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Several damaging myths are carried by cultural vehicles, like the "Dickensian horrors" of the industrial revolution as per the novels of Dickens (who incidentally supported himself as a child, working in a safe indoor factory while his parents were in debtors prison).

Then there are the ballads, books, songs and films about the struggles of the trade union movement to improve the lot of the workers. Check out William H Hutt on that!

And the films about potentially disastrous accidents in nuclear power plants, brought to us by the likes of "Hanoi Jane" Fonda. There is a chapter about those films in this useful book which also depicts the rise of the environmental activists in the administration of President Carter. http://www.the-rathouse.com/2011/Grover-Power.html

Culture is important, but was the Annie musical cause or effect? The myth surely predated it.

As I commented on Steve's earlier post, Hoover turned against what he saw as the excesses of FDRs New Deal. Like others who dissented, he was savaged. It is the left's technique for dealing with dissent: lies and character assasination. We see it today.

"Annie" opened on Broadway in 1977 and as a film in 1982.

The Hoover inactivity story was well established by 1977.

In fact, a counter movement against the benefits regulation was well underway due to Hayek's Nobel Prise and Milton Friedman's rise. By 1977 the Carter administration was beginning to look at some small efforts at non interference in the economy, eg, airline deregulation. Reagan won on a less government campaign in 1980.

FDR as savior of the nation was cemented into American's psyche by WWII propaganda. Hoover was probably simply the foil used to leverage FDR to sainthood in the national effort to unify opinion around " the leader".

Hoover opposed having the Federal government directly give money to the needy.

Roosevelt brought us direct aid to the elderly, the unemployed, and even widows and orphans.

Further, Roosevelt provided all of this along with populist ranting about the rich and big business.

Hoover tried to get big business to work for the common good by keeping wages up. Surely, that is an essential difference. Roosevelt said that big business and the rich are the enemy. Hoover naively expected the greedy and selfish businessmen to do good. Competely different.

One of Hoover's key policies was to have government sponsored lending to big business with some kind of hope that the benefits would trickle down to the average working man. Sure, libertarians see this as "intervention," but it was intervention for the rich (as would be tax cuts for the rich) as opposed to unemployment payments to the average person. Totally different.

Roosevelt's National Recovery Administration? What? Who heard of that?

Hoover did raise taxes on the rich? Well, he didn't say he was doing it because they were thieves and deserved punishment. It was because of that right wing fetish for balanced budgets.

I think there is a reason why Roosevelt is the hero of the center left.

A good question about which is cause and which is effect. Even if Annie is effect, it certainly helps sustain the myth in the face of the obvious evidence that contradicts it.

As for Bill's points... yeah rhetoric matters, but the myth is not just that Hoover didn't care about the little guy. The myth is that he did "nothing" while the Depression worsened - i.e., he was committed to "laissez-faire." Maddow and Krugman don't argue he was "pro-business," they explicitly argue he didn't intervene at all (or nearly enough). So rhetoric and the particulars of the interventions can't explain it all.

There were many myths promulgated by Roosevelt that were picked up by popular culture. "The Grapes of Wrath" is a very interesting read if you understand economics and what FDR actually did. "Greedy farmers" are blamed for destroying crops to raise prices, when this was in fact a federal program. There are few things more criminal than purposefully destroying food to raise food prices when there is a recession and starving people. But that's what FDR did.

During the Great Depression they referred to people living in cardboard boxes under train bridges as living in "Hoovervilles." Someone sleeping on a park bench covering himself with newspapers to keep warm was using "Hoover blankets." They would say that the depression was "Hoovering over us."

This all became part of the imagery of Hoover causing the Great Depression and "doing nothing" to help the unemployed and needy at a time of economic crisis."

Also, listen to the lyrics of the song "We're in the Money," on the benefits from inflation (re- monetizing of silver under FDR):

We're in the money,
We're in the money;
We've got a lot of what it takes to get along!
We're in the money,
The sky is sunny;
Old Man Depression, you are through,
You done us wrong!

We never see a headline
'Bout breadline, today,
And when we see the landlord,
We can look that guy right in the eye.

