A Brief History Of Political Economy In 1932

This snapshot of the economic and political debates in 1932 should sound familiar to most of us.  It sounds very much like the debates that we are having today.  The confidence fairy was alive and well in 1932 and fears of inflation were strong in a period of price deflation.  Farmers were hard hit by price deflation.  They typically borrow money to put their crops in, and pay back the loans after harvest.  The large drop in commodity prices reduced the value of their harvest and many were unable to pay off their loans.  Farm foreclosures increased rapidly and banks had to swallow huge losses.

President Hoover believed that the solution to the economic problem was a balanced budget.  He wanted to raise taxes and cut government spending to balance the federal budget.  He argued that this would restore business confidence.  Businesses were more concerned with weak demand and falling prices.  The were also unsure about the direction of monetary policy.  The regional Fed bank presidents were afraid that easy money policy would create inflation, while some economists argued that price inflation would be a good thing in a period of deflation.

There were some differences between 1932 and today.  The House passed a bill to stimulate the economy but the Senate turned it down. Our GOP House today is dominated by deficit hawks.  The New York Times back then was a pillar of respectability.  It opposed the House bill.  Today the NYT is a bit more liberal.