154 ChaPter 3
number of smaller banks in immediate crisis. In the mid-1920s, there were
25,000-30,000 banks, mostly small- or medium-sized [unlike, say, J.P. Morgan
or CitiBank]. These banks did not have the reserves to meet a run on the
banks—a situation in which numbers of depositors, feeling pessimistic about
the economy pull all their money out and cause the bank to crash—and thus
many failed, probably over 10,000 and almost all of them smaller institutions.
As banks failed, Wall Street “tightened” credit, making it harder to get loans,
which meant businesses would have less money to pay their workers and that
labor would have less money available to buy goods. The Fed, more con-
cerned about its Wall Street allies, maintained a tight money policy whereas
making money cheaper—expanding the currency supply to make it easier to
get loans—might have eased the crisis, according to some experts. This crisis
was particularly bad in the agricultural sector. Smaller farmers were already
in debt from buying new machines because they could not compete with the
larger commercial farms [as the Populists had pointed out decades earlier],
production was rising because of those machines, but consumption was static
because people were not buying more food and farmers were not able to
increase their exports. When the perhaps inevitable day came that they could
not pay their mortgage notes, farmers, already in debt, had their land seized
by the banks. At that point, the large, still stable commercial farms and banks
would buy the lands for a fraction of their value at auction. Bankers were
not popular during the Depression [as if they ever were] and Woody Guthrie
wrote a song about them a few years later, “The Jolly Banker”: “When your
car you’re losin’, and sadly your cruisin’/I’m a jolly banker, jolly banker am
I/ I’ll come and forclose, get your car and your clothes/Singin’ I’m jolly
banker, jolly banker am I.”
Poverty. Economic experts often used the phrase “maldistribution of buy-
ing power” to describe one of the key elements of the crisis of the depression,
but that simply meant that the typical American did not have enough money
to buy the “stuff” he or she needed—including food, housing, health care, and
other necessities. As production rose, farmers and workers were not seeing a
corresponding increase in wages, so by 1929 over half of U.S. families lived at
or below the subsistence level. They were too poor to buy necessities or autos
or appliances or enjoy entertainment even as warehouses were full off goods.
Fundamentally, this was they key problem in the economy—the problem of the
depression was a problem of consumption. All these data on GDP, trade, bank