Hello and welcome to The Deep Dive. We are really
thrilled you're joining us today. Yeah, we've
got a really fascinating discussion lined up.
We really do, because our mission today isn't
just to rehash those dusty textbook black and
white images of sad stockbrokers in 1929. Right,
the stuff everyone has already seen a million
times. Exactly. We are going straight into the
comprehensive historical sources to explore the
hidden systemic dominoes that caused the entire
economy shatter. Perhaps more importantly, we're
going to uncover the incredible and frankly deeply
overlooked grassroots survival tactics of everyday
people. Because that's what this deep dive is
really about for you, the listener. It's about
what happens when traditional systems just vanish
overnight. People don't just sit there. I mean,
they get incredibly creative and sometimes entirely
radical just to survive. OK, let's unpack this,
because today we are going to uncover how a well
-meaning two cent tax actively accelerated the
collapse of the American American banking system.
Which is just wild to think about. It is. And
how everyday housewives essentially became the
most fierce, militant economic warriors of an
entire decade. It's a completely different side
of the Great Depression. It really is. You know,
it makes me think of a magnificent towering skyscraper.
You see the gleaming glass, the polished steel,
and there is this overwhelming illusion of permanence.
Right. You just assume it's going to be there
forever. Exactly. You don't see that the foundation
was poured over a massive, expanding sinkhole.
And when that building finally collapses, everyone
points to the final gust of wind that tipped
it over. The Wall Street crash. Yeah. The final
gust of wind, the crash of October 1929. We know
the famous stats, right? $14 billion vanished
on Black Tuesday alone. Over $30 billion wiped
out in a single week, which, to put that in perspective,
was more than the US had spent on all of World
War I. Just staggering. But for a listener who
already knows the basics of the 1929 crash, where
is the structural rot they aren't seeing? Well,
what's fascinating here is that for the average
person, Like the factory worker, the farmer,
the teacher. The real catastrophe was never the
stock market. Wait, really? Because that's all
we ever hear about. I know. But a very small
fraction of Americans actually owned stock at
the time. The foundational rot was really the
banking contagion. To understand why it failed
so spectacularly, we have to look at the structural
weakness of the 1920s banking system. Regulations
were incredibly lax. Totally lax. The required
capital to start a national bank had been drastically
lowered. So this led to the creation of thousands
of very small, completely unregulated rural banks.
And those rural banks were... Well, they were
entirely propped up by agricultural loans during
the farming boom of World War One. Precisely.
And when the war ended, crop prices eventually
plummeted. Farmers couldn't pay their loans and
they started defaulting en masse. Leaving the
banks holding the bag. Exactly. So these thousands
of tiny banks were certainly holding on to a
bunch of worthless debt instead of cash. And
to understand the panic that followed, we have
to look at the mechanics of fractional reserve
banking. What economists call the money multiplier.
Let's break that down for the listener, because
if I deposit $100 into my local bank, the bank
manager doesn't just put my specific $100 bill
into a little wooden box with my name on it.
Far from it. The bank might keep, say, $10 in
the vault to cover daily operational withdrawals,
but they take the other $90 and lend it out to
a neighbor to buy a tractor or start a business.
The bank assumes that not everyone will ask for
their money back on the exact same day. Which
works fine normally, but in 1930 there was no
federal deposit insurance, no FDIC. Nothing.
If your bank closed its doors, your life savings
were simply gone forever. Wow. So the moment
people heard a rumor that a local bank was struggling,
they sprinted to withdraw their cash. Which physically
breaks the math of the bank. I mean, everyone
wants their $100 back, but the bank only has
$10 in the vault. Exactly. The other $90 is tied
up in a tractor that a farmer can't pay for.
That reverses the money multiplier. Banks had
to urgently liquidate assets, right? Calling
in loans, conducting fire sales. Just to hand
out physical cash, which, of course, only broadcasted
their desperation and caused more panic. By 1933,
11 ,000 out of the 25 ,000 banks in the United
States had completely failed. 11 ,000? That's
nearly half the banks. Yes. Wiping out $1 .36
billion of everyday people's savings. But wait,
I have to push back here. If it was obvious that
a sudden terrifying lack of physical cash was
the problem, why didn't the government just step
in? You mean act as a lender of last resort?
Yeah. Just print more money to stabilize the
banks. That is the logical question. And the
answer lies in a rigid trap known as the golden
straightjacket. A golden straightjacket. Yeah.
What's fascinating here is that the United States
couldn't just expand the money supply whenever
it wanted because it was tied to the gold standard.
