prices and dividends became apparent. Trading began to rise, and the ticker fell behind: panic selling began, and many liquidated their holdings. New York city banks and the Federal Reserve Bank stepped in the gap to ensure the crash effects were corralled in the stock market which prevented a failure of the financial system.[3] According to Friedman and Schwartz, “It [the stock market crash] changed the atmosphere within which businessmen and others were making their plans and spread uncertainty where dazzling hopes of a new era had prevailed.”[4]

Dorothea Lange, Migrant Workers’ Camp, Outskirts of Marysville, California. The New Migratory Camps Now Being Built by the Resettlement Administration Will Remove People from Unsatisfactory Living Conditions Such as These and Substitute at Least the Minimum of Comfort and Sanitation, April 1935, April 1935, LC-USF34- 001733-ZC [P&P] LOT 343, Library of Congress, https://www.loc.gov/resource/fsa.8b38193/.

Bernanke states that the U.S. and worldwide monetary factors played an essential causal role in the Great Depression: poorly designed institutions, ill-considered policymaking, negative political and economic preconditions, and a reliance on a shaky gold standard. The countries that abandoned the gold standard after the financial collapse, like Britain, rebounded more quickly than those that clung to it for several years afterward.[5]

Two main components of the financial collapse, according to Bernanke, were the loss of confidence in financial institutions (which would cause a run on a bank and cause it to fail), primarily commercial banks (which decreased by half from 1929 to 1933 in the United States), and the extensive insolvency of debtors (from banks which relied on fixed-price demand).[6] Clearing houses aided in the fixed-price demand enterprise of suspending the convertibility of bank deposits into currency in the case of a bank run. The creation of the Federal Reserve and the international gold exchange standard changed this clearing house-bank balance: the clearing houses felt relieved of their duty to fight against bank runs, and the banks had nowhere to turn. What exacerbated this tinderbox scenario was that at the beginning of the Great Depression, about half of all residential properties were mortgaged, and many were in debt.[7]

Arthur Rothstein, Abandoned Farm in the Dust Bowl Area. Oklahoma, April 1936, Photograph, April 1936, LC-USF34- 004074-E [P&P] LOT 521, Library of Congress, https://www.loc.gov/resource/fsa.8b38292/.

Critical to economic recovery were aggregate demand developments: between 1933 and 1937, money supply increased on average 10 percent per year due to a gold inflow from devaluation in 1933 and capital flight from Europe after 1934.[8] Between December 1933 and July 1934, monetary stock nearly doubled, and between December 1934 and December 1941, it increased at an average annual rate of almost 15 percent.[9]

Fishback tells us that “during the Great Depression, there was a 25 percent drop in the ratio of farm prices to nonfarm wholesale prices.” In May 1933, the Agricultural Adjustment Act (AAA) sought to aid this by paying farmers to stop production on land including cotton, corn, tobacco, and wheat. This program benefited farmers but was detrimental to laborers, sharecroppers, and tenants.[10] Many banks foreclosed on overdue loans of impoverished farmers on mortgaged land.

Dorothea Lange, Destitute Pea Pickers in California. Mother of Seven Children. Age Thirty-Two. Nipomo, California, March 1936, March 1936, LC-USF346-009058-C, Library of Congress, https://www.loc.gov/pictures/item/2017762891/.

In conclusion, adding fuel to the fire of the Great Depression and the effects of the AAA, the “Dust Bowl” came to the plains of Oklahoma, and many farmers and workers left Oklahoma to head to California looking for opportunities. One of the most famous photographs of the Great Depression is of the “Migrant Mother”, Florence Owens Thompson, in March of 1936. She was part Cherokee migrant worker from Oklahoma, a widow, and a mother of seven at the time of the photograph. She and her seven children had broken down in Nipomo, California near a pea patch that had been calling for workers, but the peas had frozen overnight and there was no work to be had. Dorothea Lange, from the Resettlement Administration, was out taking photos to document the effects of the depression and sent the photos of Florence to the San Francisco News reporting that there were at least 3,000 migrant workers starving in Nipomo. Within a few days, the camp received 20,000 pounds of food from the federal government but by then Florence and her family had moved on.[11] This photograph came to symbolize the struggle of the farm laborers and others who suffered during the Great Depression and her look of desperation but determination in the face of that fight for survival in grim times. It is a time not soon to be forgotten or erased from human memory.

