Reed Smoot and the Great Depression

I was reading Jim Jubak today and noticed this article about how the Smoot-Hawley Tariff had, in Jubak’s opinion, caused the great depression. I was curious about this and looked up this Wikipedia article on it. The Wikipedia article was a bit more guarded about whether or not the act had ‘contributed to the severity of the Great Depression.’

All very interesting and I have no opinions on the subject but was curious what others thought about it. Feel free to comment on the original Jubak article as well. I’m curious what other’s think.

26 thoughts on “Reed Smoot and the Great Depression

  1. I am reminded of a professor I had at BYU. It was taught by a gentlemen (since deceased) named Delbert Palmer, who was originally from Southern Alberta. His father was a stake president in the 1920′s and 1930′s there. Bro Palmer recounted to me his memory of his father picking up Reed Smoot (who was the visiting GA for a stake conference) from the train station while the Smoot-Hawley Tariff Act was being considered. He recounted that Elder Smoot and Pres. Palmer spent the entire drive yelling at each other regarding the merits of the Act.

    I think history is pretty clear regarding the fact that the Smoot-Hawley Tariff was a disaster.

  2. An ill-advised Act with negative consequences, yes — but caused the Great Depression, as in single-handedly? Naw — that gives far too much weight to one event in a storm of complex causes.

  3. I generally agree with Ardis. The Depression was the result of the stock market crash and the response to it. One of the responses was a massive increase in govt spending and taxes, which was the wrong response at that time. Another response was Smoot-Hawley, which made a bad situation even worse.

    To blame Smoot-Hawley solely for the Depression when global trade was such a smaller part of our economy then is definitely ahistorical. But it is worth pointing out that hundreds of economists signed a letter to Hoover begging him not to sign the law. They predicted that it would cause a trade war, which it did.

    One interesting historical note: compare Harding’s response to the 1920-1921 crash to Hoover response to the 1929 crash. Harding slashed spending and lowered taxes, which led to the 1929 boom. Hoover increased spending and raised taxes and signed Smoot-Hawley, which made the situation worse.

    A good book to read on the subject is Amity Schlaes’ “The Forgotten Man.”

    By the way, the Japanese have been engaging in currency manipulation for decades. Not much to worry about there, imho.

  4. I think that it is important to put the tariff in historical context. Smoot was mainly interested in keeping out Cuban sugar. The beet sugar industry was the economic mainstay of rural communities in Utah and Southern Idaho and the Church had invested heavily in order to provide a livelihood for its people.

    The sugar beet was closely tied up with the traditional Mormon way of life. It was about the only cash crop that allowed a family to survive on a small acreage. Beet cultivation was labor intensive; even the children could help with thinning and topping the plants.

  5. Smoot-Hawley triggered world-wide trade wars which hurt economies worldwide.

    The Depression was triggered by multiple factors but the Act was a significant, substantial factor.

    The reason that a sharp downturn turned into the Great Depression though was poor policy choices on the part of the Federal Reserve (hat tip to Milton Friedman). They’ve learned since that you don’t tighten the money supply in a recession.

  6. The Depression was the result of the stock market crash and the response to it.

    There is apparently a good argument to be made that the imminent passage of the Smoot-Hawley tariff act was a major contributor to the stock market crash. The House passed Smoot-Hawley in May 1929, a few months before. The Senate passed it a few months after.

    That said, it doesn’t matter what _caused_ the Depression to start. What matters is why it lasted so long. Of those factors, Smoot-Hawley arguably ranks very high. According to the State Department:

    U.S. imports from Europe declined from a 1929 high of $1,334 million to just $390 million in 1932, while U.S. exports to Europe fell from $2,341 million in 1929 to $784 million in 1932. Overall, world trade declined by some 66% between 1929 and 1934

    In other words, Smoot-Hawley was basically all about kicking the economy while it was down. A two-thirds decline in 5% of the economy is enough to produce a major recession all by itself.

