Some modern theories that seek to explain the extreme length and depth of the Great Depression without relying directly on any of these narratives seem plausible. Harold L. Cole and Lee E. Ohanian (2004) argue that the 1933 National Industrial Recovery Act, which imposed “codes of fair competition” in an effort to combat the Great Depression, actually prolonged the Depression. (The act was in response to another narrative about inadequate purchasing power, described in chapter 13, below.) The act made it easier for businesses to form cartels and more difficult for them to cut wages. Although the Supreme Court declared the act unconstitutional in 1935, Cole and Ohanian argue that the Roosevelt administration managed to keep the codes in effect. In addition, the initial period of high unemployment led to continued high unemployment because the remaining employed labor became “insiders” while those laid off became “outsiders.” As Assar Lindbeck and Dennis J. Snower27 have argued, the insiders tend to band together and ask for higher wages when demand increases, rather than ask for the laid-off “outsiders” to be rehired.
Other theories have merit too. Economic historians Barry Eichengreen and Peter Temin have argued that the length and pain of the Great Depression were related to the unthinking national commitment to the gold standard despite changes in labor markets that made wages more downwardly rigid. They have shown that countries that abandoned the gold standard earlier recovered better.28
Milton Friedman and Anna J. Schwartz in their Monetary History of the United States had blamed the Great Depression on the Federal Reserve and its control of the money supply. But Eichengreen and Temin argued that declines in the US money supply were mostly caused by the economy, not the Fed. Declines in the money supply were triggered in part by the bank runs that were caused by the same feedback that created the Great Depression. In effect, Friedman and Schwartz argued that the Fed would have done better if it had offset these declines. Temin also observed that Friedman and Schwartz indicated no substantial correspondence between the bank runs and measures of economic activity.
These economists tell only part of the story of the severity of the Great Depression. The comedian Groucho Marx offered a more entertaining, popular account of the Great Depression. According to his autobiography, published in 1959, Groucho was in his early thirties in the late 1920s, making good money as an actor in popular vaudeville stage shows. He recalls:
Soon a much hotter business than show business attracted my attention and the attention of the country. It was a little thing called the stock market. I first became acquainted with it around 1926. It was a pleasant surprise to discover that I was a pretty shrewd trader. Or at least so it seemed, for everything I bought went up.… My salary in Cocoanuts was around two thousand a week, but this was pin money compared to the dough I was theoretically making in Wall Street. Mind you, I enjoyed doing the show, but I had very little interest in the salary. I took market tips from everybody. It’s hard to believe it now, but incidents like the following were commonplace in those days.29
Groucho goes on to describe a number of tips that he and his brothers overconfidently bet on: a tip from the elevator man, a Wall Streeter, his theatrical producer, and someone he met on a golf course. He views the whole experience as a great “folly” and struggles to understand his own participation in it. Ideas about the craziness of the Roaring Twenties and the Great Depression became legendary through the persuasive accounts of good storytellers like Groucho Marx, who had much more public influence than economists.
FIGURE 10.4. Frequency of Appearance of Great Depression in Books, 1900–2008, and News, 1900–2019
The narrative of the Great Depression has been a long-lasting epidemic that outlasted the Depression itself by many decades. Sources: Google Ngrams, no smoothing, and author’s calculations from ProQuest News & Newspapers.
In fact, attention to this story has largely kept growing and growing. Figure 10.4 suggests that far more attention was paid to the Great Depression in 2009 than during the Great Depression itself, though we must understand that people hadn’t named the economic downturn the “Great Depression” as it was happening. Instead, they called it “hard times.” Other Depression-linked narratives of the period were associated with words unusual to that period, such as breadline, whose use grew rapidly from 1929 to 1934 and has decayed fairly steadily ever since. The interest in the Great Depression in 2009 is confirmed in Google Trends search counts as well, though not as dramatically as those shown in Figure 10.4.
Ultimately, how do narratives of the Great Depression affect how we think about economic downturns today? Consider a narrative-based chronology of the 2007–9 world financial crisis, which taps into stories about nineteenth-century bank runs that were virtually synonymous with financial crises. After the Great Depression, bank runs were thought to be cured. The Northern Rock bank run in 2007, the first UK bank run since 1866, brought back the old narratives of panicked depositors and angry crowds outside closed banks. The story led to an international skittishness, to the Washington Mutual (WaMu) bank run a year later in the United States, and to the Reserve Prime Fund run a few days after that in 2008. These events then led to the very unconventional US government guarantee of US money market funds for a year. Apparently, governments were aware that they could not allow the old stories of bank runs to feed public anxiety.
In the heart of the 2007–9 recession, the Great Depression narrative may have intertwined with bank run narratives to create this popular perception: “We have passed through a euphoric, speculative, immoral period like the Roaring Twenties. The stock market and banks are collapsing now as they did in 1929, and the entire economy might collapse again, as it did in the 1930s. We might all lose our jobs and crowd around failed banks in a desperate attempt to get our money.”
