In his Cultural Revolutions piece in the March issue, William Hawkins claims that the assertion the Smoot-Hawley Tariff caused the Great Depression has “no grounding in fact or logic.” He attributes this assertion solely to a campaign speech made by Franklin D. Roosevelt. Mr. Hawkins is mistaken.
In his book The Way the World Works, Jude Wanniski presents an elaborate and detailed analysis of the relationship between the two. He shows that the ups and downs of the stock market tracked the ups and downs of the Smoot-Hawley Tariff as it progressed through Congress.
In his book America’s Great Depression, Murray Rothbard covers the same ground. He devotes less space to Smoot-Hawley than does Wanniski, but discusses a number of other protectionist measures taken about the same time.
Mr. Hawkins may disagree with Wanniski, Rothbard, and the many other economists whose analyses of the Great Depression led them to the same conclusions. He may dispute both their facts and their logic. However, he simply cannot claim that there are neither facts nor logic to support the assertion that protectionism brought on the Great Depression.
Hawkins is quite correct is his assessment of the damage done by Harry Dexter White, and is largely correct in condemning “globalization.” Nevertheless, the case against protectionism and for free trade is genuinely a “conservative” one. It goes straight back to Adam Smith, surely one of the greatest “conservatives” of all time.
—Joseph P. Martino
Mr. Hawkins Replies:
Jude Wanniski is a journalist, not an economist, and nothing better demonstrates the difference than his treatment of Smoot-Hawley. Wanniski’s polemic is far too shallow to support its grandiose title. Journalists feel the need to explain each day’s ups and downs in the stock market with reference to that day’s news. We see this often, but it means very little. It’s the trend, not the fluctuations, that counts, and the trend depends on underlying economic conditions. As Milton Friedman and Anna Schwartz state in A Monetary History of the United States: “The stock market crash coincided with a stepping up of the rate of economic decline. During the two months from the cyclical peak in August 1929 to the crash, production, wholesale prices and personal income fell at annual rates of 20 percent, 7-½ percent, and 5 percent respectively. In the next twelve months all three series fell at appreciably higher rates. . . . All told, by October 1930, production had fallen 26 percent, prices, 14 percent, and personal income, 16 percent.”
These developments had far more effect than could any debate over a tariff—especially a tariff whose changes in rates had little practical effect. Friedman-Schwartz blame the collapse of the banking system for converting a downturn into a depression.
When Rothbard mentions Smoot-Hawley, he says “it was at a precarious time of depression that the Hoover Administration chose to hobble international trade.” Thus he confirms that the Depression was already underway before it was enacted. Rothbard blames the inflation of the 1920’s for bringing on the Depression.
Smoot-Hawley did not give the signal for protectionism to proliferate around the world. The trend towards protection, particularly in agriculture, occurred right after World War I. The war was the death knell of laissez-faire. It demonstrated both the importance of national economic strength and the vulnerability of nations dependent on strategic imports such as food. Smoot- Hawley was a response to restricted overseas markets and foreign dumping. It was part of a trade war that had been in progress for a decade. The continued advance of technology has increased the importance of such strategic factors in formulating realistic trade and industrial policies.
Reagan repeatedly cited FDR’s campaign rhetoric as the genesis of his views. The large and persistent trade deficits caught his administration by surprise. Rather than confront the problem, the White House chose to deny it, grasping at straws like the Smoot-Hawley myth to use against critics. We will pay dearly for this error. With the dollar already gutted, we are headed for a “hard landing.” Trade problems did not cause the Great Depression, but they may well bring on the next recession, unless a more active policy is adopted to reduce the deficit.
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