The Great Depression Read online

  When Roth begins his “Notes” in 1931, he is conscious of a delineating crisis, one that obliterates the twenties-era intoxication forever (or so, I think, Roth would have believed). But he is not particularly scolding of the culture surrounding wealth or a bubble; rather, he seems dispassionately scientific in wanting to know how economic forces behave.

  That he could summon such dispassion is itself remarkable, in an age that stoked passion into panic. More than in any economic downturn before or since, Americans during this era feared that the very pillars on which their society had always stood—democracy and free enterprise—could crumble and be replaced by something unrecognizable in the country’s history. This was hardly an idle fear: Germany had elected a Nazi government in 1933, largely in response to years of an imploded economy. Japan and Italy were being run by Fascists, and Stalin was in the process of turning the Soviet Union into a ruthless dictatorship. Historian Arnold J. Toynbee, who would go on to write a twelve-volume history of how civilizations rise and fall, wrote at the time, “In 1931, men and women all over the world were seriously contemplating and frankly discussing the possibility that the Western system of Society might break down and cease to work.”

  And there was no shortage of advocates, on the Left or Right, who were eager to fill that void on American soil. The very first days of Franklin Roosevelt’s presidency saw not only a reversal of the largely ineffective Hoover policies but an extension of federal control over the economy that Americans had never witnessed. Some on the Right attacked Roosevelt for dabbling in socialism, a position with which Roth seemed to sympathize in certain instances. Whether the various programs of the New Deal constituted socialism or partial socialism depends on one’s definition of that elastic term, and many historians take the position that even if Roosevelt had to curtail aspects of the free market, it was in order to save capitalism. But certainly the National Industrial Recovery Act, Social Security, the Agricultural Administration Act, Securities and Exchange Act, and Federal Deposit Insurance Corporation constituted government intervention into the minutiae of business activity that had no peacetime precedent in the United States. Furthermore, jobs programs in the Civil Works Administration, Works Progress Administration (WPA), and Civilian Conservation Corps resembled the types of government-sponsored employment that was often a feature of Socialist or Fascist governments. The fact that key parts of Roosevelt’s agenda were struck down as unconstitutional—which the legally trained Roth often pointed out—lends some credence to the idea that Roosevelt’s view of government and executive power tipped over into antidemocratic extremes.

  For many others, however, the New Deal was not extreme enough. Due in part to the surge in labor organizing made possible by the National Industrial Recovery Act, the Communist Party of the United States flourished in the 1930s. Its leaders advocated that the United States follow the Soviet model of revolution, eliminating capitalism and anointing the working class to run the society. It is doubtful that more than a few million Americans genuinely preferred this direction; actual CPUSA membership never topped one hundred thousand, and while party-affiliated organizations might have brought that number more comfortably into six figures, not all factions would have shared a Soviet-style society as a goal.

  At the same time, there were many Americans who felt that if the fall of Democratic Capitalism was inevitable, Socialism in some form was preferable to other alternatives. And certainly Communists, Socialists, and their allies—particularly in trade unions—had a significant impact on social and cultural life during this period. Roth’s writing does not dwell on the politics of the Left, especially not before the introduction of the New Deal. Still, it is worth noting that Roth begins his diary on June 5, 1931; just six days earlier, one of the most violent confrontations in Youngstown’s history had taken place. A group of hundreds of Communists had been trucked into Youngstown from all across Ohio, Pennsylvania, and West Virginia to recruit members from its newly opened flophouses and soup kitchens and disrupt the city’s Memorial Day celebration. A violent clash with police ensued, and more than two hundred people were arrested and dozens injured and hospitalized.

