Hoarding among Americans Born during the Great Depression: Understanding the Socio-Economic Conditions of a Forlorn Era in Relation to a Peculiar Habit
Introduction
The capitalist economic setup of the United States (US) is not purely a success story. While markets in the US appear robust and active in contemporary times, it does not mean that it has not experienced any form of fluctuations. In fact, various maladies have affected the US economy for one too many times. In fact, the most recent economic crisis that has hit the US – the global financial crisis of 2008, has left the nation reeling in the pains of its capitalist faults, from which it has yet to recover in full. Yet, the disastrous consequences of subprime real estate lending, which inevitably stretched out to the larger web of the financial system of the US, only served as a mere reminder of a larger crisis that once threatened to reverse the gains the nation has gained from capitalism completely – the Great Depression of the 1930s (McElvaine 3-24, 323-349).
The chilling effects of the Great Depression were a consequence of a series of financially unhealthy economic activities. Consumers in the US lost much of their purchasing power as the value of the dollar plummeted due to deflation – a problem strongly linked to the lack of responsible lending practices on the part of banks. Consequently, markets in the US grew impotent due to the drastic decline of consumers resulting from inflation – a problem further aggravated by high tariffs on imports. Money hoarding served as both a cause and a consequence to the foregoing causes on the Great Depression, taking off from Americans acting in panic that time, manifested through mass deposit withdrawals. Throughout the Great Depression, many Americans struggled to live in poverty, only having survival in mind as they strived in frugality, as they feared losing more resources (Galbraith 88-107; McElvaine 72-94).
Considering the premise that money hoarding has contributed to the Great Depression as being both a cause and a consequence, this study aims to provide a stronger understanding on the aforementioned phenomenon and use it to comprehend the general context of hoarding and its prevalence among Americans born during the era. Through a detailed presentation of the socio-economic conditions of the Great Depression, this study seeks to bring light to the culture of hoarding common among Americans born during the era emphasizing money hoarding as the principal example. Ultimately, this study may stand to justify the ill effects of money hoarding – an action psychologically triggered by worsening economic conditions, during the Great Depression. Nevertheless, it focuses more on the massive fear of loss cultivated by Americans born in the US during the era that drove them to habitually hoard not just money, but other objects as well (Brenoff; McElvaine 72-94).
As a matter of course, understanding the nature of hoarding during the Great Depression requires knowledge of the causes behind the era itself. Three basic causes underline the disastrous effects of the Great Depression on the US economy – debt deflation, high tariffs and collapse of international trade activities. This section initially focuses on hoarding within the bigger-picture context of money hoarding, which in turn helps explain the culture of hoarding per se among Americans born during the Great Depression (McElvaine 25-50, 72-94).
Debt Deflation
There is an understanding that banks are financial institutions that do not just serve as depositories of money owned by their depositors. Rather, banks also circulate the money of their depositors through usage on a number of investment and lending tools. Deposits, investments and loans collectively describe the financial system of every nation, wherein banks play a central role to its well-being. However, in the case of the US years prior to the Great Depression, banks have shown lack of responsibility on their part to maintain the balance between their deposits, investments and loans (McElvaine 25-50, 72-94).
The crux of the problem derives from the lending practices of banks during the 1920s. Banks, as lenders, entitle their depositors and investors to borrow money from them at reasonable rates. However, with lending rates than went to as close as $10 for every $1 depositors and investors have, markets in the US started to decline because banks started losing much of their money supply to loans. The consequent inability of depositors and investors to pay their loans, considering the exorbitant rates granted to them, caused the failure of banks to balance their deposits, investments and loans sustainably simply because they have run out of money. As several depositors and investors defaulted on their loans, depositors started to commit money hoarding by withdrawing all their deposits from banks – a situation known as “bank runs”. Fears that banks would usurp more of their remaining money supply to compensate for loans that went on default provoked depositors into money hoarding. At the nadir of the situation, however, none of the depositors realized that money hoarding would only serve their short-term interests; whereas they ensure themselves that they did not lose their deposits from banks, little did they know that they caused the downfall of the entire financial system of the US (Galbraith 43-65, 88-107; McElvaine 25-50, 72-94).
