January 18, 1943 Chickenfeed

The United States Supreme Court, apparently afraid of President Roosevelt and his aggressive and illegal “court packing” scheme, ruled against the farmer. Ever since, what you don’t do can be argued in a court of law to impact interstate conditions, putting what you didn’t do under the jurisdiction of the federal government.

Get it? Neither do I, but I digress.

The first bread slicer was invented by Otto Frederick Rohwedder of Davenport, Iowa, in 1912. The idea was unpopular among bakers, who feared that pre-sliced bread would go stale faster, leading to spoiled inventory and dissatisfied customers.

The project almost ended in a fire in 1917, when a fire destroyed the prototype along with the blueprints. Rohwedder soldiered on.  By 1927, he had scraped up enough financing to rebuild his bread slicer.

sliced-breadFrank Bench, a personal friend of the inventor, was the first to install the machine.  The first pre-sliced loaf was sold in July of the following year. Customers loved the convenience and Bench’s bread sales shot through the roof.

Sliced bread became a national hit when the Continental Baking Company, then-owner of the “Wonder Bread” brand, began using a modified version of Rowhedder’s machine in 1930.  Sliced bread was here to stay. Sort of.

These were the early days of the Great Depression.  Nine million savings accounts were wiped out in the first three years.  Federal agricultural officials conceived the hare brained idea that artificially introduced scarcity would raise prices and therefore wages, in the agricultural sector.  No fewer than six million hogs were destroyed in 1933, alone. Not harvested, just destroyed and thrown away at a time when a 22.9% unemployment led the way to widespread malnutrition and hunger.

470,000 cattle were shot in Nebraska alone. Vast quantities of milk were poured down sewers, and whole cotton fields, plowed under.

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US unemployment, 1920-’40

Whether because of or despite government policies, unemployment dropped from 25% to 9% during Roosevelt’s first time (1933 – ’37), then more than doubled to 19%, in 1938.

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Claude R. Wickard

The “Second New Deal” saw a blizzard of social welfare programs, all but crowding out the productive bits of the economy.  The Great Depression not so much as ended but paused, with the onset of WW2.

US entry into WW2 was in its second year in 1943 when Claude Wickard, head of the War Foods Administration and Secretary of Agriculture, had the hare brained idea of banning sliced bread.

Mr. Wickard was no stranger to hare brained ideas; it is he who lends his name to the landmark Supreme Court case Wickard v. Filburn.

Speaking of hare brained ideas.  The Agricultural Adjustment Act of 1938 limited the area that farmers could devote to wheat production, in an effort to stabilize the price of wheat. Ohio farmer Roscoe Filburn was producing more than his allotment, and the federal government ordered him to destroy the surplus and pay a fine, even though his “surplus” was being consumed on the farm by the Filburn family, and their chickens.

commerceclauseArticle 1, Section 8 of the Constitution includes the “Commerce Clause”,  permitting the Congress “To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes”. That’s it.

The Federal District Court sided with the farmer, but the Federal government appealed to the Supreme Court, arguing that, by withholding his surplus from the interstate wheat market, Filburn was effecting prices and therefore fell under federal government jurisdiction under the commerce clause.

slicedbreadban-january18.1943The United States Supreme Court, apparently afraid of President Roosevelt and his aggressive and illegal “court packing” scheme, ruled against the farmer. Ever since, what you don’t do can be argued in a court of law to impact interstate conditions, putting what you didn’t do under the jurisdiction of the federal government.

Get it? Neither do I, but I digress.

Back to Mr. Wickard, who enacted his ban against sliced bread and put it into effect on January 18, 1943. The push-back, as you might guess, was immediate and vehement. One woman took up her pen, and wrote to the New York Times: “I should like to let you know how important sliced bread is to the morale and saneness of a household. My husband and four children are all in a rush during and after breakfast. Without ready-sliced bread I must do the slicing for toast—two pieces for each one—that’s ten. For their lunches I must cut by hand at least twenty slices, for two sandwiches apiece. Afterward I make my own toast. Twenty-two slices of bread to be cut in a hurry!”

big-governmentThe stated reasons for the ban never did make sense. At various times, Wickard claimed that it was to conserve wax paper, wheat or steel, but one reason was goofier than the one before. According to the War Production Board, most bakeries had plenty of wax paper supplies on hand, even if they didn’t buy any.  Furthermore, the federal government had a billion bushels of wheat stockpiled at the time, about two years’ supply, and the amount of steel saved by not making bread slicers has got to be marginal, at best.