We're in the money
Come on, my honey
Let's spend it, lend it,
Send it rolling around!

Gone are my blues,
And gone are my tears;
I've got good news
To shout in your ears.
The silver dollar has returned to the fold,
With silver you can turn your dreams to gold.


Richard Ebeling

I am waiting to hear about the US Grant myth, how in fact it was his interventionism in the economy after 1873 that made the depression of the 1870s stretch out so badly, particularly his coddling of all those blasted unions.

What's wrong, Barkley? Inconvenient facts getting in the way of the myths taught to you in grade and high school history?

Barkley,

There wasn't a depression in the 1870s. That was an era of expanding output and real incomes. The data that led to the impression of the depression was the price deflation that took place. You can look up Friedman and Schwarz (1966) on this.

Not that there wasn't a panic in 1873. Just that the depression didn't follow from there.

I heard George Selgin is working on something about it. Anything yet, Prof. Selgin?

From Friedman and Schwartz (1966:15) in their introduction to Chapter 2, "The Greenback Period" (1865-1879):

"...The price level fell to half its initial level in the course of less than fifteen years, and, at the same time, economic growth proceeded at a rapid pace."

And at the end of the same paragraph:

"And their coincidence [deflation plus rapid growth] casts serious doubts on the validity of the now widely held view that secular price deflation and rapid economic growth are incompatible."

Joseph Davis created an index of industrial production that covers 90 percent of value added by the industrial sector(published in QJE in 2004). Production declines from 1873 to 1875 and does not return to the 1873 level until 1878. Industrial production does not reach its 1892 level again until 1897.

Given that the myth preceded "Annie", some questions about the “Annie” effect”;
How many people formed their view of the mattter from Annie?
How many people were reinforced in their view by Annie?
How do we engage with people who either form their views from the popular culture, or have them reinforced by the culture?
What are the countervailing forces in culture that work “our”way, apart from standouts like Atlas Shrugged?
But then a question on Atlas, how many people have their adverse views of capitalism reinforced by the film?

On "The grapes of wrath", this is a nice crit.
http://www.sydneyline.com/Cultural%20Cold%20War.htm

Brad,

Thanks for the link to the Davis paper. I note that he marks the trough for the 1873 recession in 1875. The NBER marks the trough in 1879. Thus his comment that this recession was considerably less severe than previously thought.

Davis is a nice reference piece.

I would note that although the new estimates by Davis are much shorter than the the old NBER dates for business cycles, the numbers still suggest that the mid 1870s and the mid 1890s were periods of relativley sharp decline followed by slow recovery.

The post civil war was the period of the most rapid growth in our history. There are many, many measures showing that. Friedman and Schwartz reference quite a numer: railroads built, cultivation of farmland, population growth, urbanization, etc. The idea there was any great depression in that era is pure myth.

Selgin, Lastrapes and White review all recent historical literature. That totality of it undermines the myth.

Jerry,

As someone I seriously respect, I would suggest you provide some serious data to support this claim. I do not know whether it was 1875 or 1879 (the former is more credible), but the vast majority of lit on US econ history has the 1870s as the second worst depression (and that was the word used, with what happened in the 1930s getting that label because there were still people living who remembered the 1870s, along with the lesser depression in the 1890s) [btw, Jerry, this is sent from CC, we need to do lunch somtime there].

I know I am being a bad boy here, but people need to take seriously Reinhardt and Rogoff. Crashes that seriously involve the financial sector have long recovories. According to them, there have been three in US history: the 1870s, the 1930s, and now. All this stuff about Hoover and Annie is just a joke, although Steve is correct that people like Rachel M. who say Hoover did nothing are simply wrong.

Barkley,

In case others misinterpret our sometimes direct exchanges, I have great respect for you. I also look forward to a lunch in CC.

I took economic history as a Ph.D field, but have not actively worked in it for years. Even back in my era, however, the textbook accounts of the post Civil War period were in question.

Remember that, not so long ago, many believed there was a Great Depression from the 1870s through the 1890s (the only reason being there was a deflation). There are members of the current FOMC who believe that. That is frightening nonesense, and is the main thing I want to counteract.

