Dr. Lee Ohanian and the Cause of the Great Depression

 Introduction

Lee Ohanian presents a fiscally conservative perspective on the causes and end of the Great Depression that reflects a traditional understanding of the limits of a federal government. The purpose of this article is to analyze his perspective in light of typical historical narratives about the era.

A more traditional narrative would place the blame for the depression at the feet of the son of a Quaker blacksmith, Herbert Hoover. Hoover was elected as the 31st President in 1929 as a Republican after earning international renown as a humanitarian in his efforts to provide food to millions in Central Europe, including Soviet Russians in 1921. Upon receiving the Republican nomination in 1928, Hoover proclaimed that “we in America are nearer to the final triumph over poverty than ever before in the history of any land” (1). The stock market would crash in October of 1929, barely eight months after his inauguration. Critics of the President argue that his Republican positions of non-interference were directly to blame for the crisis. According to the Gilder Lehrman Institute of American History out of New York, Hoover “refused to involve the federal government in forcing fixed prices, controlling businesses, or manipulating the value of the currency” (2).

Dr. Lee Ohanian, a professor of economics at UCLA, disagrees with this consensus and argues that Hoover constantly meddled with the economy on a federal level, leading to an extension of the Great Depression and a drastic increase in both price and unemployment. Ohanian explains that “Hoover’s program substantially depressed the economy, reducing aggregate output and hours worked by about 20 percent” (3). In short, rather than seeing Hoover as a do-nothing Republican, Ohanian sees Hoover’s economic meddling as an exacerbation of the existing problems.

Causes of the Great Depression

According to Ohanian, Hoover distrusted the free market and feared that unfettered financial competition could force a reduction in the prices of industrial and commonplace goods. From this perspective, lower prices could mean lower wages. Lower wages were unacceptable to the growing unions, creating tension for the heads of key industries. In 1929, Hoover met with Henry Ford, Alfred Sloan of General Motors, and Pierre DuPont of DuPont Chemicals along with other American titans to reach some kind of agreement that might protect wages and jobs and rescue the plunging economy. The President’s solution centered on the idea that wages should not change, and that corporations should minimize layoffs by allowing employers to share the labor. He envisioned these corporations keeping their staff and their staff’s salary in place so they could maintain their purchasing power in the marketplace. He also promised to convince the workers and labor organizations not to strike or make additional demands in regard to salary or benefits. As a result, labor organizations agreed to authorize no strikes, and the industrial captains promised to not cut wages.

This failed when prices for industrial goods declined, severely decreasing income for the organizations that produced both goods and jobs. On June 19, 1930, Hoover signed the Smoot-Harley Tariff Act, recognized as one of “the most catastrophic acts in congressional history” (4). The act raised tariffs on imports to the highest levels in over a century, and in return, other nations retaliated by placing high tariffs on American exports. This meant that fewer people abroad could afford to buy American producs, and fewer Americans could afford to buy goods that came from abroad. Hoover also refused cut wages, which gave the industries very little wiggle room to save costs and turn a profit. Hoover is reported to have said, “If we cut wages, there will be hell to pay with unions” (5). Unable to keep a profit, companies began laying off their workers anyways. Unemployment skyrocketed from 3.2% in 1929 to 23.6% in 1932.

In a characteristically non-Republican move, Hoover began great works to promote production and generate economic activity. The dam would begin construction under Hoover’s direction across the Colorado River. It was indeed an engineering marvel, but would not repay its cost until 1987. Ohanian’s point is that Hoover’s actions–including raising taxes for the wealthy–directly extended the length of the Great Depression. The narrative which argues that Hoover failed to act is simply inaccurate; what is accurate to say is that Hoover’s chosen methods of intervention failed. Ohanian believes that Hoover should have let the free market heal itself without forceful government intervention in the crisis.

End of the Great Depression

Ohanian is also critical of Roosevelt, who based his presidential policies based on what happened to the economy in World War I. During the war, the government established planning boards that set wages and prices for key industries. Economic activity swelled during the war, and Roosevelt theorized that this should be true in peacetime as well. Ohanian argues that “Roosevelt confused the increase in economic activity” with what was actually happening, asserting that the boost in the economy was due to the “result of inflated war demand” and not “government planning” (6).

He is, therefore, skeptical that any of Roosevelt's interventions actually helped. He posits that the economy was in the process of fixing itself and that both Presidents should have trusted private industry to manage the economy throughout the crisis. Instead, both prices and wages rose about 20%, impeding the natural forces of free-market competition, and decreasing productivity across the nation with a staggering number of fewer workers. From his perspective, Ohanian believes the Great Depression–which ended in 1939 as World War II was ramping up in Europe–could have ended in the United States as early as 1936.