[1]Eugene N. White, “The Stock Market Boom and Crash of 1929 Revisited,” The Journal of Economic Perspectives (1986-1998) 4, no. 2 (Spring 1990): 72. [2]White, 69–71. [3]White, 81–82. [4]Hugh Rockoff, “Review Essay: A Monetary History of the United States, 1867-1960,” Economic History Association (blog), accessed November 19, 2023, https://eh.net/book_reviews/a-monetary-history-of-the-united-states-1867-1960/. [5]Ben S. Bernanke, “The Macroeconomics of the Great Depression: A Comparative Approach,” Journal of Money, Credit and Banking 27, no. 1 (1995): 3–4, https://doi.org/10.2307/2077848. [6]Ben S. Bernanke, “Nonmonetary Effects of the Financial Crisis in the Propagation of the Great Depression,” The American Economic Review 73, no. 3 (1983): 258. [7]Bernanke, 259–60. [8]Christina D. Romer, “What Ended the Great Depression?,” The Journal of Economic History 52, no. 4 (1992): 757–59. [9]Romer, 773. [10]Price Fishback, “The Newest on the New Deal,” Essays in Economic & Business History 36 (June 13, 2018): 5. [11]Brad Agnew, “‘Migrant Mother’ May Be Tahlequah’s Most Famous,” Tahlequah Daily Press, April 3, 2016, sec. Historical Perspectives, https://www.tahlequahdailypress.com/news/features/historical-perspectives-migrant-mother-may-be-tahlequah-s-most-famous/article_72d4e93c-f9d4-11e5-b343-37b33a0119af.html.

Bibliography

Agnew, Brad. “‘Migrant Mother’ May Be Tahlequah’s Most Famous.” Tahlequah Daily Press, April 3, 2016, sec. Historical Perspectives. https://www.tahlequahdailypress.com/news/features/historical-perspectives-migrant-mother-may-be-tahlequah-s-most-famous/article_72d4e93c-f9d4-11e5-b343-37b33a0119af.html.

Bernanke, Ben S. “Nonmonetary Effects of the Financial Crisis in the Propagation of the Great Depression.” The American Economic Review 73, no. 3 (1983): 257–76.

———. “The Macroeconomics of the Great Depression: A Comparative Approach.” Journal of Money, Credit and Banking 27, no. 1 (1995): 1–28. https://doi.org/10.2307/2077848.

Fishback, Price. “The Newest on the New Deal.” Essays in Economic & Business History 36 (June 13, 2018): 1–22.

Higgs, Robert. “Crisis, Bigger Government, and Ideological Change: Two Hypotheses on the Ratchet Phenomenon.” Explorations in Economic History 22, no. 1 (1985): 1–28.

Hornbeck, Richard. “The Enduring Impact of the American Dust Bowl: Short- and Long-Run Adjustments to Environmental Catastrophe.” The American Economic Review 102, no. 4 (2012): 1477–1507.

Lange, Dorothea. Destitute Pea Pickers in California. Mother of Seven Children. Age Thirty-Two. Nipomo, California. March 1936. LC-USF346-009058-C. Library of Congress. https://www.loc.gov/pictures/item/2017762891/.

———. Migrant Agricultural Worker’s Family. Seven Children without Food. Mother Aged Thirty-Two. Father Is a Native Californian. Nipomo, California. March 1936. Photograph. LC-USF34- 009095-C [P&P] LOT 344. Library of Congress. https://www.loc.gov/item/2017762905/.