The ban was rescinded on March 8, 1943, and pre-sliced bread was once again available to the federal government and its subjects. There’s no telling who first used the expression “the greatest thing since sliced bread”, but a reasonable guess may be made as to why.

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October 24, 1929 Crash

A convincing case may be made that it was the Reduction of government spending in the years following WWII, that put wealth back in the pockets of the people who created it in the first place, finally ending the Depression.

Warren Harding entered office on March 4, 1920, in the midst of the sharp recession following WWI.

Harding’s Treasury Secretary, Andrew Mellon, believed that money was driven underground or overseas as income tax rates increased. Mellon held the heretical belief for that time, that lower tax rates led to greater levels of economic activity and that, as people had more of their own money to work with, the higher activity level resulting would increase tax revenues.

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President and Mrs Calvin Coolidge with Andrew Mellon and others on the White House lawn

Based on Mellon’s advice, Harding cut taxes, starting in 1922. The top marginal rate was reduced annually in four stages from 73% in 1921 to 25% in 1925. Taxes were cut for lower incomes starting in 1923.

Vice President Calvin Coolidge became President in August 1923, following Harding’s untimely death. Coolidge would follow Harding’s economic policies of low taxation and high growth, the result would become the “Roaring 20s”.

Revenues to the treasury increased substantially, resulting in a 36% reduction of the national debt.  President Kennedy tried the same tactic with the same result in the 1960s.

Opponents called it “Voodoo Economics” when President Reagan used the same tactic in the 1980s, but the results were the same.  Same thing when President Bush the younger did it in the 2000s.

Economists and historians debate, because that’s what they do, but the results speak for themselves.

Unemployment and inflation both declined throughout the 1920s, while wages, profits and productivity increased.  The decline in what Carter-era economists called the “Misery Index”, was the sharpest in history.

The twenties became a time of wealth and excess, and speculation in the stock market increased exponentially. New investors poured into the market in the belief that, like the housing market of the 2000s, prices could never go down. It was a nine year run when the Dow Jones Industrial Average increased tenfold, peaking at 381.17 on September 3, 1929.

Rising share prices encouraged more people to invest, even if they didn’t have the money to do so. Brokers were routinely lending investors up to two thirds of the face value of stocks. Over $8.5 billion hung out on such loans, more than the amount of currency circulating in the entire country, at that time.

As with 2007-08, there were early tremors that showed the bubble was about to burst. Then as now, such signals were seen only in hindsight, as the rising crescendo that was 1929, continued.

stock-market-crash-of-1929-newspaper-ABThere was a brief contraction in March, but the first of the “Crash” began on “Black Thursday”, October 24, 1929. The market lost 11% at the opening bell, amidst heavy trading.   To quell the frenzy, Wall Street financial firms Morgan Bank, Chase National and National City Bank of New York stepped up and bought large blocks of US Steel and other “blue chip” stocks, at prices well above where they were trading.

The tactic had the effect of stopping the slide, much as it did during the Panic of 1907. This time however, the relief would be short lived. “Black Tuesday”, October 29, saw the Dow Jones contract by 12% on a volume record which would stand unbroken for forty years. The president of the Chase National Bank said at the time “We are reaping the natural fruit of the orgy of speculation in which millions of people have indulged. It was inevitable, because of the tremendous increase in the number of stockholders in recent years, that the number of sellers would be greater than ever when the boom ended and selling took the place of buying“.

Fears of the Smoot-Hawley tariff act fueled a further contraction in the following weeks.  Apparently, for good reason. When President Hoover signed the protectionist measure into law in 1930, American imports and exports shriveled by more than half.

Historians debate whether the stock market crash led to the Great Depression, or if the two events coincided. Only 16% of US households were actually invested in the stock market at the time, but the psychological effect was profound.

Easy credit and unbounded confidence had led to a speculative bubble which had finally burst.

DJIAEconomists still argue about the interventionist policies, which followed. The guy who needed to support his family was grateful to be put to work on a WPA project, but the government doesn’t produce wealth.  Every dollar spent had first to be extracted from the wealth producing, or “private”, part of the economy.  You can’t fill a swimming pool, by draining one end of it into the other.

The stock market and unemployment rates staggered throughout the 1930s.  It was WWII that finally put people back to work.

Yet that was merely activity, from an economic point of view. War production wasn’t growth, it was more like giving sugar to the kids, and watching them run around the house. A convincing case may be made that it was the Reduction of government spending in the years following WWII, that put wealth back in the pockets of the people who created it in the first place, finally ending the Depression.

An indicator of that wealth, the Dow Jones Industrial Average, wouldn’t retake the high ground of 1929, until 1954.