It is proverbial that those who don’t learn the lessons of past mistakes are bound to repeat them. That has always been true, and it isn’t any truer than in these modern days. We are on the edge of some potentially catastrophic events in the history of our country. It is not the first time we have been here, and it will probably not be the last, because we will more than likely take the wrong lessons again.

The early 1930’s was a very difficult time. It was a severe downturn that had a tremendous effect on everyone. It wasn’t the fist time that there was a depression in this country. It was, however, the first time that social engineers decided to take matters into their own hands. In previous depressions, events were left to run their course, and within a year or two, things were getting back on an even keel. Before the 1930’s, the worst and longest depression lasted 4 years.

Herbert Hoover was an engineer by profession, and made a point that his programs were the first time that government was going to manage the downturn and restore order. He transformed from a civil engineer to a social engineer, who believed that there was a technical solution to every social and economic problem. While Franklin D. Roosevelt took credit for the New Deal, Hoover was the originator of most of the programs. Rexford Tugwell, one of FDR’s top aids in the 1930’s said in a interview decades later: “We didn’t admit it at the time, but practically the whole New Deal was extrapolated from programs that Hoover started.”

From the start of the depression, government intervened in nearly all aspects of he economy. Nearly everything that they did was overwhelmingly counter productive. In the 1920’s, the Federal Reserve Bank created a severe credit bubble with artificially low interest rates, and, combined with the fractional reserve banking system, rapidly increased money supply. That fueled a huge boom, first in real estate, then in the stock market. When the market finally came to the inevitable collapse, there was a significant shock to the economy. It is reasonable to expect that the downturn would have lasted a few years, just as previous ones had, if it they had been treated just like the others had. The treatment for the other downturns was benign neglect by the government.

With the social engineer came central planning, which was all the rage in world politics in the early decades of the twentieth century. Hoover argued that a technical solution existed for every social and economic problem. He set out to prove it with a very active agenda. He administered the Smoot-Hawley Tariff, the National Credit Corporation and the Reconstruction Finance Corporation, massive public works projects and tax increases. He brought the heads of major industries in to impel them to keep wages high, to maintain production and not cut back, even in the face of mounting losses. He established agricultural programs to keep the price of agricultural products high, arguing that high prices and wages gave people the resources to demand products themselves. The only significant change that FDR made to Hoovers policies was to give them sharper teeth. Hoover used primarily jawboning and voluntary cooperation. FDR used the jail cell, the financial penalty and the strong arm of the law to enforce compliance.

As it turned out, both were dead wrong in nearly all of their programs. Rather than a recovery after a few years, the downturn turned into the longest depression in the history of the United States, lasting more than a decade, with an average unemployment rate in excess of 20% for much of that time. When looking back, it is possible to discern some of the wrong turns that likely made matters worse, rather than better.

When there is a significant deflation in the supply of money in the 1930’s, there was downward pressure on prices of most products. The industry cartel system of the Industrial Recovery Act artificially kept prices high. The result was a low demand and a resulting reduction in revenues for business. Throughout the entire decade of the 1930’s, there was first, voluntary pressure to keep wages high, then legislation to establish a minimum wage, which at that time was almost 90% of what the average wage was. There was also a growing unionism, driving labor costs up further. If revenues are falling while labor and other input costs are rising, there can be only one result. Layoffs occurred on a large scale as companies scaled back or went out of business.