Every dollar in circulation had be backed by
a specific amount of physical gold in the government's
vaults. And because this system was international,
the U .S. was constantly competing with other
nations to keep gold inside its borders. So they
were basically handcuffed by international gold
flows. Completely. For instance, when France
decided to raise its interest rates to attract
global gold to their own vaults, international
investors started converting their American dollars
into francs. Because they could get a better
return in France. Exactly. So to stop this bleeding
of gold out of the U .S., the Federal Reserve
felt forced to increase their own interest rates
to make holding American dollars attractive again.
But raising interest rates in the middle of a
massive economic downturn is, I mean, it's the
exact opposite of what domestic businesses need.
It makes borrowing money incredibly expensive
right when companies are desperate for lifelines.
And that was the fatal flaw. The commitment to
that golden straight jacket prevented the Federal
Reserve from expanding the money supply. It turned
a severe but manageable recession into the Great
Contraction. Yeah, it was a policy. disaster.
There's actually a stunning admission about this
in the source material. In 2002, the former Federal
Reserve Governor Ben Bernanke gave a speech honoring
economists Milton Friedman and Anna Schwartz,
who had extensively studied this failure. Exactly.
And Bernanke literally apologized. He said, regarding
the Great Depression, you're right. We did it.
We're very sorry. But thanks to you, we won't
do it again. It's a remarkably candid moment
of historical accountability. Yeah, and you know
to make matters worse while the Fed was paralyzed
by gold the Hoover administration tried to balance
the federal budget Which led to one of the most
disastrous policy backfires of the era the check
tax the two cent tax on paper It sounds completely
harmless in 1932 the government implemented a
two cent fee on the purchase of all bank checks
Just to generate a little extra revenue, but
they completely failed to factor in the psychology
of a panicked public people were already terrified
of keeping their money in banks. Right, they
were already on edge. So to avoid paying this
new two -cent fee on checks, people simply stopped
using checks entirely. They switched to doing
all their daily transactions in physical cash.
Which means they had to go to their already struggling
banks and withdraw even more of their deposits
in paper bills. Precisely. It's like trying to
put out a fire with a bucket of gasoline. That
is exactly what it was like. The government took
a banking system dying from a lack of physical
cash and passed a tax that incentivized the entire
population to hoard physical cash. It severely
contracted the money supply even further, accelerating
the bank runs. It's a brilliant, tragic example
of how a failure to understand the mechanics
of consumer behavior can be fatal to an economy.
Because Washington was completely paralyzed by
this gold standard trap and accidentally throwing
wrenches into the banking system, there was no
cavalry coming to save the day. Nobody was coming
to help. Which meant everyday people waking up
in 1933 to a 25 percent unemployment rate had
to figure out how to survive completely on their
own. So, what did that ground level survival
actually look like for you, the average citizen?
Well, it looked like a total demographic reversal.
For decades, the migration trend in America was
people moving from rural farms into the booming
urban cities to work in factories. The Depression
violently snapped that trend in reverse. Millions
of people started fleeing the cities and heading
back to rural kinfolk because urban areas offered
absolutely no food. You can't forage or grow
crops on a concrete sidewalk. And for those who
start in the cities or the transient workers
riding the rails looking for jobs, they built
their own parallel societies. The Hooverville.
Yes. These were massive ramshackle shanty towns
built on vacant lots out of cardboard boxes,
scrap metal and old tents. People literally constructing
new neighborhoods out of the debris of the old
economy. And while these visible signs of poverty
were everywhere, there were deeply hidden struggles
that often went unnoticed, particularly for African
Americans. Because Jim Crow laws and strict segregation
were in full force. Exactly. While a white transient
worker might be able to find a bed and a bowl
of soup in a municipal government -run shelter,
African Americans were routinely turned away.
Or they faced the very real threat of racial
violence if they tried to enter. The government
safety net, as flimsy as it was, simply didn't
exist for them. It didn't. They were systematically
excluded from relief systems, so they had to
rely almost entirely on their own communities.
Black -run organizations and community churches
stepped up to the plate, creating their own soup
kitchens, mutual aid societies, and shelters.
Which raises an incredible question. How do people
living in these DIY pop -up societies, completely
abandoned by the system, manage to assert any
sort of control over their lives? By organizing.
and often by getting incredibly radical. Here's
where it gets really interesting, because when
we think of 1930s labor activism, the textbook
image is men standing on factory strike lines.
Right, guys with picket signs outside a plant.
Yeah. But the sources highlight the fierce, large
-scale activism of working -class women and mothers.
They were known as the militant housewives. Yes.
And they completely shattered the long -standing
misconception that homemakers were passive or
apolitical. Totally. When market prices for essential
goods started skyrocketing due to predatory business
practices, these women realized that their survival
depended on taking direct, coordinated action.
