No Other Peace-Time Economic Chaos Compares to the Great Depression

Just as the Great Depression began taking hold in 1929, movie-goers were being entertained by films such as That’s My Wife, starring Stan Laurel and Oliver Hardy. This 1929 one sheet sold for $11,950 at a July 2011 auction.

By Jim O’Neal

Every economist who writes or thinks about the Great Depression inevitably faces the questions of what really caused it and could it happen again? These issues are still (surprisingly) debated yet today.

For me, it is much easier to simply remember the scale of the economic meltdown that occurred in 1929-1933.

During a three-year period, real GDP in the major world economies declined by over 25 percent and one in four adult males lost his job. Commodities prices declined by 50 percent and average wages fell by a third. Here in America, the working class was entering a difficult period and no one had any solutions.

Bank credit in the U.S. shrank by 40 percent and in many countries, the entire banking system collapsed. Almost every major sovereign debtor in Central and Eastern Europe defaulted, including Germany, the third-largest economy in the world. The economic turmoil spread from the prairies of Canada to the teeming cities of Asia, from the heartland of America to the smallest village in India. No other peace-time economic chaos has come close to the breadth and depth of this cataclysm.

Part of the reason for the extent of the economic collapse was that it was not just one crisis, but a sequence of events, ricocheting across the Atlantic, each feeding off the previous. It started with the contraction of the German economy in 1928, then the Great Crash on Wall Street in 1929, the serial bank failures in 1930, and the unraveling of European finances in the summer of 1931.

Most modern economists do not believe it was an act of God or the result of basic flaws in capitalism. It was the cumulative effect of misjudgments by economic policymakers. It was, by any measure, the most dramatic sequence of collective blunders ever made by financial officials, at least to that time.

It probably started with the Paris Peace Conference (1919) that burdened a shaky world economy with a giant overhang of international debt from the First World War. Central bankers then decided to take the world back to a dysfunctional gold standard, holding interest rates low and keeping Germany afloat on borrowed money. By 1927, the Federal Reserve was torn between conflicting objectives of propping up Europe or controlling speculation on Wall Street. It tried to do both and achieved neither.

The stock market bubble created an international credit squeeze on the way up and cratered the U.S. economy on the way down. When the U.S. let the Bank of United States fail (1930), the panic moved into high gear with a wave of dreaded “runs on the bank” – a phenomenon that is a banker’s nightmare. It would take a long time to break the fever, restore confidence and then start the monumental task of rebuilding an international monetary system and reigniting economic growth.

In the end, it took another world war to provide the final ingredient for success. However, in the process, it created a bonanza for factoid geeks who relish unusual and interesting historical situations. (Who, moi?)

Intelligent Collector blogger JIM O’NEAL is an avid collector and history buff. He is president and CEO of Frito-Lay International [retired] and earlier served as chair and CEO of PepsiCo Restaurants International [KFC Pizza Hut and Taco Bell].

German Prisoners in U.S. Were Dismayed When War Ended

This illustration for a 1959 Cavalcade magazine cover realized $2,375 at an October 2012 auction.

By Jim O’Neal

“When I was captured, I weighed 128 pounds. After two years as an American POW, I weighed 185 pounds. I had gotten so fat you could no longer see my eyes.”  – German POW in WW II

And so it was for many World War II Germans who were lucky enough to be shipped from Europe to the United States. Their living conditions as prisoners were far better than as civilians in cold-water flats in Germany.

The prisoners were provided with art supplies, musical instruments, woodworking tools and writing materials. Plus, they were allowed to correspond with their families in The Fatherland.

Ah, but it was the food that made it so unique.

All prisoners were provided with the same rations as American soldiers, as required by Geneva Convention rules. General Officers received wine with their meals and everyone got special meals at Thanksgiving and Christmas.

At first, some prisoners burned their leftovers for fear that their rations might be reduced. “No need, eat all you want. There seems to be an unlimited supply. It is like a miracle!”

And then, of course, there were the cigarettes.

Everyone received two packs each day and some even got meat. Since both were being rationed to American citizens, it quickly became quite easy to bribe guards for all sorts of extra things … use your imagination.

One small irony was that some prisoners actually formally complained to the International Red Cross about the lousy American white bread and coffee. Why not?

A trickier issue was the beer. Prisoners only received a single beer coupon daily, hardly enough to get a mild buzz. Some started pooling their coupons so they could get enough for a full six-pack. (Voila! Problem solved.)

Entertainment was never an issue.

Frequent theatrical or musical performances were allowed that included guards and the Red Cross by the hundreds … at a minimum. Movies were shown three to four times a week, and if a camp didn’t have a projector, the prisoners just pooled their money and bought one.

Money was no problem since they could work on local farms and factories … just not anywhere military things were involved. There was a big labor shortage everywhere since the United States had sent millions overseas to fight in the war. So they were able to earn almost as much as a regular soldier, and their rent and food were free!

All of this started because of a housing shortage in Great Britain and they asked for help in housing captured prisoners. The Liberty ships carrying arms to Europe were returning empty, so it was easy to fill them with the surplus prisoners on the way back.

All told, 425,000 German prisoners were shipped to the United States and sent to 700-plus camps spread over 46 states.

Many of the German POWs were dismayed by the end of the war. They did not relish the prospect of being sent back to a war-torn, bombed-out homeland. Some were able to delay the return by two years.

Not all actually left. Would you?

Jim O'NielIntelligent Collector blogger JIM O’NEAL is an avid collector and history buff. He is President and CEO of Frito-Lay International [retired] and earlier served as Chairman and CEO of PepsiCo Restaurants International [KFC Pizza Hut and Taco Bell].