Debt deflation, which encompasses the foregoing effects of irresponsible lending practices of banks, resulted from the failure of the US government to impose strict controls against money hoarding via bank runs. In the years prior to the Great Depression, the Federal Deposit Insurance Corporation (FDIC) did not exist and the Federal Reserve, or any other equivalent government institution, did not undertake any measures to raise the confidence of depositors by educating them on the ill effects of money hoarding. The failure of the financial system due to debt inflation inevitably led to the loss of jobs, as employers lost money from the meltdown banks have experienced from defaulted loans. Banks started to refuse granting loans to depositors and investors as they failed to collect payments for outstanding loans that eventually defaulted. People who have lost their jobs suffered from their incurrence of debts, thus leaving them in deep poverty (Galbraith 66-107; McElvaine 25-50, 72-94).
High Tariffs
As a reactionary measure to debt deflation also made as an attempt to protect markets in the US, Congress passed the Smoot-Hawley Tariff Act in 1930. The Smoot-Hawley Tariff Act imposed high tariffs on imported goods from several nations, mostly from Europe, made as an attempt to enhance domestic markets in the US in light of the debilitating effects of debt deflation. Yet, nations that traded with the US that time did not take the passage of the Smoot-Hawley Tariff favorably. Therefore, when the Smoot-Hawley Tariff came into effect, nations that traded with the US raised their tariffs on US exports as well. As a result, US exports and imports lowered by almost half its normal percentage, although such did not directly contribute to aggravating the already sorry state of the economy of the nation (Galbraith 168-196; McElvaine 25-50).
As a protectionist measure, the Smoot-Hawley Tariff Act initially succeeded in its purpose to enhance domestic markets in the US. Industrial improvements in terms of production, projects and employment all improved due the focus imparted by the Smoot-Hawley Tariff Act on domestic markets, hence signaling hopes for recovery from debt inflation. However, problems due to plummeting US exports and imports started creeping into the bigger picture of the Great Depression. The weakness of US banks disabled the provision of support to domestic markets, which in turn had to contend with challenges posed by nations that traded with the US in terms of higher tariffs. US exports dropped by around 60% from $5 billion to $2 billion. Imports coming into the US also fell drastically by around 65%, estimated from $4 billion to as low as $1.5 billion from 1929 to 1933. The drastic decline reflected in the foregoing figures added negative impacts to the worsening economic climate of the US that time, with the gross domestic product (GDP) of the nation having dropped to more than 50% already in 1933 (Galbraith 168-196; McElvaine 25-50).
Collapse of International Trade Activities
The US was able to expand its international trade network in the years prior, during and after the First World War. Nations that allied themselves with the US, specifically those in Europe, borrowed heavily from banks in the US in order for them to sustain their respective efforts for the First World War. Yet, there is an understanding that most European nations involved in the First World War lost much of their money from their national treasuries due to the sheer damage resulting from the conflict. Having almost nothing to pay to the US, European allies turned to the losers of the First World War – Austria-Hungary, Germany and other Central Powers, for payments consisting of reparations for the First World War. However, the Central Powers themselves have suffered from economic misery due to the damages they sustained from the First World War, leaving them with no formidable stance for rendering payments to them. Despite the foreseeability of the financial consequences of the First World War, European allies of the US that owed large amounts of money to the US sought for clemency from the US government. However, the US government would not even tolerate the fact that the European allies could no longer pay for the money they owed to US banks. As a provisional solution, US banks loaned more money to European allies to provide them with seed money for economic rejuvenation, which would eventually enable them to regain the ability to pay for their loans. However, the process of payment for loans from US banks did not finish quickly for the European allies (Galbraith 168-196; McElvaine 25-50).