  Other extremists and populists also tempted America. The chameleon-like Father Charles Coughlin mesmerized millions of Americans over the radio, railing against Jews, capitalism, communism, Roosevelt, and the Federal Reserve system. In Youngstown the Ku Klux Klan had a particular appeal. Steel-industry jobs attracted workers from all over the world; according to the 1920 census, 60 percent of the city’s population had been born outside the United States. Such a large, and mostly Catholic, immigrant population made the Klan’s nativist message popular among Protestants, and in 1923 a majority of Youngstown’s city council was affiliated with the Klan. It was not fantasy to believe at this time that Socialists, Communists, Fascists, or extreme populists might take power in parts of the United States, whether by force or sympathy.

  Not that such political ferment was Roth’s day-to-day concern. By dint of his professional standing and class, Roth was a natural-born Republican. He notes in the diary that he supports Hoover’s reelection in 1932, Alf Landon in 1936, and Wendell Willkie in 1940. For that reason it’s all the more remarkable that Roth became a public advocate for Roosevelt’s National Recovery Act in 1933. At one point that year he notes that he is doing so much on behalf of the NRA—including five speeches on a single Sunday—that he has time for little else. Yet within weeks he is questioning whether the NRA (or indeed any of the early New Deal programs) is doing any good and fears that the tremendous government debt may be doing harm. Supporting the NRA was, he explains, a simple civic duty, although reading between the lines, it seems clear that Roth was an effective public speaker and that he may well have developed a taste for the public spotlight (he would go on to hold elective office in Youngstown).

  In our shorthand history of the period, we tend to think of a 1920s stock market boom—which Roth documents vividly, if retrospectively—followed by abject dust-bowl poverty, in which no one had money even for sufficient food or decent shelter, the Roaring Twenties replaced by haunting images from Dorothea Lange. Roth’s diary is a firsthand reminder that the reality was far more complex, that minibooms and minibusts existed during this period, in which post-1929 fortunes were being made as well as lost. Granted, the crash was one of the most devastating events in stock market history; the 1929 high in the Dow Jones Industrial Average of 381.17 would not be reached again for another quarter century. Yet in the period from 1929 to 1939, neither the stock market nor the economy as a whole went in one continuous direction.

  Benjamin Roth’s writing asks a central question, namely, how should an honest, prudent person create wealth, protect it, and build it over the course of a lifetime?

  It is fascinating to follow the evolution of Roth’s thinking about investment. As he watches the market mostly plunge in the 1931-1932 period, he seems mostly to feel that stocks are a sucker’s game. At the same time, he is tantalized by the prospect of bargain hunting among stocks—notably railroads and steel—that had lost nearly all their value, even though their underlying businesses seemed sure to rebound eventually. He also began to see that even though real estate seemed like a reliable investment—it is finite, tangible, and can be self-financing by charging rent—in a prolonged downturn, it could be devastating. The costs of upkeep, taxes, mortgage payments, and insurance are usually inflexible, whereas rental income could easily dry up if renters don’t have jobs. All around him buildings were being torn down because the owners would rather lose their investment than be forced into bankruptcy by their inability to pay property tax.

  In the mid-thirties Roth begins to lay out an approach to investing based on controlling risk, maintaining liquidity, and protecting principle. Today, even casual investors are familiar with ways to describe the types of investment strategies toward which Roth gravitated: “value investing,” “buy and hold,” even “dollar-cost averaging.” But for Roth, these were not strategies
to be bought off the rack; he had to build them himself—studiously, patiently, and, at least during the period covered by this book, entirely theoretically. He later regretted not having had the available cash to buy stocks when they hit historic lows and then recovered. (Roth would eventually come to buy individual stocks although, according to his son, only in very large companies, and always part of an investment portfolio that also included bonds and real estate.)

