"Well, this is the end of western civilization"

Two men, above all, deserve the credit for ending the Great Depression in America.

One famous:  FDR.

Time Magazine

The other, mostly forgotten:

George Warren.


Time Magazine


George Warren was a, perhaps the, leading agricultural economist of his day.

He was a professor of farm management at Cornell University and author of a number of highly regarded works in his field.

"As a teacher," says Liaquat Ahamed in Lords of Finance (pp. 460-1), "he was known to be dismissive of theories and made a point of taking his students to working farms. ...  During the 1920s, as agricultural prices kept falling, this expert on cows, trees, and chickens had also spent a decade researching the determinants of commodity price trends.  In 1932, he and a colleague published their work in an extensive monograph entitled Wholesale Prices for 213 Years: 1720-1932, which created enough of a stir that, in 1933, it was issued as a book.  Warren was able to document how trends in commodity prices correlated strongly with the balance between the global supply and demand for gold. ... It was easy to quibble with some of the details of the thesis -- the correlation was not perfect because a variety of other factors, not the least of which were wars, intervened to blur the link.  Nevertheless, it was hard to argue with the general conclusion.  ...

It was Warren's policy conclusions, however, that generated the most controversy.  [R]aise the price of gold -- in other words, to devalue the dollar.  An increase of 50 percent in the price of bullion was no different in its effects from suddenly discovering 50 percent more of the metal.  Both brought about a higher value of gold within the credit system and both would therefore stimulate higher commodity prices.

It sounded simple, but to most of Roosevelt's economic advisers, talk of devaluation was plain blasphemy, smacking of the worst forms of repudiation.

Upon Roosevelt's announcement, on April 18th, to his economic advisers  that he was going to exercise the authority slipped in to the Agricultural Adjustment Act to devalue the dollar against gold by up to 50 percent, "hell broke loose in the room," FDR's aide, Raymond Moley, recorded.  His monetary policy advisor, James Warburg, son of the Paul Warburg who had fathered the Federal Reserve System called this action "completely hare-brained and irresponsible" and predicted that it would lead to "uncontrolled inflation and complete chaos."  Budget Director Lewis Douglas declared, "Well, this is the end of western civilization."

What the financial experts failed to grasp (as the experts who guided the post Civil War resumption at pre-war parity failed to grasp, and the Bank of England's Montagu Norman failed to grasp in advising Churchill to resume the gold standard at pre-World War I parity in 1925) was how the true gold standard worked to maintain monetary equilibrium.

The system had become, for them, something very like a Cargo Cult ... and one can well imagine that it was to this foolishness, rather than to the classical gold standard itself, that Keynes was referring when he famously called gold "a barbarous relic."

It fell to the president's common sense, buttressed by the scholarship and pragmatism of an obscure agricultural economist, to do what a later economic advisor to later presidents, Walter Heller, archly counseled:  "Rise above principle and do what's right."  Soon FDR would begin a gradual devaluation process.  And soon, if but temporarily, impaired by later mistakes, the Depression would begin to lift.