Gatsby, Galbraith and the Myth of Coolidge's Crash

In an article at Bloomberg.com spun-off from her new biography of Calvin Coolidge, Amity Shlaes notes that coming this May to your local theater is this generation’s cinematic adaptation of The Great Gatsby. As we quipped last year when we saw its initial trailer, the upcoming Leonardo DiCaprio vehicle will likely make the glacially-paced mid-’70s Redford version of Gatsby seem like Citizen Kane in comparison. But it could well spark renewed pop culture interest in the 1920s. As James Lileks recently noted at PJM, everything you know — and certainly everything Hollywood knows about the 1920s is wrong. Including who’s responsible for bringing the curtain down on that decade with a huge bummer of an ending, the Depression.

“The corollary to the The Great Gatsby in the literature of economics is another old ‘great,’ The Great Crash 1929, by the economist John Kenneth Galbraith,” Shlaes writes. “Galbraith’s narrative, like Fitzgerald’s, is subtle, conjuring complex characters. Yet the effect of both books is the same: to display the 1920s as a decade full of false numbers and false people, reckless pilots who caused an economic wreck so catastrophic it necessitated 10 years of Depression:”

Galbraith and others are eager to isolate “gotcha” statements by Coolidge that misled the market. In his effort to appear neutral, Coolidge did from time to time supply bland lines that could be misinterpreted as bullish, and were. But the most egregious of the statements attributed to Coolidge, including one saying that late 1920s markets were “absolutely sound,” came from President Herbert Hoover, who resented Coolidge. And scouring Coolidge’s unpublished off-the-record news conferences, I didn’t find Coolidge boosting stocks aggressively.

Setting the crash aside, can one assign Coolidge any blame for the Great Depression? Some, especially when it came to tariffs, which Coolidge’s Republican Party supported.

But the greater culprits are Coolidge’s successors, Hoover, a more progressive Republican, and Democrat Franklin D. Roosevelt. Hoover raised taxes, signed the Smoot-Hawley Tariff Act and strong-armed businesses into wage increases they could ill afford. In addition, Hoover sent a general signal of government activism, which chilled markets. Roosevelt exacerbated the uncertainty with arbitrary interventions into policy in all areas.

One can argue that the Coolidge story isn’t that of a president causing the Depression. It is the story of a president postponing one. And that story, too, would make a good movie.

Of course — but we’re infinitely more likely to see Hollywood produce Total Eclipse long before an honest talkie about Silent Cal.

Oh, and speaking of John Kenneth Galbraith, if you’ve never read it, check out Theodore Dalrymple’s take on the Treebeard-esque stasis-loving economist, from the Winter 2010 edition of City Journal.