  7. Harding slashed spending and lowered taxes, which led to the 1929 boom.

    Uhh… better make that “1929 bubble.”

    (sings) Mister, we could use a man like Warren Harding again.

  8. LL, meant to write 1920s boom. That led to the 1929 crash. We could use some presidents like Harding and Coolidge again. Among the most under-rated presidents in U.S. history.

  9. Geoff, for someone who has on repeated occasion criticized the current administration for its links to corrupt individuals and appointees, I find it striking that you find Harding underrated. Or does corruption in presidential administrations only matter when you disagree with the president’s economic policies?

  10. Not Hoover. He was a progressive. Coolidge was worried about him and rightfully so. Each president has his faults and defects. I’ve praised Clinton for his economic policies and mostly ignored his many other faults because the economy is the most important issue right now. Want to discuss FDR’s affairs, the Japanese-American internment, the attempts to pack the Supreme Court, the encouragement of the FBI to spy on his opponents, the development of the atomic bomb? We could also concentrate on the many, many mistakes FDR made that extended the Depression and caused an even deeper downturn in 1937. Harding and Coolidge brought prosperity by reversing the progressive excesses. We could do with a bit of prosperity these days after 20 months of Obama, who has caused the poverty rate to hit its highest level in decades. If you truly cared about the poor you would favor policies that actually help them, rather than make their situation worse.

    Check out the chart on poverty since 1959 in the attached. Notice that the number of people in poverty goes down during times of economic growth and increases during economic slowdowns.

    http://en.wikipedia.org/wiki/Poverty_in_the_United_States

    Harding and Coolidge kept unemployment low, decreased spending and taxes and ushered in a period of true prosperity for the vast majority of Americans.

    http://eh.net/encyclopedia/article/Smiley.1920s.final

    If Hoover had responded to the 1929 crash the way Harding did to the 1920-1921 recession, the crisis would have ended within a year. Unfortunately, Hoover adopted policies eerily similar to Bush, the Dem Congress and Obama: a huge increase in govt spending and higher taxes. If the unions that control the Democratic party got their way, we’d get another Smoot-Hawley tariff tomorrow.

    http://www.thefreemanonline.org/featured/the-depression-youve-never-heard-of-1920-1921/#

  11. Just yeaterday I thought of the Smoot-Hawley act. I received in the mail a flyer from my congressman. He wants to put restrictive tarriffs on all Chineese imports. I was reminded of Smoot-Hawley. Just what we need now. Those who do not understand history are doomed to relive it.

  12. Christopher, a bit simplistic on your part. You need to look at the entire presidency. There are large groups of people who believe Lincoln was one of our worst presidents ever because he took unprecedented actions like unilaterally imposing an income tax and locking up his opponents and imposing a military draft. I take a more nuanced view and feel you need to look at the long-term view of his presidency, which is mostly positive. You would apparently side with those who concentrate on one aspect of a presidency for partisan political reasons.

  13. Bruce, you may be interested in this article on Hoover, which will help explain my view that he was a progressive.

    http://kalapanapundit.blogspot.com/2009/10/herbert-hoover-progressive.html

    To sum up, Hoover, unlike Harding and Coolidge, felt it was his job to engineer a massive govt response to every problem. He saw himself as the country’s “top engineer.” His attempt to control wages, raise taxes and increase spending — in addition to Smoot-Hawley — were of course exactly the wrong responses to the crisis.

  14. Geoff, My own opinions of various presidents are not at issue here, nor are any rankings of presidents. I simply noted that you’ve publicly castigated Obama for his connections to corrupt Chicago politicians, ministers, and professors and questioned why you are not applying the same scrutiny to Harding. You responded by ranting about FDR and Obama’s scandals and economic policies, which only confirms my impression that corruption and scandal only really matters to you when you dislike that president’s economic policies.

