A Patriot's History of the Modern World (43 page)

America could have served as both a lender of last resort and a consumer of last resort if the boom of the Roaring Twenties had lasted. But the downturn in production in late 1928 cascaded into a stock market panic, caused in part by the Federal Reserve's contractionist monetary policies and by remaining too long on the gold standard. Although Federal Reserve blunders might have brought down the economy by themselves, Congress added insult to injury with the Smoot-Hawley Tariff, passed in 1930. Smoot-Hawley's duties—averaging a 5 percent increase on most goods but soaring as high as over 30 percent on many raw materials—massively increased the price for American goods. Over time, this blunder would account for a loss of 5 percent of GNP, or an amount larger than the economic impact of 9/11 and Hurricane Katrina combined.
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Work began on the tariff in 1929, clearing the House in May of the same year. Smoot-Hawley hadn't even officially passed before businessmen began reacting, as they recognized higher prices would cause sales to plummet. While the Senate debated the bill in October, the markets plunged. Although it is impossible to quantify the exact cause and effect, and while certainly correlation does not equal causation, it is clear that the impending price hikes spurred some companies and investors to sell off stock holdings to get liquid. At the same time, an anticipated sales slump caused employers to start contracting operations to protect themselves. And, to add a poison cherry on top of the destructive concoction, the tariff would severely stifle foreign exports to America and negatively affect other countries' balance of payments, meaning that other nations would respond instantly with new tariff barriers to protect themselves. International commerce was heading for hard times.

President Herbert Hoover's “big government” solutions made matters even worse, as he panicked at the prospect of deficits. A mining engineer by trade, Hoover had gained a glowing reputation as chairman of the Commission for Relief in Belgium in 1914, and after the United States joined the war he used the American Relief Administration to organize food shipments to starving Europeans. Harding named him secretary of commerce in 1921, and he soon began a hustle-bustle of high-profile activity that made him more recognizable than the president himself. Hoover instituted and oversaw manufacturing statistics, set up subdepartments charged with regulating air travel, and quietly grabbed powers from other departments that, under the low-key Harding administration, chose not to use them. He turned Commerce into a pro-business organization under the term “associationalism,” instituted the “Own Your Own Home” campaign, and promoted Hollywood movies overseas. His enthusiasm for business concealed a darker affinity for big-government activism.

Coolidge, attuned to Hoover's Progressivism, was not fooled. He disliked and distrusted him, reversing the press's term and derisively referring to him as “Wonder Boy.” Once the Depression came two years into Hoover's presidency, he showed his full colors, ignoring Secretary Mellon's advice to keep the government's hands off the economy. Hoover's labor policies kept wages high at a time when they needed to fall.
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The recession, according to economics professor Lee Ohanian, was “three times worse—at a minimum—than it otherwise would have been, because of Hoover.”
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To add further barriers to recovery, Hoover hiked taxes, imposing a tax on every personal and business check written, which further slowed commerce. The Reconstruction Finance Corporation (RFC), created in 1932 to support struggling banks, had the opposite effect of inducing panic when news of financial institutions' and other firms' receiving assistance was published (as required by law). Teetering banks tipped over the edge once depositors saw them listed as “troubled” and withdrew their cash. Then, as the coup de grâce, between 1929 and 1933, the Federal Reserve turned the crisis into a depression by failing to support the banking system with adequate cash injections as per its charter.
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Decline, Famine, Murder

America's economic decline strongly affected Europe. Combined, the world's largest economies (including the United States, Britain, and western Europe) fell by about one fifth between 1929 and 1932. Because the
United States was so much larger in its GDP, the magnitude of its drop-off seemed even bigger. Yet even during the absolute worst crisis of capitalism in history, the unemployment rate peaked at 25 percent, meaning that fully three quarters of the working population still had jobs. Whereas the pain was real and deep for some sectors, the realities of depression in the United States were not nearly as harmful as the realities of “recovery” in the Soviet Union. There, communism's murderous policies resulted in one citizen killed for every twenty tons of steel produced.
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Other Soviet “successes” included the Volga–White Sea Canal and Ural River projects, which consumed (literally) thousands of slave-labor victims.