  Roth’s preoccupation with personal finance makes this diary something of an anomaly in Depression-era literature. Visit the nicely appointed library or historical society in Youngstown (they are practically kitty-corner across Wick Avenue from one another) and you will find volumes about the struggles of Youngstown’s working class: the fight to unionize, the need for relief and decent housing. Much of Depression-era scholarship understandably adopts that lens. On the other end of the spectrum, the very wealthy of every time and place always have their lives documented, immediately by local media and later by biographers. If anything, the modern wealth-and-celebrity industry had its origins in the Depression, spawned by people’s need to be entertained out of their dreary realities. But if there is—to use a Depression-era phrase—a “forgotten man” of this period’s history, it is the honest, striving professional. There is no question that millions of Americans had a harder time during the 1930s than Benjamin Roth and his immediate family. Presumably, those hardest hit left little by way of a permanent record of their experience, because they died of starvation or were silenced by abject poverty. A step up from that level provides us with the Depression images we carry in our collective back pocket: dust-bowl refugees, urban soup-kitchen lines, Tom Joad and The Grapes of Wrath.

  The endurance of those images is testimony to their truth, but Roth’s diary insists on an equal truth that is somewhat surprisingly absent from the nation’s 1930s yearbooks. Here is history told from the point of view of the Depression’s dramatically affected, but not its thoroughly trampled. At times—both when government aid is targeted directly at the poor and when a degree of prosperity returns in 1936—Roth seems a bit jealous that very little of the wealth being redistributed is ending up in the coffers of, say, lawyers such as himself. But he does not complain, and he does not propose a bailout for the professional class; instead, he redoubles his effort to understand the cycles of the economy and stock market and how best to invest. His mind is set on the potential for recovery, a particularly American predisposition.

  That was not typical of his time; it seems fair to say that no one in the 1930s paid as much attention to the stock market as Benjamin Roth, unless they were actually invested in it. Strangely, though, it is far more typical of our own era, when (depending on how one measures it) about half of Americans have money invested in stocks and when a simple act like sitting in an airport lounge or getting on an elevator can mean being bombarded with opinions of buy, sell, or hold. We are, as a consumer spending-driven, service-oriented, market-led country, more like Benjamin Roth today than we were when he was writing, and certainly more than we are like the steelworkers who were his contemporaries. Benjamin is our CNBC Everyman, transported back in time.

  Roth’s work has surprising literary power. He was not a professional writer; he was not immediately expecting a wide audience for these entries, and thus did not load them with fancy words, dazzling metaphors, or aphoristic sentences. (He did, though, have an ear for a cliffhanger ending to the individual notebooks.) Neither was he a trained economist or financial professional; especially in the early years of this diary, Roth seemed to genuinely struggle with some basics of investment and economics. He admirably held no illusions about his acquired expertise. As if constructing a kind of economic palimpsest, Roth would occasionally go back and annotate his earlier entries and did not hesitate to pronounce himself wrong. (Here, this hindsight commentary is indented on the page and marked with all-numeric dates [e.g., 8/13/52] to distinguish it from the real-time entries, where the full name of the month is spelled out.) Perhaps most important, though, Roth did not have the novelist’s or screenwriter’s luxury of knowing where the story was ultimately going.

  Yet it is the very limitations of Roth’s expertise that make the diary so compelling to us today. The diary forces us to confront that buried, throbbing sensation that tells us that no matter how prosperous or lucky or cunning the American economy has been for the past century, we still don’t have definitive, universal answers to some very fundamental economic questions, large and small, that almost obsessed Roth. How much debt is too much debt—for a household, a company, or a government? What is the most secure way to guarantee return on an investment without exposure to excessive risk (whatever excessive risk is)? How much can government prop up private enterprise without creating a moral hazard that hinders market dynamism? Why can’t economies continue to expand at a steady, manageable pace without lapsing into destructive boom-and-bust cycles?

  It is humbling and a little scary to realize that, since Benjamin Roth first began keeping his journal, millions and millions of man-hours have been spent framing, quantifying, and hypothesizing these questions without creating bulletproof answers or even much of a permanent consensus. Economics uses the statistics and ostensible precision one associates with, say, physics and astronomy. Yet to survey economic opinion on even seemingly simple questions gives the impression that economists as a group cannot consent to their equivalent of the hypothesis that the earth orbits the sun rather than the other way around.