The anecdotes from the sources are just mind
-blowing. Like in Chicago, you had Polish housewives
who realized that exorbitant meat prices were
due to corporate price gouging, not actual food
shortages on the farm. So they took matters into
their own hands. They literally broke into the
warehouses of the armor company, doused thousands
of pounds of hoarded meat with kerosene, and
set it on fire to force the company's hands.
Which is just incredible. And take that a step
further. Look at Cleveland. Black mothers faced
a local power company that refused to delay shutting
off electricity for families who couldn't pay
their bills. So these women mobilized. They did.
They went out into their neighborhoods and hung
heavy wet laundry over every single utility line
until the power company was physically forced
to turn the electricity back on. I love that.
They also coordinated sit -ins at local relief
offices. They would take their crying babies,
put them right on the caseworkers' desks, and
flat out refuse to leave until they were given
free milk for their children. It is brilliant
and fearless. If we connect this to the bigger
picture, the downstream effect of that was the
birth of immense political power. These militant
housewives weren't just angry individuals lashing
out randomly. They were forming formal, highly
structured groups, right? Like the United Council
of Working Class Women. And the Housewives League
of Detroit? They pioneered the modern concept
of the ethical consumer, using massive coordinated
boycotts to target businesses that price gouge
or refuse to hire local workers. They proved
that the domestic sphere, the home, was no longer
just a quiet space. It was a highly effective
political battleground. And that fierce desire
to reclaim control from a broken system didn't
stop at the grocery store or the power meter.
It extended into the most intimate parts of life.
specifically, family planning. This is a vital
and often completely overlooked chapter of the
Great Depression. Because of the severe economic
downturn, families desperately needed to control
their family sizing. They simply couldn't afford
to feed another mouth. But under the Comstock
laws at the time, birth control and abortion
were entirely illegal. You couldn't even legally
distribute pamphlets containing information about
contraception. The human toll of that legal barrier
was catastrophic. The sources point out that
maternal mortality actually rose during the Depression.
Yeah, a study by the New York Academy of Medicine
found that 12 .8 % of maternal deaths during
this period were due to septic, self -performed
abortions. It's tragic. Lower -class women thrust
into sudden poverty couldn't afford to visit
the few physicians who might quietly help them,
so they resorted to desperate, unsafe measures.
But where the legal system failed to protect
citizens, an incredible underground capitalist
workaround emerged. I look at it almost like
prohibition -era speakeasies, but for healthcare.
That's a great way to put it. Since it was illegal
to sell products for the stated purpose of birth
control, companies heavily masked them. They
created a massive loophole by marketing contraceptives
as feminine hygiene products. Or selling them
with vague promises of protection and dependability.
And in 1930, a legal verdict actually allowed
companies to advertise these products as long
as their stated sole purpose wasn't birth control.
And the market absolutely exploded. to meet the
crushing demand. It did. Department stores started
creating private, discreet shopping spaces specifically
for women to purchase these items away from the
main aisles. Think about the sheer scale of that
underground economy. By 1930, the sales of female
contraceptives actually outnumbered condoms by
five to one. And by 1940, the market size had
tripled. It shows how even when the government
criminalizes a basic survival need, people will
invariably find a way to meet that demand. It
was a quiet rebellion, but a necessary one for
the survival of millions of families. So we've
explored the collapse, the paralysis of the gold
standard, the DIY survival, and these massive
underground economies. How does a nation actually
break out of this cycle? How did the government
finally pivot away from the old rules? Well,
it started with a fundamental shift in philosophy
under Franklin D. Roosevelt's New Deal in 1933.
FDR recognized that the traditional hands -off
approach wasn't working. He aggressively tackled
that golden straight jacket head -on. In a series
of sweeping moves, he effectively suspended the
gold standard. He required citizens to turn in
their gold, coin, and bullion to the Federal
Reserve for a set price of $20 .67 an ounce.
And forbade the export of gold entirely. Exactly.
This unlocked the Federal Reserve finally allowing
the government to inflate the money supply and
stimulate the economy. And then we see the rollout
of the famous alphabet agencies, right? Things
like the Civilian Conservation Corps, the CCC,
and the Works Progress Administration, the WPA.
Yes. They essentially made the federal government
the employer of last resort. The psychological
shift of that alone is staggering. Imagine being
a 19 -year -old kid from a starving family in
an urban center. Suddenly, the federal government
puts you on a train, sends you to a forest in
Montana to plant trees or build national park
trails. They feed you three meals a day and send
$25 a month directly back to your parents. It
was a massive mobilization of unskilled labor.
