Jude Wanniski
September 15, 2004


From:Jude Wanniski
To: James K. Galbraith <galbraith@* * * * *.edu>
Re: Coolidge?
9:36 am 9/15/2004

I don't understand. What did Coolidge have to do with the tariffs? Harding restored the tariffs in 1921 to their pre-Wilson levels, as had been widely anticipated, but these were revenue tariffs, not protective tariffs... and they were offset by the reductions in income-tax rates.  "Return to normalcy," was the slogan that led to the GOP landslide in the 1920 elections. Coolidge is not on record supporting Smoot-Hawley. Of course, the world could not service its debts to the U.S., which had for the first time become a creditor nation during WWI, unless it sold us more than it bought from us. You are right that JKG is on a parallel track, but for some reason did not connect the dots to the sudden shift of support to Smoot-Hawley in the Senate by the Southern states that had traditionally been free-trade. When he did his analysis, the "efficient market hypothesis" had not yet taken root. I've often wondered if he ever read Chapter VII. Milton Friedman simply dismissed it out of hand, recognizing it as a supply-shock that undermined his own thesis that the gold standard was at fault.

BTW, Bernanke was most interested in my discussion of the bank failures and collapse of the monetary base as being the result of the "surprise" tariff act, the Hoover tax increases, and international retaliation against the US. He asked why the economy seemed to recover in 1933-34 and I told him the DJIA hit 41 in the summer of 1932 on the weekend of FDR's nomination in Chicago, and it began its rise when FDR ended the speculation on whether he would follow the nationalist line of Hearst or the internationalist path of Cordell Hull. It was clear he went with Hull, who became SecState and began negotiating bilateral tariff cuts, bit by bit restoring the health of the financial system. That was slowed when FDR pushed through a hike in the capgains tax and the Depression deepened, but bounced back again when the new Congress, still Democratic, rolled back the capgains hike and FDR decided not to veto it.


At 06:28 PM 9/14/2004, you wrote:

My you do get around.

I relate to these people like Zola, "Quant a ce qui j'accuse, je ne les connais pas.  Je n'ai contre eux ni haine ni rancune.  Ce ne sont, pour moi, que des esprits de malfaisance sociale."

I suspect Greenspan's real concern is that he doesn't want to be *seen* with you. Or have you recorded on his calendar? You can wear that as a badge of honor!

Just rereading The Great Crash, for a conference on JKG in Paris next week.  In '56 he saw the tariffs as having been the Coolidge response to the press of the South Americans to service their debts by raising their exports. This Smoot-Hawley made impossible, thus a direct link to the defaults and the bank failures.  It's not quite your story as the channel does not run through the stock market in the Summer and early Fall of 1929.  But on the substance it's not too very different.


PS. I think the only senior person I've met with in any government in recent years is Fidel Castro.  I have a couple of pictures of that meeting on my office wall, which caused me a moments' concern this summer when my secretary emailed to ask if the CIA could use the space to do their local recruiting...