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1. The White House, “Herbert Hoover,” The White House (The White House, 2017), https://www.whitehouse.gov/about-the-white-house/presidents/herbert-hoover/.

2. “Herbert Hoover on the Great Depression and New Deal, 1931–1933,” Gilder Lehrman Institute of American History, 2023, https://www.gilderlehrman.org/history-resources/spotlight-primary-source/herbert-hoover-great-depression-and-new-deal-1931-1933.

3. Lee Ohanian, “What - or Who - Started the Great Depression?,” National Bureau of Economic Research, August 2009, https://doi.org/10.3386/w15258.
   
   

4. United States Senate, “U.S. Senate: The Senate Passes the Smoot-Hawley Tariff,” Senate.gov, March 9, 2018, https://www.senate.gov/artandhistory/history/minute/Senate_Passes_Smoot_Hawley_Tariff.htm.
   
   

5. Lee Ohanian, “Hoover and the Great Depression” (Prager University, n.d.), https://assets.ctfassets.net/qnesrjodfi80/x9BexHH5zUqY8EaSs8CwW/39f4e6f463be32f09f99993f11e040dd/ohanian-hoover_and_the_great_depression-transcript.pdf.
   
   

6. Ibid.

Bibliography

Gilder Lehrman Institute of American History. “Herbert Hoover on the Great Depression and New Deal, 1931–1933,” 2023. https://www.gilderlehrman.org/history-resources/spotlight-primary-source/herbert-hoover-great-depression-and-new-deal-1931-1933.

“Industrial Men Meet Hoover. Another Conference Called by President Hoover Was Held at the White House This Morning. This Time It Was a Group of the Leading Industrial Heads of the Country. In the Group, Fifth from the Ri Is the Secretary of the Treasury, Andrew Mellon, Ninth from the Right, the Secretary of Commerce Robert P. Lamont and Seventh from the Right Is Henry Ford. Others in the Group Are, Julius Rosenwald, Clarence M. Wooley, Walter Teagle, Owen D. Young, Matthew S. Sloan, E.G. Grace, Myron C. Taylor, Alfred P. Sloan, Jr., Pierre Dupont, Walter Gifford, Samuel W. Reyburn, Jesse I. Straud, William Butterworth, E.J. Kulas, George Laughlin, A.W. Robertson, Redfield Proctor, Philip H. Gadsen, Ernest T. Trigg, Henry M. Robinson and Julius Barnes.” Library of Congress. Accessed July 27, 2023. https://www.loc.gov/resource/hec.35593/.

Ohanian, Lee. “Hoover and the Great Depression.” Prager University, n.d. https://assets.ctfassets.net/qnesrjodfi80/x9BexHH5zUqY8EaSs8CwW/39f4e6f463be32f09f99993f11e040dd/ohanian-hoover_and_the_great_depression-transcript.pdf.

———. “What - or Who - Started the Great Depression?” National Bureau of Economic Research, August 2009. https://doi.org/10.3386/w15258.

The Herbert Hoover Presidential Library and Museum. “The Hoover Dam,” May 18, 2021. https://hoover.archives.gov/hoover-dam.

The White House. “Herbert Hoover.” The White House. The White House, 2017. https://www.whitehouse.gov/about-the-white-house/presidents/herbert-hoover/.

United States Senate. “U.S. Senate: The Senate Passes the Smoot-Hawley Tariff.” Senate.gov, March 9, 2018. https://www.senate.gov/artandhistory/history/minute/Senate_Passes_Smoot_Hawley_Tariff.htm.

The Maceos: Rebuilding Galveston in the Age of Organized Crime

In the 1920s, Galveston was widely considered by its inhabitants to exist outside the laws of mainland Texas. It was a Gulf kingdom unto itself, and quite separated from the rest of the United States. The locals called themselves the Free State of Galveston., and at times even referred to themselves a separate republic. The republic, however, looked much like a pyramid. At the very top sat the Maceos, an Italian-American family that dominated the island with tourism, gambling, booze, and vice. Big brother Rosario Maceo–often simply called Rose or even Papa Rose–immigrated to Louisiana to be a barber. When he came to Galveston, he cut hair at a shop in Murdoch’s Pier, a location that still exists over the water today. His little brother Salvatore–known affectionately by the locals as Big Sam–worked at the Galvez Hotel. Both men would eventually embrace a new career that reflected their experience with organized crime in Sicily.

Rosario and his kid brother Sam first moved to the sleepy town around ten years after the city has been devastated by the greatest storm the United States has ever seen. The hurricane of 1900 ruined Galveston’s prospects as the primary port of the Lone Star State, and instead shifted the majority of incoming commerce to nearby Houston. Buildings across the island had been flattened, leaving a city of wave-washed rubble. Galveston would try to win back some of its previous vigor with new industrial endeavors, including tourism, but there was very little traction in that regard as it attempted to rebuild. Galveston would never recover its antebellum prestige or its strategic importance to the United States, but it is still a popular destination for tourists in Texas today. Salvatore Maceo was the visionary of the pair, but Rose Maceo forced the vision into reality. That money was made through the import of vice into the county.