As you know, I constantly bring up R&R. I think they are wrong about the 1870s, however. It was chiefly an anticipated deflation as the US returned to the gold standard.

F&S have it right and provide lots of data. The chapter on the Greenback era is the most theoretically interesting because it deals with a very special situation: a dual standard.

I referenced George's paper because he and his co-authors summarize the recent historical literature. I refer you to that. My understanding is that the depression in the 1890s is now considered the second worse.

Confusing deflation with depression is the great confusion in all this. And it is Bernanke's over-riding error.

My challenege to those who buy the textbook story is when did the US develop? If the post-Civil War period is not one of extraordinary growth, how can you get to the present GDP level?

@Brad:
"Joseph Davis created an index of industrial production that covers 90 percent of value added by the industrial sector(published in QJE in 2004). Production declines from 1873 to 1875 and does not return to the 1873 level until 1878. Industrial production does not reach its 1892 level again until 1897."

The fact that production declined is normal and it is a good thing. The amount of production of houses during the bubble would hardly be considered healthy, for example. The truth is the communist countries had a lot of production, but very few people wanted it. We have to differentiate between production for the sake of production and economic growth.

It is not very hard to increase production and reduce unemployment. Just introduce the draft and have 10 million young men join the army for two years and put them to build bridges and roads to nowhere. Not exactly economic growth, but an amazing increase in production.

"My challenege to those who buy the textbook story is when did the US develop? If the post-Civil War period is not one of extraordinary growth, how can you get to the present GDP level?"

U.S. development did not take place during one time period, and rapid growth during a period of time does not mean there were no downturns during that period.

Per capita gdp increased about 93% from 1860 to 1900. But it also increased about 75% between 1900 and 1940. That doesn't mean the Depression didn't take place.

I agree that Selgin et al do a good job of presenting the latest efforts to estimate business cycles in the nineteenth century. They alos cite the recent work by Davis. Although recent work substantially reduces the length of business cylces relative to the old NBER estimates, they do not eliminate business cycle movements. The graphs of GDP and unemployment in the paper still show noticeable periods in which output was below trend and unemployment was above trend in the 1870s and 1890s. It wasn't as bad as people used to think, but it is also not true that nothing happened. The authors of the paper make a distinction between good deflation associated with increasing output and periods of "bad deflation" arising from panics.

Brad,

Who is denying that business cycles exist? If you are trying to say I shouldn't have said "depression" then I must say you are arguing semantics. Depression has very specific connotations, including unemployment across all industries and general hardships. I do not think that we can characterize the cycle of the 1870s thus. As F&S pointed out, the lot of people was improving steadily during this period.

Friedman and Schwartz do not show that the lot of people was improving steadily over this period. Chart 3 shows real income for 1867 to 1879. It increased rapidly in about half the years but was stagnant the other half. Real income increased, but not steadily.

I believe that Barkley's original point was that there were significant downturns in the nineteenth century that can't be explained by the Fed or government policies that raised wages and increased uncertainty.


Jerry,
(From CC again).
There is no question that the GDP data in the late 19th century is simply not nearly as good as later, so we look at a lot of noise in it, and it is hard to determine anything too definitively on that. When I took econ history, the story was that the 1880s was the boom decade between the two down ones, the decade of the greatest rate of rail construction of any in US history.

In Barkley's original comment, he referred to "the depression of the 1870s." That suggests the whole decade was in depression, and it sparked this discussion. Not to speak for others, it is what I reacted to.

Let us just take agriculture in the post Civil War period. Many accounts characterize it as depressed. Food prices were in decline. Indebted farmers were burdened. Why then was cultivation expanding greatly during this period? Depressed industries don't expand.

Economists focus on debt deflation and conclude that deflation is the problem. Why not debt being the problem? Farmers then, as in the 1970s and today split into two groups: the heavily indebted and the debt-free or lightly indebted. The first group often incur debt to engage in land speculation. The second group are survivors. (I lived in Ames, Iowa in the mid-70s and got to observe this up close.)