Nowhere was the Soviet interpretation of “fixing the economy” more on display than in the agriculture sector. Stalin forced private farmers into collectivization, requiring them to give up private land to the government, with the intent of increasing production—but also of imposing his will on the recalcitrant kulaks (literally, the “grasping hands”), private farmers who owned more than eight acres of land.
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In 1929 Stalin boasted, “In some three years' time, our country will have become one of the richest granaries, if not the richest, in the whole world.”
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Instead, food production fell by one third compared with precollectivization levels. There were droughts and bad weather in 1931 and 1932 to be sure, but most of the farmers simply resisted by producing less, hiding stores, and killing livestock when their crops were confiscated by the government to be shipped elsewhere. The government retaliated by crushing the kulaks as a class, with Stalin decreeing they “must be smashed in open battle.” At least two million kulaks were deported to gulags, forced labor camps throughout the Soviet Union, but those were the “official,” untrustworthy numbers, heavily doctored by Party officials. Writer Aleksandr Solzhenitsyn estimated the number at 60 million—probably an exaggeration. Either way, the murderous Soviet regime arrested and executed kulaks with horrifying efficiency, and Stalin grew even more heavy-handed, decreeing that withholding so much as one ear of wheat from the state was punishable by ten years in prison or death.

Although collectivism began on a reduced scale in 1927 and accelerated in 1929, when the Central Committee instituted its winter 1929 collectivization offensive, only about 1 percent of Russian farmland was collectivized. By 1931 the collectivization blitz was in full swing. A famine, due to depletion of food supplies, officially started in 1932, and the effects, forced or not, were devastating. Vasily Grossman, a Soviet writer who toured the
rural villages, reported: “People had swollen faces and legs and stomachs…and now they ate anything at all. They caught mice, rats, sparrows, ants, earthworms. They ground up bones into flour, and did the same thing with leather and shoe soles; they cut up old skins and furs to make noodles of a kind and they cooked glue.”
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When British journalist Malcolm Muggeridge visited Ukraine in 1933 without the permission of the Soviet authorities, he wrote that Communist Party officials “had gone over the country like a swarm of locusts and taken away everything edible; they had shot and exiled thousands of peasants, sometimes whole villages; they had reduced some of the most fertile land in the world to a melancholy desert.”
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One villager reported, “The people daily died in dozens. The bodies of the dead lay in all the villages, along the roads and in the fields. Special brigades were formed in the villages to bury the dead but they were too weak to collect all the corpses and these were devoured by dogs…. The gravedigger of today might be a corpse tomorrow.”
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To Stalin, this was not starvation of the kulak class. It was “building socialism.”

Stalin and his cronies were meticulous in concealing the famine from outsiders. Screened and herded to carefully controlled sites, foreign delegations to the USSR were often prevented from seeing poverty and starvation. Sir John Maynard, a member of Parliament, went through Ukraine and reported that he “did not witness those phenomena [of starving people, or of] crowds of beggars and emaciated children [at] the river ports and railway stations, which are normally associated with serious famine,” leading him to conclude that Russia's famine was “in no way comparable to the great famines [of other times].”
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Many Western writers, sympathetic to communism and eager to tout the success of the Soviet model, utterly ignored the devastation and human suffering. Walter Duranty of
The
New York Times
, a notorious Communist sympathizer who led the
Times
's charge in supporting Stalin, traveled through the USSR, where he wrote a column in March 1933 entitled “Russians Hungry, But Not Starving.”
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Literary figures such as George Bernard Shaw used their considerable clout with liberal elites in the United States to gain widespread approval of Soviet collectivism. Shaw, a lifelong member of the British Fabian Society, a pro-Communist group, spoke of the gulag in 1931 as a benign collective whose large population did not want to leave. Denouncing all reports of starvation, he sympathetically described the unfortunate commissar who shot disobedient workers. Shaw advocated killing those who could not justify their existence through their labor and later
defended Stalin's purges during the Great Terror. American journalist Lincoln Steffens also defended Stalinist tactics, stating during the height of the starvation earlier during the Russian Civil War, “I have been over into the future, and it works.” At least, it worked for those who did the shooting.

