Since I’ve been hearing about a push to bring back Glass-Steagall, I’ve been trying to remember what I learned in school about banking reform at the very bottom of the Great Depression.
Here’s what I recall: It wasn’t a 20th century problem only. The titans of the Gilded Age in the 19th century shrugged off any public protest about their gobbling, rapacious ways. Here in Minnesota, tycoons ignored the railroad-rate law of 1871. According to an article from the Mississippi Valley Historical Review, called “Opposition of Businessmen to Social Control,” the Standard Oil trust resisted inspection and claimed not to recall any details about widespread rate-fixing. Meat-packers, lumber barons and drug manufacturers rejected any government interference at all in the 19th century. Muckraking journalists exposed terrible abuses, but “the possibility that the public had a legitimate interest in the methods of business and finance was ignored or brusquely shouldered aside. …”
The 1870s and 1890s saw great depressions, global in scope, and the same era holds the history of many impressive working-class labor actions, poorly understood in our time, but worth learning about. Still, the Depression we recall with the greatest clarity and the one which we mark with the word Great occurred in the 20th century.
My parents both experienced it, and told me about it. My father’s family experienced the devastating loss of their main breadwinner, who dropped dead in his 40s. They all had to move out of their home, my father lost any hope of college. According to my Dad’s tales, the house had been a precarious reach for my grandfather, a furniture salesman, but he got a deal because he’d selected furnishings for the whole development. An amateur artist, he had also painted a frieze of fruit around the kitchen walls, to my mind the very picture of the American Dream. It all had to be left behind.
My mother’s family, as she recalled it, was probably poor, but because they lived out in the country with lots of kids and land to farm, they had enough to eat and never “felt” poor. I think they were sheltered by their isolation from much of what went on in the larger world. My mother attended a one-room schoolhouse through grade school, filled with her siblings.
These are the apocryphal tales. I wasn’t there. The long and the short of it is: They were people who knew how to deal with the privations of World War II rationing better than most of us know how to deal with the privations of our own time. I still have my mother’s old newlywed cookbook. It has an appendix on preparing food during wartime, uncanny how it mirrors all the things we’re doing now: grow your own food, waste nothing, eat less meat, learn to can and preserve what you grow.
During the Great Depression of the 1930s, the collapse of demand led to unemployment from 15 to 25 percent for nearly an entire decade. The president of the nation’s second largest bank, Chase National of New York, was selling his own bank’s stock short, and profited off the decline, causing widespread scandal. The head of the New York Stock Exchange (and brother of a J.P. Morgan partner) went to Washington to insist that the exchange was not a legitimate concern of government’s and that capital would strike if regulated.
Of course, this was before America learned that his brother at Morgan’s had been lending him money to shore up a get-rich-quick gamble on a hard-cider beverage called “Jersey Lightning.” He ended up embezzling money from his clients to cover the losses and got sent up to Sing Sing.
Shades of Bernard Madoff?
Times were very hard for many people. Towns blew away in Dust Storms, causing a refugee exodus to the West Coast. Suicides skyrocketed. Kidnappings and gangsterism abounded.
So Glass-Steagall of 1933, separating commercial and investment banking, and other laws passed by Congress, including the Securities and Exchange Act of 1934 and the Federal Deposit Insurance Corp. protecting the small depositor, yanked financiers’ chains at a time when they were deeply unpopular.
Thousands of banks failed – more than 4,000 in 1933 alone. Control came in the form of divide and conquer. More power was given to states over branch banking after the collapse. The Federal Reserve set ceilings on interest rates. Some of the industries that proved harder to regulate because they were so volatile included what today we might call the energy sector – oil from Texas boomed during the Depression - as well as utilities and transportation: trucking was supplanting railroads at the time, while the airlines were just taking off, pun unintentional, as an important business sector.
The point of all this is to say that big business NEVER wants regulation.
The New Deal, although all of its innovations were imperfect and it took years to start turning things around, did stimulate jobs and create a more stable, predictable capitalist economy that evened the playing somewhat for small- to medium-sized businesses.
I think the hostility to that period is simplistic and naive. Today we live in a globalized world where the “strike” planned by capital is hardly necessary. Its ends have already been achieved by offshore tax havens and outsourcing/downsizing. The digital transition is, in my opinion, kind of a pig in a poke. Hailed for its transformative power as an economic engine, it’s just the burgeoning industry that as yet has not been effectively regulated. All parties are wrestling over control of it. Most of what has been offered to regular people for FREE thus far is temporary, to encourage people to share their precious personal data, their identities and contacts, and then to create a demand where none existed that can be charged a monthly rent by the new landlords.
St. Steve Jobs was a populist plutocrat, democratic because we could all sing along to HisTunes. Bill Gates, like Carnegie, wants to bring learning to the masses, not through libraries but through charter school funding. While behind the scenes of the lawsuit scuffles over Zuckerberg’s billions lie the real scenes, sweatshops in China and places like Thailand, where – thanks to global warming – the rising tide is literal, it’s not lifting all boats. It’s not lifting any boats unless it is to crash them into flooded homes.
It seems bizarre to me that everyone argues over Marxism. The industrial class model seems so hidebound and old-fashioned. Yes, in mature capitalism the ruling class controls the state; as in totalitarianism – fascist, communist or what you will - the party controls the government apparatus including the law and twists it to its own nefarious, repressive ends.
I would say the model to be looked at more closely in our United States, today, is the defense-industrialist state, which dates from the end of World War II. There’s always a group pushing military spending, which creates deficits for the many and fortunes for the few. As an old teacher of mine once said, “It doesn’t make the future economy more productive.”
Not to mention that its main products are death and destruction.