  It’s easy (and instructive) to read this diary and reassure ourselves about how many lessons policy makers learned from the 1930s and how many more economic safety mechanisms are in place. Insurance for the unemployed and guaranteed Social Security income for the elderly and infirm are standard features of the American economy; without them, the impact of current recessions on individuals could easily be as bad as it was during the Depression. On the federal policy level, the government guarantee of bank deposits up to a certain monetary amount makes panicky bank runs less likely and less damaging (though by no means impossible, and of course there are those who argue that such guarantees are harmful; see the above observation about the earth and the sun). And when banks do close, the process is orderly and the impact on the overall financial system minimized. Moreover, decades of experience with monetary policy have given the Federal Reserve—a relatively new institution in Roth’s time—much greater power in steering the economy away from extremes of inflation or unemployment. In the decade covered by this diary, Roth rarely takes the time and the perspective to assess the value of these lessons learned in the New Deal and beyond; he wasn’t, after all, seeing many permanent signs of their efficacy. Still, there is much in Roth’s descriptions to bolster the arguments of those who wish to argue that today’s economic managers are much better off than their counterparts in the thirties.

  And yet: It’s nearly impossible for any reader in 2009 to examine this work without seeing stark, sometimes eerily prescient, parallels to our own age. Here, for example, is an entry from May 1933: “Investigations are the order of the day. The Senate is investigating private banking and in particular J. P. Morgan & Co. Mr. Morgan was on the witness stand all day yesterday and today. The evidence shows that his firm made loans to many men now prominent in public affairs.” There is this on June 1, 1933: “In looking back over the 3 months since Roosevelt became President it seems that the U.S. has traveled a long way toward some form of socialism or managed economy.” And this in 1932: “It looks as though the Democrats will win because everybody wants a ‘change.’”

  The point here is not whether bulls or bears are right or wrong within any snapshot of any decade, or whether critics of FDR in 1933 or Barack Obama in 2009 are off base or right on the money. Rather, Roth’s diary is a reminder that our economic security, individually and collectively, always rests on a complex interaction of market forces, politics, consumer perception, and the impact of unforeseen (and sometimes unforeseeable) events. As in so many
other areas, those offering predictions for the future or even detailed readings of the present are often wrong because of incomplete information, flawed statistical models, or hidden agendas.

  And even when they are right within a particular time frame, history often has other plans in mind. The Youngstown that Benjamin Roth knew and hoped to see revived—the booming steel town, where soot-choked skies meant prosperity—did in fact survive the Depression, thanks in large part to the military buildup during World War II, a major theme of this book’s final chapter. But Youngstown today has a fraction of the steel industry and population that it had in 1930; even by the late thirties, the steel industry’s need for cheap water-based transportation had moved much of the area’s production westward to the South Chicago-Gary, Indiana, area, so that shipments could go out via Lake Michigan. In a triumphant document issued in 1950 to celebrate its first half century of existence, Youngstown Sheet & Tube declared that it “looks forward to another fifty years, and then another, ad infinitum, of continued service to its buying public, its employees, its shareholders and its country.” That infinite vision no doubt made sense to the company and even to Roth at the time—this was one of the largest firms in a region that in midcentury was alone producing more steel than, say, France. But in reality the company would not last another two decades on its own, nor Youngstown’s industry as a whole much more than another thirty years.

  As I write this in June 2009, General Motors, once the largest private company in the world, has been delisted from the New York Stock Exchange. Benjamin Roth, I think, would probably not have recognized a world in which General Motors was not a major engine of the U.S. economy. Based on his diary, however, I think he would have soon grasped how it could come about. Stock markets and individual sectors may go up or down, for months or decades at a time, but certain broader economic forces—in his time, the international movement of gold or the buildup to war; in ours, deindustrialization and globalization—will always assert themselves.