Ranching today is under serious cost pressure and many ranchers are selling off their herds. I just spoke to a rancher about this last week. He told me how reliable an income producer a ranch can be. "But only if you have no debt."

If the money supply is relatively stable and production is increasing, wouldn't that create deflation? One could certainly have a growing economy and deflation under those conditions, right?

In preparing for a FEE talk this summer I ran across this note on Hoover's early active work in promoting home building and ownership.

http://www.hoover.archives.gov/exhibits/Hooverstory/gallery04/

"Better Homes in America

When not looking for ways to preserve the scenic splendor of Niagara Falls, pressuring leaders of the steel industry into accepting an eight hour workday or attacking British and Dutch monopolies of South American rubber, Hoover served as president of Better Homes in America, a prime example of what one scholar has labeled his "unique brand of cooperative capitalism."

No American industry enjoyed such explosive growth during the 1920s as housing construction. It didn't just happen.

More than 9,000 local chapters of the Better Homes organization helped lower the average cost of a new home by one-third, while stimulating a fifty percent increase in new construction. In thousands of communities across the land members staged annual contests for the best newly erected small house. They disseminated a manual for prospective homeowners written by Hoover. They also promoted a new building code for municipalities (another Hoover creation).

In 1920 only forty-one municipalities had zoning laws protecting homeowners from the encroachment of factories or businesses into residential areas. By 1928 there were 640. And the American Dream of homeownership was accessible to more citizens than ever before."

Jerry,

I have checked on some more data. Needless to say, with the large and relative price changes in the 1870s, there are major index number problems with aggregates. I am sure you are right that ag production largely expanded during that period.

Regarding the railroads, responsible for about 10% of non-ag employment, I have looked at US Historical Census numbers, which are somewhat curious. The decline actually started prior to the crash of 1873. Annual production peaked in 1871 with a bit over 7000 miles added. This began dropping steadily, with just over 4000 miles in 1873, and bottoming out at well under 2000 miles in 1875, the year many pinpoint as the bottom point for overall GDP. There was a slow recovery, with only around 3000 miles built each year during 1876-78, with it surging to nearly 5000 in 1879, by which time the economy was clearly strongly growing.

As it was, indeed the 1880s were far ahead of any other decade in RR construction, which basically fell to barely above zero after that. For that decade about 76,000 miles were added in the US, which was almost precisely double the figure for the 1870s, which was the decade of the second highest rate of miles added.

To further add here, whether the 1890s or the 1870s were worse, in neither did one have a president who behaved like Hoover or FDR, but rather ones who behaved more like Harding and Coolidge, with there being nearly zero unions that had any power at all during both of those late 19th century decades. Also, again, it does look like the 1880s were a boom decade, at least for that leading industrial sector of the era, railroads, with the financial crash of 1873 being very much tied to problems in RR financing.

The major thing Hoover was laissez-faire about was going off the Gold Standard. He is on record in a speech saying the US could not go off the Gold Standard because too many people had loans with payable-in-gold clauses, and going off the Gold Standard would lead people to be more deeply indebted as they tried to pay back loans in devalued currency.

FDR pushed for and got the "Gold Clause Ban", which in one stroke invalidated all contractual payable-in-gold clauses, certainly an incredible expansion of Federal power that Hoover could not conceive of.

The Gold Clause Ban allowed practical devaluation to occur to fight deflation, thus the recovery in 1933.

Of course then FDR started doing all kinds of things to demonize and scare entrepreneurs, and the stagnation followed...

One alternative is that people latch on to narratives of political failure by people smarter (particularly more quant literate) than themselves. So people like a narrative of failure by quant literate Hoover or McNamara.

If only "the gold standard" in 1929 had really been a true market-driven gold standard, I'd be a lot more sympathetic to that argument. Hoover was really just defending the status quo, which was hardly laissez-faire.

That said, this was a case where he did "do nothing," but "doing nothing" in a world of state intervention is part of the problem. This is why Austrians need to keep emphasizing the sorts of institutional changes we favor as a way of reminding folks we don't believe in "doing nothing."

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