Come 1929 – the first year of the Great Depression, US banks were still granting loans to European allies, yet the process became more difficult due to debt deflation. Moreover, the Smoot-Hawley Tariff Act curtailed the ability of both the US and its European allies to conduct a formidable environment to trade due to high tariffs on exports and imports from both sides. European nations eventually began to default from their loans from US banks. Apart from the counter-tariffs issued by European allies in response to the Smoot-Hawley Tariff Act, the reemergence of industrial activities in Europe made them less reliant on US exports. Other European nations that are less affluent, however, could simply not afford the prices of US exports. Farmers in the US also defaulted from their loans due to the Hawley-Smoot Tariff Act, thus making domestic agriculture less productive and agricultural exports less abundant. Such paved way for the further growth of the trend of money hoarding in other parts of the US, hence contributing to the downfall of the financial system of the nation (Galbraith 168-196; McElvaine 25-50).
It is worth noting that the Great Depression involved scenarios of great distrust towards formidably established institutions, particularly towards banks in the US and the US government. When US banks started failing due to their irresponsible lending practices, Americans started to panic over losing their deposits. Without any effective government institution moving to discourage money hoarding, many Americans did not have second thoughts over heading to the banks to withdraw all their money, not knowing that worse consequences await their decision. At the same time, the economically harmful effects of the Great Depression have driven several Americans towards poverty. The downfall of the financial system of the US caused the closure of many companies, in turn resulting to loss of jobs. Several Americans lost their jobs as a result, while their continued incurrence of debts forced them further to become more frugal and inculcate within them the fear of loss. Given the foregoing circumstances that arose during the Great Depression, it is noteworthy to state that Americans born during the era could have accustomed themselves to the culture of hoarding due to notions involving fear of loss and parsimonious attitudes in light of poverty. This section outlines the foremost causes behind hoarding among Americans born during the Great Depression – fear of loss and frugality (Brenoff; Thomas; Galbraith 168-196).
Fear of Loss
The US experienced a period of economic prosperity in the years following the First World War, ushering in an era dubbed as “the roaring 20s”. During the 1920s, the US consolidated its economic power based on increasing productivity in agricultural and industrial activities alongside trading activities with other nations, particularly with First World War-European allies. In turn, European allies went under the US under its consolidation of trade networks because they knew that is one way of sustaining themselves as they work on paying their outstanding loans with US banks. Simply put, the US was somewhat at the center of the global economic system during the 1920s – a role that could have stood as sustainable without the occurrence of the Great Depression had it become more responsible in regulating its financial system (Brenoff; Thomas; Galbraith 168-196).
Yet, as history connotes, US banks failed to exercise adequate responsibility in maintaining the balance between their deposits, investments and loans. When the much-dreaded starting phase of the Great Depression started to unfold, several Americans made a run to the banks and withdrew all their deposits in one go. At first, it is understandable for Americans who went on a bank run to have done so at such a crucial point in the history of the US. Since the financial system of the US was still young at that time, no one could have formidably foreseen the turn of events that followed shortly after banks realized that they already lost much money for granting loans at excessive rates. For one, the early 20th century was a time when the financial system was still modernizing, so much to the point that banks could not have forewarned themselves against the disastrous effects of lending out excessively to their depositors and investors. Moreover, the fact that no government institution proved dedicated enough to stop people from money hoarding during the Great Depression further proves the premise that much of the US went into the dark when debt inflation happened. The magnitude of the debt inflation that formed the initial phase of the Great Depression was so strong, that even though one or two bodies strived to work against letting the problem progress that time, injurious repercussions would have still followed (Brenoff; Thomas; Galbraith 168-196).
One could therefore assert that within the context of the Great Depression, the fear of loss ingrained within Americans, as triggered by debt inflation, was well justified given the uncertainty many of them had in terms of its long-term effects. Certainly, Americans that time only had in mind the intent of saving their money from the perilous circumstances surrounding the financial system of the US that time. Survival was on top of the agenda of most Americans that time, given that many of them already lost their jobs as their debts remained. Therefore, one could not possibly blame Americans during the Great Depression for their desperation over the massive economic downturns they have experienced that caused them to commit to short-term yet slapdash decisions that eventually fast-tracked the downfall of the US economy. Rarely an American born during the Great Depression would deny the imminent fear of loss people had during the period, given the actions of those who raised them and the sordid environment of most of the US resulting from the economic malaise (Brenoff; Thomas; Galbraith 168-196).
