The ‘20s: Culture, Consumption, and Crash 157With the poverty line at $2,500 a year, over 60 percent of families were below
$2,000 annually, and 40 percent were below $1,500. But the top 1 percent,
which controlled 20 percent of U.S. wealth in 1919, now held over 30 percent
of the nation’s income. Class power had grown enormously while the people
suffered more than ever. And with money unavailable due to what Keynes
would call a “liquidity crisis”—not enough capital available in banks for com-
panies to borrow for expansion or consumers to buy goods—the economic
numbers just kept getting worse in 1930 and after. Hoover’s millionaire
Treasury Secretary, Andrew Mellon, had a solution—cause an even bigger
economic meltdown. “Liquidate labor, liquidate stocks, liquidate farmers, liq-
uidate real estate... it will purge the rottenness out of the system,” Mellon
advised, basically saying that farms and factories should be allowed to fail and
workers lose their jobs and go hungry. But there was a payoff in this oligarch’s
mind, “ high costs of living and high living will come down. People will work
harder, live a more moral life. Values will be adjusted, and enterprising people
will pick up from less competent people.”
Even Hoover understood that Mellon’s program was cruel and would lead
to devastation, so he scrambled for economic solutions. In 1930, Hoover per-
suaded Congress to pass the Smoot-Hawley Tariff, which raised import duties
to record levels on nearly 20,000 different goods. It raised tariff rates by 60
percent on 3,200 goods, while hiking overall tariffs by about 20 percent. The
idea was fundamental: make goods from other countries so expensive that
people would have to buy products made in the U.S., a practice known as
protectionism. It killed trade. While imports declined significantly, as intend-
ed [from $4.4 billion in 1929 to $1.5 billion in 1933], it also motivated other
nations to raise their tariffs as well, to engage in a trade war. So U.S. exports,
at a time when global trade was shrinking abruptly anyway, went down ever
further—from $5.4 billion to $2 billion. World trade, as noted above, declined
by about 70 percent in that period. Few goods were being sold, so there was
little reason to manufacture more, or to pay workers to produce items that
would not sell. The Democrats made Smoot-Hawley a key issue in their attack
on Hoover and pledged to repeal it when they got the chance, which they did
after taking over the White House and Congress in 1933. Hoover, with his
call for industry and banks to voluntarily maintain production and credit and
then his use of tariff policy, was addressing the depression as a problem of
production, but it already was, and would grow as, a problem of consumption.