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DeLong Smackdown Watch (David Wessel/Marx-Schumpeter-Hoover-Mellon Axis Edition)

On page 46 of David Wessel (2009), In Fed We Trust: Ben Bernanke's War on the Great Panic (New York: Crown: 9780307459688), I read:

This notion of the government's [macroeconomic stabilization] role was not universal in the 1930s. In his memoirs, Herbert Hoover described tension within his own administration, putting words into Treasury Secretary Andrew Mellon's mouth that are routinely reported as something Mellon actually said:

In one camp were the "leave it alone liquidationts" headed by Secretary Mellon, who felt that government must keep its hands off and let the slump liquidate itself. Mr. Mellon had only one formula: "Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate." He held that even panic was not altogether a bad thing. He said: "It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people"...

Who is it "routinely reports" something like this? Moi!

This is actually a difficult question, which I hope to write up properly someday:

  1. Hoover in his memoirs is definitely an unreliable narrator. He sets himself up as opposing Mellon within the administration, when actually when push came to shove he (reluctantly) supported Mellon. As Wessel notes on page 47, he gave himself in the early 1930s excessive vision as to the size of the problem. And he claimed that he had nothing to do with the MacArthur-Eisenhower-Patton military police action against the Bonus Marchers on the Mall.

  2. Hoover's unreliability centers around two issues: (a) Hoover insists--no matter what the evidence--that everything was going fine and the depression was licked until the election of THAT COMMUNIST ROOSEVELT; (b) any mistakes made during his administration were the fault of unworthy subordinates--MacArthur, Mellon--who misled Hoover.

I conclude that it is hardly credible to believe that MacArthur pleaded with Hoover to conciliate the Bonus Marchers--instead, Hoover's unreliability is focused on taking decisions that were joint that Hoover is not proud of, and loading them onto others.

Similarly, I conclude that it is hardly credible to believe that Mellon pleaded with Hoover to boost demand. Instead, Mellon called to stay the course--no experiments, and either a program of monetary expansion, a banking recapitalization, a banking nationalization, a deficit spending plan, or government employment of the unemployed would definitely have been experiments:

Conditions today are neither so critical nor so unprecedented as to justify a lack of faith in our ability to deal with them in our accustomed way.... [The middle of the Great Depression was] no time to undertake drastic experiments... surrendering the management of business and industry to government or to any board or group of men...

So Hoover is an unreliable narrator. But odds are that his claims that, internally, Mellon was a liquidationist are sound.