  15. Christopher, to settle this: I wrote Harding was under-rated. I also wrote his economic policies worked at getting the economy moving, which they did. I also pointed out that you can’t judge an entire presidency based on a few issues, which is simplistic. Obama has been linked to corrupt politicians, anti-American ministers and left-wing professors. He also is a good family man whom I sincerely believe is trying to do the best he can given his ideology. Unfortunately, he is making a lot of bad decisions, but it would be unfair to judge him solely on his ties to the Chicago mafia, just as it would be unfair to judge Harding solely on his ties to the Ohio mafia. History will redeem or condemn the Obama presidency based on a lot of factors. It is true, nonetheless, that economic factors and wars tend to be the two largest determining factors.

  16. Fair enough, Geoff. Just looking for some consistency. That’s all.

    By the way, it’s worth noting that some scholars have suggested that looking to the Great Depression of 1929 in an effort to make sense of today’s financial situation is somewhat misguided given the striking differences between the two. Scott Nelson, a professor of history at William and Mary, has suggested the depression of 1873 as a better parallel. His insights are worth reading, I think:

    http://srnels.people.wm.edu/articles/realGrtDepr.html

  17. Christopher, excellent point. There are also parallels to the 1837 Depression, which affected Joseph Smith and Kirtland in some interesting ways.

    I would agree that each downturn is a bit different and there are lessons to be learned from studying them.

  18. FWIW, the most corrupt administration in the last half-century was Reagan’s. Look it up and see how many were indicted, forced to resign or went to jail. No one else is even close.

    Now that we have so many economic experts speaking up, what was it that brought us out of the Great Depression?

  19. Don, the traditional view is that World War II ended the Great Depression. But if you accept this view, you have to accept that it is a good thing to have debt of over 100 percent of GDP and an economy so weak that leaders beg the populace to buy war bonds to fund government deficits. Given the realities of international finance today (it is much easier to get intl money today than in 1941), you would have to run deficits of 200 percent of GDP to have an equivalent situation. Is that what we want as a country (don’t worry, if that’s what you want we may get there if Democrats stay in power)?

    Another question to ask yourself is: what would have happened to the economy had New Deal policies continued in 1946? Well, we don’t know for sure, but we do know that the Republican/conservative Southern Dem Congress forced Truman to cut taxes and cut spending. Massively. The resulting boom lasted off and on (mostly on) until the 1970s. And in key moments along the way (JFK in 1962, for example), taxes were cut again.

    So, one lesson we learned is that huge deficits are extremely risky and problematic. Another lesson we learned is that cutting spending and taxes spurs investment.

    http://www.thefreemanonline.org/columns/what-ended-the-great-depression/

  20. Look it up and see how many were indicted, forced to resign or went to jail.

    There were a number of Reagan officials who were convicted of various offenses. Of the corruption related convictions, all rather minor compared to something like Teapot Dome. Not that it excuses any of them.

    In addition, I wouldn’t count resignation or indictment without conviction as necessarily indicating anything except perhaps poor judgment. Raymond Donovan (first secretary of Labor under Reagan) and _all_ his co-defendants were acquitted. He doesn’t deserve to be grouped in with officials who were.

  21. The economic downturn that turned into the depression started in the summer of 1929, the stock market crash that marks for many the beginning of the great depression was in October 1929, the Smoot Hawley Tariff was passed in June of 1930.

    The Smoot Hawley Tariff could not have caused the Great Depression,a simple look at the calendar suffices.

    That it was one of the many steps steps taken to try and turn things around is true. It might actually have helped to spread the Depression to some countries might be true…but is still debatable.

  22. The Smoot Hawley Tariff could not have caused the Great Depression,a simple look at the calendar suffices.

    The House passed Smoot-Hawley in May 1929. Investors had every reason to believe the Senate would pass it as well, and bad news like that is one of the things that contributes to an eventual market crash.

    Even if you don’t believe that Smoot-Hawley contributed to the _start_ of the depression, that is no argument against the proposition that it made it deeper and longer. The economy certainly never recovered while Smoot-Hawley was in full force. Congress started back-pedalling on Smoot-Hawley with the Trade Agreements Act of 1934.

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