In short, the Great Depression and its causes (after a period of euphoria, loss of confidence) remain a powerful narrative. The Great Depression was a traumatic period in the nation’s history that is constantly on people’s minds as they listen to other narratives regarding what may happen next. Far less remembered than the confidence and fear constellation of stories is a different constellation that was also prominent in the minds of people who lived during the Great Depression: narratives about modesty, compassion, and simple living. These narratives are mostly in remission and as of this writing have been replaced by success narratives that justify conspicuous consumption, as we discuss in the next chapter.
Chapter 11
Frugality versus Conspicuous Consumption
Frugality and an impulse to maintain a modest lifestyle have roots going back to ancient times. Sumptuary laws in ancient Greece and Rome, as well as China, Japan, and other countries, forbade excess ostentation. Stories about the disgusting flaunting of wealth are one of the longest-running perennial narratives, in many countries and religions. Opposing these frugality narratives are conspicuous consumption narratives: to succeed in life, one must display one’s success as an indication of achievement and power. The two narratives are at constant war, with modesty relatively strong during some periods and conspicuous consumption dominant at other times. Both are important economic narratives because they affect how people spend or save, and hence they influence the overall state of the economy. In fact, these narratives can have profound economic consequences that economists and policymakers would not necessarily anticipate.
Frugality and Compassion in the Great Depression
During the Great Depression in the 1930s, frugality narratives were particularly strong amidst the perception of widespread involuntary unemployment. They were also a reaction to the perceived excess of the 1920s, which we can see by the rapid growth then of the phrase keep up with the Joneses, generally used to disparage people who think that, to keep up appearances, they have to buy everything that their successful neighbors buy. Indeed, the use of that phrase grew most rapidly during the 1930s. It is difficult to find accounts of depression-induced modesty in the era before the Great Depression.1 The “new modesty” stayed
high during World War II and into the 1950s, and then started to decline.
The new modesty that coincided with the Great Depression and World War II evolved out of the strong narrative that people were suffering through no fault of their own. They lost their jobs because of the Depression, and some lost their lives later because of the war. Maybe your Jones neighbors were doing very well, but your Smith neighbors were having a terribly difficult time, like so many other families during the Depression. A huge constellation of human tragedy narratives prevailed through word of mouth among friends and neighbors, stories of families out on the street after the father lost his job and defaulted on his mortgage and lost the home, through no fault of his own. Under such conditions, the reasonable response even for people who still had a job was to postpone buying a new car, throwing lavish parties, and keeping up with expensive fashions. Such self-imposed austerity helps to explain the severe contraction at the beginning of the Depression as well as the contraction of consumer purchases during World War II.
Depression-Era Narratives in Their Own Words
The talk of the time reflects the dominant narrative. Here is a Depression-era letter to the Boston Globe’s “Household Department—Where Women Help Women—Confidential Chat” column, a sort of Twitter, Weibo, or Reddit from another era, where women would write and advise one another under pseudonyms. The following letter appeared in March 1930, six months after the 1929 stock market crash:
Dear Mikado—In one of your recent letters asking for a budget you said that your savings had been wiped away in the recent financial crash, so I am addressing this letter to you as we surely have something in common, only in my case we not only lost what we had but are deeply in debt as a result.
However, my problem is this: we can pay back this money in about 10 years if we continue to live practically as we are now living, that is, in our present home, by practicing rigid economy. Of course we could move to a cheaper house, live on only the bare necessities of life and get out of this debt sooner, but what I would like you, Lanceolata, and any of the other sisters who will write to tell me whether you think it wise to do this.…
I am afraid to move, for I fear the moral effect on us. Our standard of living will be lowered and I am afraid to think of the readjustment and the effect of such a move on our spirits, our courage and outlook on life. This may not seem very brave, but unless one has been through such a period it is hard to realize the strain and the worry and hard to keep a calm outlook on life … Chryold.2
When one has neighbors like Chryold, who are desperately hanging on, showing off with extravagant consumption would be seen as deeply unempathetic. It is noteworthy that the writer introspectively refers to “our spirits,” which calls to mind Keynes’s idea that depressions are caused by declines in “animal spirits.” Her decision whether to sell the house is framed in such psychological terms: she has to manage her family’s spirits. Managing people’s spirits was an important theme of the era’s talk, from the common American to the nation’s leadership, from individual heads of households to the president of the United States, Herbert Hoover, who spoke optimistically and encouraged optimistic talk in others.
It seems highly likely that Chryold’s family and many other families in a similar (or worse) situation would postpone buying a new car. Realistically, the children in each family would receive almost no signal that the family is in financial trouble if their parents postpone the purchase of new car. However, they would notice canceled vacations and canceled trips to the movies.
