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The specter of the Great Depression has been raised repeatedly since our current recession began. After hearing all the comparisons I decided to do some research of my own.

Amity Shlae’s book, The Forgotten Man – A New History of the Great Depression, does an excellent job of reviewing what the US went through from 1929 – 1940 with balanced and well-documented facts. After reading the book I am amazed that we came out of that time in history without becoming a socialist country or carrying permanent financial scars.

My first major take-away from the book was we think we know how tough it was back then, but we have NO idea. William Troeller, a 13 year old boy in Brooklyn, hung himself from the transom in his bedroom so that his remaining family would have enough to eat. His father had lost his job and the family’s gas for their apartment had been shut off for 7 months. Wide-spread hunger was severe. Deflation was so bad that money literally ran out, and many states, like New Jersey, created their own substitute currency so people would have something to pay their bills. There was a black market for paper money.

My second observation is that the history we were taught – that Hoover was the villain that got us into the Depression and Roosevelt and the New Deal saved us – is severely flawed. The boy who hung himself did so 5 years after Roosevelt was elected and the New Deal programs had been implemented. The New Dealer’s efforts, though good intentioned, caused major damage to the US economy due to their bureaucratic management of the markets. The Schechter brothers, who ran a small kosher butcher shop in Brooklyn, were almost thrown in jail and driven out of business because they allowed their clients to choose their own chicken to be butchered – a violation of the National Recovery Administration’s “Code of Fair Competition for the Live Poultry Industry of the Metropolitan Area in and About the City of New York.” The case went all the way to the Supreme Court before it was thrown out. The rules forced onto businesses by the NRA crippled entire industries and forced the shut-down of companies increasing unemployment and causing the second wave of the Depression.

The level at which Roosevelt and his staff experimented with the markets was also sobering. Every morning FDR would set the target price for gold for the United States. One morning he told an assembled group that he was thinking of raising the price of gold by 21 cents because it was a lucky number. Utility companies like Commonwealth & Southern were driven out of business by government sponsored projects such as the Tennessee Valley Authority, and shareholders lost their investments. Ironically, the cost of power went up in many areas where the government had taken over.

World War II has been cited as the reason we were able to climb out of the Depression, but I believe that change in the attitude of Americans had already begun. The US has a culture of fighting back, and it had become obvious to many that the New Deal was not working. In January 1940 an article, directed at FDR, was published in Fortune magazine entitled “We the People.” In it Wendell Willkie, the former president of Commonwealth & Southern, urged the president to “give up the vested interest you have in the Depression, open your eyes to the future, and help us build a New World.” People were tired of seeing the government beat up on business while telling the unemployed it was for their own good. Americans might allow politics and policy to fool us for awhile, but we don’t believe it forever.

By Jeannette Jones, CPA, CFP®