May 12, 2008
The myth of Andrew W. Mellon the liquidationist

In his New York Times Economic View column of 11 May, “When Should the Fed Crash the Party?,” Peter L. Bernstein unfortunately perpetuates a myth based on an almost certainly spurious quotation. He puts in Treasury Secretary Andrew W. Mellon’s mouth, using quotation marks, the declaration that the proper response to the crash of 1929 was: “Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate.” We do not, however, have any good reason to believe that Mellon ever spoke those words, or the other words Bernstein attributes to him. The sole and original source of these phrases is The Memoirs of Herbert Hoover (1952), which introduces them with the preamble “Mr. Mellon had only one formula: ”. The sentences in question appear in a passage where Hoover depicts himself as an enlightened economic policy activist in 1929, in contrast to Mellon, whom he depicts as leader of “the leave-it-alone liquidationists”. One must strongly suspect that Hoover was caricaturing Mellon to make himself look good.

Mellon’s public statements, writings, and a recent biography drawing on his papers all belie the caricature. His speeches contain no statement of liquidationist views; rather they urge that the Federal Reserve System should counter crises and “promote stabilization”. Mellon’s views on anti-Depression policy were less activist than Hoover’s. For example, Mellon was understandably not keen on Hoover’s policy of summoning businessmen to the White House to urge them not to cut wages even as product sales and prices collapsed. But Mellon’s views were not those of a one-formula liquidationist. As an ex-officio member of the Federal Reserve Board, he successfully urged the central bank to cut its discount rate after the stock market crash in October 1929, and supported subsequent rate cuts. In November 1929 he recommended tax cuts to stimulate the economy. He supported Hoover’s proposal to increase federal construction spending. Most damaging to Bernstein’s use of (Hoover’s caricature of) Mellon to disparage current-day non-interventionists, Mellon – wisely or not – supported the Administration’s initiative to create a National Credit Corporation, and its successor the Reconstruction Finance Corporation, to lend billions to illiquid banks.

Many well-known economists have perpetuated the myth by treating Hoover's "quotation" of Mellon as authentic. For details see my forthcoming JMCB paper.

Posted by Lawrence H. White at 10:31 PM in Economics

The statesman who should attempt to direct private people in what manner they ought to employ their capitals would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it. -Adam Smith

Our Bloggers
Joshua Hall
Robert Lawson
E. Frank Stephenson
Michael C. Munger
Lawrence H. White
Craig Depken
Tim Shaughnessy
Edward J. Lopez
Brad Smith
Mike DeBow
Wilson Mixon
Art Carden
Noel Campbell

Search

Archives
By Author:
Joshua Hall
Robert Lawson
E. Frank Stephenson
Michael C. Munger
Lawrence H. White
Edward Bierhanzl
Craig Depken
Ralph R. Frasca
Tim Shaughnessy
Edward J. Lopez
Brad Smith
Mike DeBow
Wilson Mixon
Art Carden
Noel Campbell

By Month:
February 2014
November 2013
October 2013
September 2013
August 2013
July 2013
June 2013
May 2013
April 2013
March 2013
February 2013
January 2013
December 2012
November 2012
October 2012
September 2012
August 2012
July 2012
June 2012
May 2012
April 2012
March 2012
February 2012
January 2012
December 2011
November 2011
October 2011
September 2011
August 2011
July 2011
June 2011
May 2011
April 2011
March 2011
February 2011
January 2011
December 2010
November 2010
October 2010
September 2010
August 2010
July 2010
June 2010
May 2010
April 2010
March 2010
February 2010
January 2010
December 2009
November 2009
October 2009
September 2009
August 2009
July 2009
June 2009
May 2009
April 2009
March 2009
February 2009
January 2009
December 2008
November 2008
October 2008
September 2008
August 2008
July 2008
June 2008
May 2008
April 2008
March 2008
February 2008
January 2008
December 2007
November 2007
October 2007
September 2007
August 2007
July 2007
June 2007
May 2007
April 2007
March 2007
February 2007
January 2007
December 2006
November 2006
October 2006
September 2006
August 2006
July 2006
June 2006
May 2006
April 2006
March 2006
February 2006
January 2006
December 2005
November 2005
October 2005
September 2005
August 2005
July 2005
June 2005
May 2005
April 2005
March 2005
February 2005
January 2005
December 2004
November 2004
October 2004
September 2004
August 2004
July 2004

Powered by
Movable Type 2.661

Site design by
Sekimori

XML