The Enforcer Rosario would loom large over Galveston’s history until his death in the late March, 1954. His rise to power in the Galveston criminal world began in 1921, just a few years after . One of Rose Maceo’s regular customers, a German immigrant by the name of Dutch Voight, who was in a bit of tight spot after federal agents had been made aware of a shipment of 1,500 bottles of liquor. He wanted Maceo to store the illicit drink at his basement, and he was willing to pay him $1 per bottle stored. Rose and his brother had previously given out illegal wine to their best customers in hollowed out loaves of bread, but this was different. The elder Maceo brother knew that this “favor” for a gangster was an opportunity to move on from cutting hair.

When it came time for Voight to pay him what was owed, Maceo refused the money and asked for it to be invested into the operations of Voight’s organization, the Beach Gang. The beach gang was one of two that attempted to bring booze and vice into the island. Their rivals, the Downtown Gang, would eventually be driven out after Rosario got involved. Maceo had earned a reputation as a trustworthy man while cutting hair on the seawall.

He also asked for himself and his brother to become involved in the next operation, as well. The Maceo Empire began in that moment, and its success in bring both booze and people to Galveston would forever alter the city’s primary function. Where Galveston had been a bustling port before the devastating Hurricane of 1900, now it would be a premier tourist definition on America’s third coast.

Based on experiences gained with organized crime in both Sicily and New Orleans, Rose Maceo would eventually take over leadership of the Beach Gang. Through patience, theft of rival booze shipments, and actual gun battles onthe streets of Galveston, the Beach Gang reigned supreme and pushed out their rivals. The gang, however, was still led by Dutch Voight. The pathway to power over the organization–and thus the island–was paved with real estate purchases and the smoky haze of speakeasies.

Organized crime brought in tremendous ammounts of revenue because they effectively controlled the market. Gangs like those in Galveston were the only place in town to get booze, and the public was willing to pay high prices to secure it. In Galveston, even law enforcement was more than willing to turn a blind eye to the Maceos and their speakeasies as long as it did not turn violent. On two different occasions when it did turn violent, Galveston juries allowed Rose Macio to walk.

The Macios began their liquor operations with a humble soda shop that served as a front to their bootlegging, but eventually graduated to a new place called the “Chop Suey Café” that opened in 1922. The café served alcohol and offered gambling behind closed doors, and led them to create the Hollywood DInner Club in 1926. They offered alcohol and gambling openly, and law enforcement in the city turned a blind eye as it also brought in revenue and record numbers of tourists. Galveston’s brief success in the roaring twenties continued, linked with the Maceo’s abilities to walk the knife’s edge that was organized crime in prohibition Texas.


Bibliography

Smith, William Michael. “When Frank Sinatra Played Juarez... And Galveston.” Houston Press, October 21, 2010. https://www.houstonpress.com/music/when-frank-sinatra-played-juarez-and-galveston-6504824.

T. Nicole Boatman, Scott H Belshaw, and Richard B McCaskin. “Advertisement for Hollywood Dinner Club” in Galveston’s Maceo Family Empire. Arcadia Publishing, 2014.

———. Galveston’s Maceo Family Empire. Arcadia Publishing, 2014.

Texas Archive of the Moving Image. “2,000 Homeless as Severe Flood Hits Texas City,” n.d. https://texasarchive.org/2006_00064.

Texas Archive of the Moving Image. “Galveston Hurricane of 1900 - Panorama of Galveston Power House (Galveston, Texas Hurricane and Tidal Wave),” n.d. https://texasarchive.org/2006_00115.

Texas Archive of the Moving Image. “Galveston Hurricane of 1900 - Panorama of Wreckage of Water Front.” Accessed July 21, 2023. https://texasarchive.org/2006_00117.

“The Bootlegging Business: An Economic Analysis of Organized Crime during Prohibition .” University of Tennessee Knoxville, April 1999. https://trace.tennessee.edu/cgi/viewcontent.cgi?article=1323&context=utk_chanhonoproj.

Integration in Aledo, Texas

 

Charles Morgan, Father of the Houston Ship Channel

 

The Collapse of Cotton on the Gulf Coast: Whatever happened to New Orleans and Galveston?

  Cotton was by far one of America’s most important crops in the nineteenth century. Cotton took over the American South after the invention of the Cotton Gin in 1793, giving way to a new industry that brought it untold wealth from domestic and global trade. New England and the British Isles demanded the increased production of Cotton, and the South did everything in its power to produce as much of it as humanly possible. Both Galveston and New Orleans would struggle to recover their antebellum prowess in the years after the Civil War, and cotton production in the United States forever shifted away from the coast with the expansion of the railroad.