———. Migrant Workers’ Camp, Outskirts of Marysville, California. The New Migratory Camps Now Being Built by the Resettlement Administration Will Remove People from Unsatisfactory Living Conditions Such as These and Substitute at Least the Minimum of Comfort and Sanitation. April 1935. LC-USF34- 001733-ZC [P&P] LOT 343. Library of Congress. https://www.loc.gov/resource/fsa.8b38193/.

Porter, John Sherman. Moody’s Manual of Investments: American and Foreign. New York: Moody’s Investors Service, 1927.

Rockoff, Hugh. “Review Essay: A Monetary History of the United States, 1867-1960.” Economic History Association (blog). Accessed November 19, 2023. https://eh.net/book_reviews/a-monetary-history-of-the-united-states-1867-1960/.

Romer, Christina D. “What Ended the Great Depression?” The Journal of Economic History 52, no. 4 (1992): 757–84.

Rothstein, Arthur. Abandoned Farm in the Dust Bowl Area. Oklahoma. April 1936. Photograph. LC-USF34- 004074-E [P&P] LOT 521. Library of Congress. https://www.loc.gov/resource/fsa.8b38292/.

———. The Winds of the “Dust Bowl” Have Piled up Large Drifts of Soil against This Farmer’s Barn near Liberal, Kansas. March 1936. Photograph. LC-USF34- 002505-E [P&P] LOT 426. Library of Congress. https://www.loc.gov/resource/cph.3c29049/.

White, Eugene N. “The Stock Market Boom and Crash of 1929 Revisited.” The Journal of Economic Perspectives (1986-1998) 4, no. 2 (Spring 1990): 67.

Paul Warburg: Daddy Warbucks and the Federal Reserve

Paul Moritz Warburg was the inspiration for the Little Orphan Annie Daddy Warbucks character, [1] but he is perhaps best known for being one of the founders of the Federal Reserve.[2] Paul Moritz Warburg (1868-1932) was the third child of seven born to Moritz M. Warburg and Charlotte Oppenheim in Hamburg, Germany.[3] The Warburg family comprises a German Jewish dynasty of bankers who trace their origin back to medieval Italy.[4] After graduation, he worked for a trading firm in Hamburg and later trained at several banks in Paris (Banque Russe pour le Commerce Étranger) and London (Samuel Montagu). Finally, he joined the family firm M. M. Warburg & Co., becoming a partner in 1893.[5] He married Nina Loeb of the Kuhn, Loeb & Co. in 1895 and settled in New York in 1902.[6] Before joining the Federal Reserve in 1913, Paul had directorships at Westinghouse Electric, B&O Railroad, and Wells Fargo Express.[7]

Club House on Jekyll Island, Georgia

Paul Moritz Warburg advocated for a central bank as early as 1903, bringing his experience of the European banking systems with him.[8] He wrote two articles promoting the concept of a central banking system after the Panic of 1907, including “A Plan for a Modified Central Bank” and “Defects and Needs of Our Banking System.”[9] He met with the New York Merchants Association, the American Economic Association, and leading academic economists advocating banking reform, gathering a tangible plan for the Federal Reserve.[10] On March 23, 1910, he made a speech at the New York YMCA entitled “A United Reserve Bank for the United States.”[11] He promoted having a centralized American bank and accepting paper instead of promissory notes and stated, “Small banks constitute a danger.”[12] He was among the few attendees of the secret two-week conference held at Jekyll Island, Georgia, on November 22, 1910, who drafted the central bank bill.[13]

Warburg called for a grassroots “decentralization” rallying cry and was named to head the “Businessmen’s Monetary Reform League” to lead the group to establish the “National Citizen’s League for the Creation of a Sound Banking System” (a forty-five-state organization) to push for a central bank in Chicago.[14][15] He was a Vice Chairman of the Federal Reserve and a Federal Reserve Board of Governors member under Woodrow Wilson.[16]

In later years, Paul Warburg published a two-volume history of the Fed and also publicized a prophecy of the impending collapse of Wall Street in 1929 that he and his partners saw coming.[17] Paul died in New York in January 1932, having changed the world in his lifetime.[18]

[1]Edward Morris, “Paul M. Warburg: 1868–1932: Daddy Warbucks,” in Wall Streeters: The Creators and Corruptors of American Finance, ed. Edward Morris (Columbia University Press, 2015), 39, https://doi.org/10.7312/columbia/9780231170543.003.0002.