Add to that the passage of the Social Security
Act in 1935, which created the foundation of
the modern welfare state. It was transformative,
but You know, we need to impartially look at
the sources here, because the New Deal was not
universally beloved. Right. And it didn't immediately
cure the economy. It faced fierce conservative
pushback, particularly from the business community.
From their perspective, FDR's policies were hostile
to business expansion. Because they argued that
the new regulations stifled free enterprise.
Yes, and that they gave far too much negotiating
power to labor unions, which made corporate leaders
hesitant to invest capital or hire new workers.
And this tension between government spending
and business confidence actually led to a severe
backslide. By 1936, the economy was finally looking
up, but then the Roosevelt recession hit in 1937
and 1938. That's right. The Federal Reserve,
perhaps getting a bit too confident in the recovery,
prematurely doubled reserve requirements to tighten
the money supply and prevent inflation. Well,
simultaneously, FDR cut federal spending to try
and appease critics and balance the budget. And
the result was immediate and brutal. Industrial
production plummeted and unemployment spiked
right back up to 19 percent. Yeah, it proved
just how fragile the recovery really was and
validated the fears of many who felt the economy
wasn't standing on its own two feet yet. So if
the New Deal stabilized the patient but didn't
fully cure the disease, what finally ended the
unemployment crisis for good? When World War
II broke out, the federal government began pumping
massive, unprecedented investments into new factories
for round -the -clock munitions production. And
this mobilization forced a massive societal shift,
too. In 1941, Roosevelt issued Executive Order
8802, which officially banned racial discrimination
in war -related employment. Suddenly, the structural
walls that had kept minorities, women and older
workers out of the lucrative factory jobs were
dramatically lowered. But the real economic magic
bullet here was the specific mechanism of how
the military contracts were structured. They
used something called cost plus contracts. Yes,
this is crucial. OK, let me try to puzzle out
the mechanism on this. Under a cost plus contract,
the government promises to pay a factory for
all of its manufacturing costs, plus a guaranteed
percentage of those costs as pure profit. Right.
Wait, so if I'm a factory owner, the more I pay
my workers, the higher my overall operating costs
are. And since my profit is a guaranteed percentage
of my costs, paying my workers more actually
increases my own bottom line profit because the
government is footing the entire bill. You nailed
it. It completely inverted the usual capitalist
incentive to keep wages low. That's amazing.
It directly incentivized companies to hire hundreds
of thousands of unskilled workers, train them
at government expense, and pay them soaring competitive
wages. That combination of massive government
spending and the structural incentive to maximize
payrolls finally drove the unemployment rate
below 2 % by 1943. So what does this all mean?
When we look back at this entire journey, it
becomes clear that the Great Depression isn't
just a story about a bunch of tickers dropping
on a stock market floor in 1929. It really isn't.
It is a profound lesson for you, the listener,
about the sheer fragility of rigid economic systems.
We saw how the inflexible golden straight jacket
handcuffed a nation, how the psychological danger
of financial contagion can wipe out a decade
of savings, and how a well -meaning two -cent
check tax can inadvertently cause a nationwide
hoarding of physical cash. All of those macro
failures piling up. But above all, it is a testament
to the awe -inspiring resilience of everyday
communities. When the massive institutions failed,
people fought back, whether they were Polish
housewives burning meat to protest price gouging,
black mothers taking over utility lines, or women
creating a massive underground family planning
economy just to keep their families afloat. And
as we wrap up, I want to leave you with one final
fascinating paradox from the historical data
to ponder. OK, when you look at the period between
1929 and 1933. The absolute nadir of the depression
in the nation was facing immense poverty, widespread
malnutrition, and climbing suicide rates. A completely
bleak picture. And yet, during that exact same
four -year window, the overall life expectancy
in the United States actually increased from
57 years to 63 years. Wait, really? That is completely
counterintuitive. It is. Furthermore, this era
of unprecedented economic devastation saw a massive
surge in the adoption of household innovations.
Things like electric refrigerators, sulfur antibiotics,
and even the widespread popularity of board games
became household staples in America during the
deep poverty of the 1930s. I want you to chew
on that contradiction for a moment. How does
an era of absolute crushing economic collapse
simultaneously forge an environment that extends
human life and breeds such enduring household
innovation? It's a question that really makes
you reevaluate what drives progress. What does
that reveal about human resilience when the traditional
economy simply stops functioning? Perhaps it
tells us that when the gleaming skyscraper finally
sinks into the ground, humanity doesn't just
disappear into the rubble. We scavenge the steel,
we pitch a tent on the ruins, and we start figuring
out a new, better way to survive. Thank you so
much for joining us on this deep dive. We'll
catch you next time.