Can the entire story of the worst economic disaster in American history really be told from just eight words in a political party’s platform? In this case, yes.
Here are the fateful words that introduced the second section of the Republican Party’s 1932 platform, right after a waffling plank on prohibition: “We believe in the principle of high wages.”
This was Herbert Hoover speaking. His most cherished economic belief was that wages could not be allowed to fall, and after the Crash of 1929 he vigorously jawboned business leaders to keep wages up. It was not just a question of persuasion. He made it clear that if businesses did not do as he demanded, legislative wage controls would swiftly follow. Business leaders were afraid to defy this edict, and did their best to keep wages where they had been.
The results were utterly disastrous. Since the prices of products and services were in a deflationary downward spiral, the most effective way to avoid bankruptcy would have been to cut wages and other costs. This had been done in the Depression of 1921 with impressive results. That depression, chronicled in an excellent history by Jim Grant, The Forgotten Depression, was over in a year and a half. Nor did workers in aggregate suffer from lower wages. Their lower wages bought the same amount of goods and services at reduced prices.
The Forgotten Depressi…
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Confronted with rapidly falling prices following the Crash along with frozen wages, business owners resorted to the only expedient left: massive layoffs. It was their last resort and the only possible way to try to save their businesses. As a direct result of Hoover’s twisted logic, millions of…