[2]Economic Research Federal Reserve Bank of St. Louis, “The Meeting at Jekyll Island | Federal Reserve History,” Informational, Federal Reserve History, December 4, 2015, https://www.federalreservehistory.org/essays/jekyll-island-conference.

[3]Ron Chernow, The Warburgs: The Twentieth-Century Odyssey of a Remarkable Jewish Family (New York: Vintage Books, 1994), xxii.

[4]Chernow, 3.

[5]Chernow, 40.

[6]Chernow, 54.

[7]Chernow, 138.

[8]Murray N. Rothbard, “The Origins of the Federal Reserve,” Quarterly Journal of Austrian Economics 2, no. 3 (Fall 1999): 33.

[9]Rothbard, 38.

[10]B. C. Forbes, “How the Federal Reserve Bank Was Evolved by Five Men on Jekyl Island,” Current Opinion 61, no. 6 (December 1916): 42.

[11]Rothbard, “The Origins of the Federal Reserve,” 45.

[12]Rothbard, 40.

[13]Forbes, “How the Federal Reserve Bank Was Evolved by Five Men on Jekyl Island,” 382.

[14]Rothbard, “The Origins of the Federal Reserve,” 48.

[15]Morris, “Paul M. Warburg,” 53.

[16]Chernow, The Warburgs, 308.

[17]Chernow, 308–9.

[18]Chernow, 330.

Bibliography

Acklom, Moreby. Jekyll Island Club. N. Y.: Photogravure & Color Company, 1919.

Chernow, Ron. The Warburgs: The Twentieth-Century Odyssey of a Remarkable Jewish Family. New York: Vintage Books, 1994.

Economic Research Federal Reserve Bank of St. Louis. “The Meeting at Jekyll Island | Federal Reserve History.” Informational. Federal Reserve History, December 4, 2015. https://www.federalreservehistory.org/essays/jekyll-island-conference.

Forbes, B. C. “How the Federal Reserve Bank Was Evolved by Five Men on Jekyll Island.” Current Opinion 61, no. 6 (December 1916): 382–83.

Kuiper, Kathleen. “Warburg Family | Banking, Finance, Philanthropy | Britannica.” In Britannica Online. Accessed November 16, 2023. https://www.britannica.com/topic/Warburg-family.

Morris, Edward. “Paul M. Warburg: 1868–1932: Daddy Warbucks.” In Wall Streeters: The Creators and Corruptors of American Finance, edited by Edward Morris, 36–54. Columbia University Press, 2015. https://doi.org/10.7312/columbia/9780231170543.003.0002.

Rothbard, Murray N. “The Origins of the Federal Reserve.” Quarterly Journal of Austrian Economics 2, no. 3 (Fall 1999): 3–51.

Warburg, Paul M. “A United Reserve Bank of the United States.” Proceedings of the Academy of Political Science in the City of New York 1, no. 2 (1911): 302–42. https://doi.org/10.2307/1171675.

———. “Address of Hon. Paul M. Warburg of the Federal Reserve Board before the Twin City Bankers’ Club of St. Paul and Minneapolis at the Minnesota Club, St. Paul, Oct. 22, 1915.” Speech. St. Paul, Minnesota, October 22, 1915. https://fraser.stlouisfed.org/title/statements-speeches-paul-m-warburg-454?browse=1910s.

———. Defects and Needs of Our Banking System. New York: Oppenheimer Printing Co., 1907. https://hdl.handle.net/2027/pst.000055506663?urlappend=%3Bseq=11.

———. The Federal Reserve System and the Banks. Atlantic City, New Jersey: New York State Bankers’ Association, 1916. https://hdl.handle.net/2027/uc2.ark:/13960/t53f4p208?urlappend=%3Bseq=5.