Most Western media refused to acknowledge the reality of starvation, even when the Italian consul in Kiev reported a “growing commerce in human meat,” and state authorities put up posters saying “
EATING DEAD CHILDREN IS BARBARISM
.”
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Stalin maintained the mirage of plenty, increasing grain exports to pretend no problem existed and refusing aid offered by foreign governments.
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A senior Ukrainian Communist official grimly concluded, “a ruthless struggle is going on between the peasantry and our regime. It's a struggle to the death…. but the collective farm system is here to stay. We've won the war.”
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Only twenty Americans and Europeans visited the USSR during the famine years and provided estimates of the famine deaths, ranging from 1 million (Ralph Barnes) to 5 million (Archbishop of Canterbury) to 10 million (Richard Sallet), with the average estimate placed at 5.5 million. These estimates were universally and grossly low. Robert Conquest, author of
The Harvest of Sorrow
, estimated that 10 to 12 million died, but the actual number easily could have eclipsed 20 million, since the Soviet population in 1939 was lower than expected by a stunning 30 million. In any case, Stalin had become the greatest domestic mass murderer in history, not to be eclipsed until Mao Zedong later in the century.

The death toll from the famine was catastrophic, and by 1934, Stalin realized he was losing the “war” by failing to increase production, even after exterminating most of the kulaks. That year, driven by the realities of a stagnant economy, he reduced state confiscations and allowed households to keep small plots on which they could grow food for themselves. This concession to microcapitalism echoed Lenin's admission that prices worked and effectively ended the forced hunger. It was those small plots, not the collective farms, that sustained the Soviet Union throughout the next fifty years. A grim Soviet-era joke ran: “How do you deal with mice in the Kremlin? Put up a sign saying ‘collective farm.' Half will starve, and the other half will run away.' ”
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American Farms Fail and Take the Banks with Them

Certainly the United States and Europe experienced none of the mass murder employed by Stalin, but both struggled desperately with extensive,
widespread industrial unemployment and hardships in the agricultural sector, especially in the United States. While it is a gross exaggeration to say that farm lobbies in America triggered the Great Depression and in Germany brought down the Weimar Republic (thus paving the way for Hitler), in each case the inordinate political influence of agricultural interests produced policies that threw the world into mayhem, whether in the form of higher agricultural tariffs in Germany's case, or “price parity” programs and the confiscation of privately owned gold in the United States. Since the postwar price plunge, American farmers had been decimated as practically the only sector of the economy to experience hardships in the Roaring Twenties. At the end of the war, massive amounts of new farming took place in Canada, Australia, and the United States: Canadian wheat acreage increased from just under 10 million in 1909 to 22.1 million in 1921–25, while U.S. farming increased by 18 million acres in that period.
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Then, as overproduction naturally followed, the farmers paid dearly. Between 1926 and 1930, farm foreclosure rates per thousand owner-operated farms (politically designated as “family farms” to allow politicians to posture in defense of America's families and the nation's root culture) hit shocking levels: 70 percent in South Dakota, 58 percent in North Dakota, 50 percent in Oklahoma, and 42 percent in Arizona and Colorado.
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From the presidencies of Calvin Coolidge through Dwight Eisenhower, Congress was powerless to resist pressures for “parity” (that is, guaranteeing American farmers prices for their products so their income's purchasing power was what it had been during 1910–14, when farm and urban incomes were allegedly more or less equivalent) or other legislative tricks that could supposedly boost farm income and rescue the agricultural sector. McNary-Haugenism, a plan devised in 1924 by Republicans Charles McNary and Gilbert Haugen and supported by Agriculture Secretary Henry Wallace, would have created a federal agency to purchase farm surpluses and sell them overseas. Coolidge wisely vetoed the act four times, but farm lobbyists found sufficient support within the government to insert dozens of agriculture clauses in the far more destructive Smoot-Hawley Tariff of 1930.