Indeed, concerns about family morale became a new epidemic after 1929, peaking in 1931 but staying high for the rest of the Great Depression. (There had been an earlier rush of stories about family morale during the 1920–21 depression also.) The rising divorce rate was attributed to the loss of morale, especially the shame of a father who was unable to find a job.3 People considered this loss of morale as a new long-term problem in the making, a problem that might become increasingly significant in the future. A women’s group in 1936 asserted:
The family is the unit upon which our whole American system of living is built.… Any collapse now of its morale or loss of its solvency will have a disastrous effect on posterity.4
This narrative justified postponing unnecessary expenditures while maintaining an attitude of normalcy, but in doing so it contributed to prolonging the economic depression. It also offered a reason for families not affected by the Depression to avoid conspicuous consumption, in deference to the perceived suffering of other families and the outlook for more of the same. Newspapers offered suggestions for maintaining the family morale without spending much:
Frequently, if resources are at a low ebb, much may be done by rearranging the furniture, changing the positions of heavy pieces (always being careful to maintain a perfect balance in the room) and moving pictures into different spaces. Many a woman by dint of some ingenuity along this line, has secured all the benefits of a trip without leaving her own four walls. Her outlook on life has been cleaned and pressed, in a manner of speaking.5
Listening to people’s stories of the Great Depression in their own words also offers striking insights. In Only Yesterday (1931), Frederick Lewis Allen spoke of a more modest countenance and deeper religiosity, of “striking alterations in the national temper and ways of American life.… One could hardly walk a block in any American city or town without noticing some of them.”6 Rita Weiman, an author and actress, described the change too, in the Washington Post in 1932, comparing the Great Depression with the 1920s:
During those years of inflation, when we were right on the edge of a precipice all the time, we lost our sense of perspective. We spent fabulous sums for objects and pleasures out of all proportion to the value received. If it cost a great deal of money, we promptly came to the conclusion that they must be good.… Take the matter of home entertainment. Many of us had almost forgotten how much fun it can be to gather friends around one’s own table. Any number of us suffered from “restaurant digestion.”7
The Great Depression became a time of reflection about what is important in life beyond spending money. Writing in the United Kingdom in 1931, columnist Winifred Holtby asked:
In other words, can we not use this period to get rid of a little snobbery and bunkum and live lives dictated by our own tastes instead of our neighbours’ supposed notions of “what is done”? With so much to do, and a world so rich in experience, must we shut ourselves up into little genteel compartments in which we all adopt the same arbitrary standards, wear the same things, eat the same things, and produce the same sad monotony of “appearances”? … Can we not remember the wisdom of Marie Lloyd’s old song, “It’s a little of what you fancy does you good!”?—not a little of what you fancy your neighbours will fancy that you ought to fancy. Can we not dare to be poor?8
In 1932, near the lowest ebb of the Great Depression, Catherine Hackett, another writer, explained her view of the new morality in the Great Depression:
In the old Boom era I could buy a jar of bath salts or an extra pair of evening slippers without an uncomfortable consciousness of the poor who lacked the necessities of life. I could always reflect happily on the much-publicized day laborers who wore silk shirts and rode to their work in Fords. Now it was different. The Joneses were considered to be callous to human misery if they continued to give big parties and wear fine clothes.9
Despite such narratives, it appears that some dimensions of the “hard times” of the Great Depression were a desirable improvement over the 1920s. Anne O’Hare McCormick, a Pulitzer Prize–winning journalist for the New York Times, wrote in 1932:
There are times when the complacency, the rugged selfishness and the greed for hokum of one’s compatriots are hard to bear. This is not one of those times. At the bottom of the market we are much nicer than we are at the top. Main Street in a depression is the most neighborly street in the world. It is a very patient thoroughfare.10
In addition, it was noted during the Great Dep
ression that there was no increase in crime despite the high rate of unemployment.11 Perhaps this phenomenon was related to the increase in “neighborly” and “patient” sentiments that softened the sense of personal failure created by unemployment that might otherwise have led to crime.
Though the streets may have become more neighborly, the human misery was palpable on the street corners. In the early 1930s there was “a perfect epidemic of pan-handling and street begging.”12 In 1932 the Washington Post reported, “Panhandlers have become especially active during the depression. They find that people who do not believe in giving to professional beggars are especially soft-hearted at present.”13
An epidemic of apple sellers, starting in New York City in the fall of 1930, spread nationwide.14 The sellers were practically admitting that they were beggars, often displaying signs saying “Unemployed” or “Eat an apple and help me keep the wolf away.”15 In effect, they were begging, but selling the apples made them look more reputable and approachable. Newspapers also carried stories of crimes committed by beggars who hadn’t received the requested alms, so their presence created an atmosphere of fear, which surely discouraged conspicuous consumption.16
Beyond the visible beggars there were narratives about the internal struggle of others not visibly unemployed. Benjamin Roth, a lawyer, wrote in his personal diary on August 9, 1931:
Narrative Economics Page 16