By 1860, the United States was producing over four million bales of cotton in a year, Most of that cotton–over 75%–was being sold to Great Britain through the Gulf Coast markets. Great Britain would, in turn, transform the material on their revolutionary looms, fueling the expansion of the Industrial Revolution throughout Europe. The Civil War, however, turned the cotton industry on its head, leaving a gaping hole that began to challenge the world’s growing addiction. The British looms looked to India to supply their cotton needs, but eagerly desired a return of antebellum production from the United States. The two cities on which all hopes rested–New Orleans and Galveston–were able to rebuild surprisingly quickly after the war and began a mad rush to export the royal crop to as many markets as they could. It looked as though the American cotton trade was back on track, and as if the ports of Galveston and New Orleans were once again the doorways of industrial riches.

During the war, Galveston witnessed her entire cotton trade shut down. She also underwent the horror of losing half of her population during the ongoing conflict with the North. Although the trade in that city would recover, new challenges arose from the expansion of railroads. During the war, the North won the rail battle and was able to cut off trade to the Atlantic and Gulf Ports, crippling both maintenance of existing lines and the development of new lines west of the Mississippi. The Civil War was proof positive to the South that the railroads had to expand past the Mississippi and into Texas. By 1868, the majority of farmers in northeast Texas remained disconnected from Houston and Galveston in the south. The next six years would see rail expansion throughout this critical region, bringing access to better markets that led to St. Louis. 

Galveston’s greatest competition came from the great rail-connected cities like Chicago and St. Louis. The cotton centers of north and east Texas found it easier and safer to ship their products via rail lines to St. Louis, rather than commit them to the trips to the Gulf Coast ports. Also, despite Galveston’s excellent natural harbor, sandbars provided some difficulty for transport. The island would also experience devastating hurricanes that would seriously disrupt trade, including America’s largest storm in 1900. It was also difficult to reach the island by rail, as it was separated from the mailnand by two and a half miles of water. These disadvantages gave Galveston’s inland competitors–including neighboring rival Houston–an edge in attracting the business of American cotton merchants. 

New Orleans was also a competitor in the trade, and in the immediate years which followed the Civil War, the Crescent City strongly desired to take all of the cotton trade from northeast Texas. That region's proximity to the Red River made it easy to ship the product quickly downstream to the Mississippi. This natural advantage sapped business away from Galveston and toward New Orleans, but it was not enough to meet the challenge of the expanding railroads and the appetite of the cities of the North and the East. New Orleans was even further behind than coastal Texas in building railroads, and the absence of any major lines headed toward that city made a significant postbellum recovery difficult.

When reading through the history of both ports, it feels like an uphill battle in regard to the reclamation of their prominence as shipment centers of cotton. At various points, Galveston would attempt to connect its shipping options with new rail lines, especially ones that traversed through the rich central Texas farmlands. In short, the expansion of railroads and the success of northern and eastern cities greatly diminished the role that Galveston played in the cotton trade of the second half of the nineteenth century. 

When the greatest hurricane ever recorded in the United States hit in September of 1900, Galveston never recovered. Houston–the local rival–would eventually take over as the major port for the state of Texas, and eventually would grow into an international shipping power. New Orleans would do better than Galveston, but would now face permanent competition from St. Louis, Houston, and other centers of commerce that were stealing a piece of the pie in the expanding United States.

 

Bibliography

American Battlefield Trust. “Railroads of the Confederacy,” November 25, 2008. https://www.battlefields.org/learn/articles/railroads-confederacy#:~:text=The%201850s%20had%20seen%20enormous.

Dattel, Eugene. “Cotton in a Global Economy: Mississippi (1800-1860) - 2006-10.” www.mshistorynow.mdah.ms.gov, October 2006. https://www.mshistorynow.mdah.ms.gov/issue/cotton-in-a-global-economy-mississippi-1800-1860.

Ellis, L. Tuffly. “The Revolutionizing of the Texas Cotton Trade, 1865-1885.” The Southwestern Historical Quarterly 73, no. 4 (1970): 478–508. https://www.jstor.org/stable/30236596.

Lyman, Joseph Bardwell, and Josiah Rhinehart Sypher. Cotton Culture. 1868. Digital. Sabin Americana: History of the Americas, 1500-1926. link.gale.com/apps/doc/CY0100733000/SABN?u=vic_liberty&sid=bookmark-SABN&xid=559d3e37&pg=1.

Stephens, A. Ray. “Reconstruction, 1865-73.” In Texas: A Historical Atlas, edited by Carol Zuber-Mallison, 176–79. Norman, Oklahoma: University of Oklahoma Press, 2010.