Frugality
The fact that most Americans during the Great Depression lost their jobs due to the financial meltdown in the US as their debts remained outstanding in the same amounts made frugality a prime lifestyle choice during the era. Since many Americans had no opportunities to earn income during the Great Depression, they learned to lead lives characterized by extreme conservation and prioritized survival over convenience. Previously, Americans had the ability to practice their choices over the kinds of necessities and luxuries they wish to purchase for themselves. Reckoning the reality that Americans prior to the Great Depression were financially sound in leading their lives, one could only think that frugality was out of the question in terms of describing their lifestyles (Brenoff; Thomas; Galbraith 168-196).
Nevertheless, it was only until the Great Depression that Americans felt the grave necessity to live a life of frugality. Not since during the Civil War did the US experience a nationwide urgency for survival; in fact, the US mainland did not even experience any attacks during the First World War despite the participation of the nation. The negative economic influence the Great Depression brought unto US was so huge, it has forced Americans to live frugal lives after the collapse of the financial system deridingly took off their jobs and deprived them of further opportunities. It would have been unimaginable for the average American family to become obsessed with conserving, reusing and recycling resources at a time when all of its working members have jobs under a stable economic environment. However, in the case of Americans during the Great Depression, fulfilling the will to live lies greatly on having to know how to conserve resources, to make the seemingly useless highly useful and valuable (Brenoff; Thomas; Galbraith 168-196).
Hence, one could think of frugality as both a natural consequence and a necessity among Americans during the Great Depression. Considering that Americans lost their purchasing power due to systemic damages that affected the US economy, their will to live mainly focused on having to make the best out of what they have. Therefore, those born during the Great Depression became to the culture of hoarding, given that they grew up in an era where conservation and recycling became more of a necessity than an option. Americans during the Great Depression observed the concept of “using whatever is useful” through money hoarding alone; the practice of hoarding other materials followed naturally and necessarily for them (Brenoff; Thomas; Galbraith 168-196).
Conclusion
Did the conditions brought forth by the Great Depression help cultivate hoarding among Americans born during the era? Truth be told, but despite the economically demanding circumstances of the Great Depression, it is still difficult to generalize all Americans born during the era as people who naturally acquired the culture of hoarding. Nevertheless, one could point out the socio-economic conditions of the Great Depression as the reason why many – but not all Americans born during the era have gotten used to hoarding as their practice in their everyday lives. The lack of wastefulness characterizing the attitudes of many Americans during the Great Depression has enabled them to see the value of objects, thus leading them to practice hoarding. At the same time, those born during the Great Depression prone to hoarding have entrenched within themselves the fear of losing resources for them to survive, duly manifested by Americans living that time in the form of money hoarding. Thus, while it is difficult to establish a factual generalization of all Americans born during the Great Depression as hoarders, it is undeniable as well that the sheer number of people that observe the culture of hoarding born during the era have become so due to the dire socio-economic conditions that characterized the era.
Works Cited
Brenoff, Ann. “Hoarding: Does Your Aging Parent Have the Disease of Clutter?" Huffington Post. 27 March 2012. Huffington Post. 19 February 2014. <http://www.huffingtonpost.com/ann-brenoff/is-your-mom-or-dad-a-hoarder_b_1365521.html>.
Galbraith, John Kenneth. The Great Crash 1929. New York City, NY: Houghton Miffin Harcourt, 2009. Print.
McElvaine, Robert. The Great Depression: America 1929-1941. New York City, NY: Three Rivers Press, 2009. Print.
Thomas, Geralin. “Hoarding in the Senior Population." Metropolitan Organizing. 20 October 2010. Metropolitan Organizing. 19 February 2014. <http://metropolitanorganizing.com/hoarding-services/hoarding-in-the-senior-population/>.
