February 22, 2011- After the Great Crash of 1929, Andrew Mellon, one of the wealthiest men in America as well as Secretary of the Treasury, gave President Hoover a bit of advice right out of the playbook of laissez-faire capitalism.
Liquidate, liquidate, liquidate.
Liquidate banks, liquidate factories, liquidate commercial and private real estate, liquidate farms and liqudate ranches. Let it all collapse and then the economy would correct itself, slowly but surely, as those still in possession of capital scooped up undervalued assets, cranked up the wheels of commerce and industry, and hired back workers now willing to work for a fraction of what they used to make.
Hoover, a conventional though not cruel or even callous man, turned a deaf ear to Mellon’s advice; like our current President, he tried to steer the country out of crisis by adopting fiscal and monetary policies informed by the “best minds” of the day.
As we all know, those policies either proved to be too little, too late or – in the case of his trade policies – aggravated the downtown. By 1932, unemployment peaked at 24 percent and the nation's GDP had shrunk by more than 40 percent from its high point in 1929.
Now, it must be pointed out that, in a crude and almost autistic fashion, Mellon was correct. Allowing the country simply to go bankrupt would, eventually, have resulted in economic recovery. Certainly it was not the only road to that recovery, and surely not the one most likely to provide a decent living for the overwhelming majority of Americans.
An amped-up version of the somewhat tepid policies of the New Deal would also have achieved full economic recovery. In the end, the version of the New Deal that was implemented helped ameliorate the worst effects of the Great Depression – at least enough to prevent revolution — without quite marshalling the resources to end it.
In the confrontation taking place right now in Madison, Wisconsin Governor Scott Walker seems to be channeling the ghost of Andrew Mellon in his attempt to liquidate that state's public employee unions. His budgetary arguments are, of course, a sham, a cover-up for long-held ideological opposition to the union movement. At the same time, it should be pointed out that neither side is directly addressing the foundational cause of the Great Recession that lies behind the standoff: the fact that, as it “matures” (if that is the right word!), capitalism can only survive by creating ever more frequent – and desperate — crises of the kind we're struggling with right now.
From its beginnings in 16th and 17th century England and Holland, capitalism has depended upon a minimum 3 percent accumulated growth rate year in and year out. If growth exceeds that 3 percent – as it has lately in China and India – so much the better.
But if the rate of growth falls below 3 percent, even for one or two quarters, capitalism, which, like the stock market, is absolutely dependent upon a faith that defies logic and anesthetizes memory, begins to sputter. Each time that faith is shaken, it becomes harder and harder to restore.