One of the Versailles restrictions was that the Wehrmacht could not have any tanks. The secret agreements in the Treaty of Rapallo provided a way for the German army to have and train with tanks. The German army could not make or use tanks in Germany without being caught by France or England, and the Soviets wanted to learn tank building and tank warfare. Thus the Germans were given the use of a tank school and test ground in Russia near the city of Kazan in trade for knowledge. Starting in 1926, the German army trained hundreds of men in tank warfare and refined their combat techniques with live war games. It could be said that the Blitzkrieg was birthed not in Germany but on those dusty Russian fields. Of course, the Russians benefited as well. German engineers helped them modernize their tank production, and the Kazan school became a vital part of their World War II armored training. Both sides even tested new tank designs and weapons there.
The German army was also forbidden to have or train in most types of aircraft. By 1923, the German army was training Soviet officers and pilots in exchange for the use of aircraft and the opportunity to train its own pilots as well. German engineers were assisting in many areas in the industrialization of Russia. Hundreds of German pilots flew and practiced in forbidden aircraft in the late 1920s and early 1930s at joint air schools near Lipetsk, Russia. Both sides also even developed poison gasses near the Volga River town of Saratov.
By 1930, because of German assistance and guidance, the first Soviet mechanized brigade was formed. In 1933, Adolf Hitler became chancellor and announced that Germany would no longer accept the restrictions of the Versailles Treaty. Cooperation slowed, then ended. Eight years later, the armored columns of the Wehrmacht tore into Russia at the beginning of Operation Barbarossa. Four years later, hundreds of victorious Soviet tanks swarmed Berlin. Allowing the Germans to train in their country was certainly a disastrous mistake for the Russians as viewed in 1941. Russia took an estimated 20 million casualties, civilian and military, before the German invasion, spearheaded by armored officers who first learned their trade near Kazan. Teaching the Russians tank warfare and how to manufacture better tanks was perhaps an even greater mistake. By 1944, the German army was being overwhelmed by thousands of T34 and KV Russian tanks. Each side made a great mistake in assisting the other. Who paid the higher price is open to debate.
65
A SLOB SAVES LIVES
Mold
1928
T
his is perhaps the classic example of a mistake that changed the world for the better. In this case, the world benefited as a result of bad laboratory technique. It was technique at its worst followed by science at its best.
To be able to connect a result with an action or reaction in science you try to eliminate as many outside variables as possible. In chemistry, this means making sure no outside chemical or organic material contaminates your samples. In 1928, Alexander Fleming, an otherwise brilliant scientist, accidentally left a bacteria sample uncovered by an open window. Fleming’s lab was notoriously disorganized, and this was likely not the first time his samples had been contaminated. By the time he had discovered the mistake, which of course should have rendered the sample useless, a number of mold spores had begun to grow in the rich solution in the petri dish. This one happened to be used to grow the deadly staphylococcus bacteria.
There were several ruined samples in petri dishes, but one was different. Fortunately for the world, Fleming took a careful look at the results of his mistake. Upon detailed examination, he saw that one of the molds was doing something no one had ever seen anything do before. It was killing the bacteria near it. Later, he was able to determine that this particular mold grew on, among other things, bread left out too long. Finding the mold in the petri dish led Fleming and his team to create the first antibiotic. This was penicillin, which has since saved tens of millions of lives.
66
DOING NOTHING
Herbert Hoover and the
Great Depression
1929
A
s Herbert Hoover assumed the mantle of president in 1929, one of his most famous assertions had been “We in America today are nearer to the final triumph over poverty than ever before in the history of any land.” Less than a year later the country was in the throes of recession, witnessing a financial crisis that was to cause poverty and unemployment rates to skyrocket. The recession was precipitated by a cyclical downturn in the market but exacerbated by misguided economic policies. It was Hoover’s ineptitude that deepened the crisis. While he somewhat justifiably became a scapegoat for the economic crisis, his failures were not reversed by his successor, Roosevelt, and their combined actions extended the duration of and worsened the intensity of the Great Depression.
Hoover had secured the Republican nomination for presidency in 1928 despite never having been elected to public office. He had attained great fame under President Woodrow Wilson by organizing the rationing of food for World War I and for his humanitarian efforts on behalf of persons starving in the wake of the war. His mystique was enhanced by his extensive role in the Harding and Coolidge administrations as the secretary of commerce, a previously unimportant cabinet position that attained great significance under his watch. He became one of the most instrumental figures in the economic boom of the early to middle 1920s, a period that oversaw an overextension of credit that portended ill for the future. Nonetheless, Hoover was viewed as a wallet-friendly candidate and surged to the presidency despite Coolidge’s lukewarm opinion of him.
While there are many competing theories for the origin of the Great Depression, it is apparent that Hoover did not particularly err in the months leading up to its beginning. In October 1929, on Black Tuesday, the stock market experienced a monumental collapse that precipitated the most severe economic downturn of the twentieth century. While the stock market modestly rebounded in successive months, the crash had a tremendous negative effect on consumer confidence. The decline in stock prices facilitated the bankruptcies of many lenders. Many economic historians suggest the inaction of the Federal Reserve in preventing the collapse of these banks massively exacerbated the crisis.
In June 1930, Hoover signed into law the Smoot-Hawley Tariff Act. This protectionist gesture resulted in a deepening economic crisis worldwide. Hoover’s miscues extended beyond the tariff. Various policies aimed at encouraging job sharing and propping up wages have since been determined to be responsible for close to two-thirds of the drop in gross domestic product (GDP) in the two years that followed the crash. Hoover tried to keep industrial wages too high; the result was that unemployment increased and the GDP suffered. Contrary to many historical critics of Hoover, he rejected the arguments of his treasury secretary, Andrew Mellon, in favor of a laissez-faire response to the crisis that would treat it as a cyclical event from which the economy would naturally rebound. Roosevelt’s policies based on this model are often considered to have increased the duration of the depression by several years.
On Hoover’s watch, unemployment reached almost 25 percent. The number of homeless Americans dramatically increased. This resulted in a proliferation of shantytowns across the country, which were derisively referred to as “Hoovervilles.” Hoover championed the Federal Home Loan Bank Act in an effort to spur the construction of new homes and reverse the tide of homelessness, but his actions were too little, too late. Before the downturn, Mellon had overseen a tremendous decrease in taxes on the upper economic echelon of society—the top income tax rate had been cut from 73 percent to 24 percent. To finance various public works projects later in his term, Hoover largely reversed these cuts; the consequence of such a considerable tax increase was substantially mitigated economic growth.
In 1931, Hoover urged major banks to form a consortium called the National Credit Corporation (NCC). Hoover encouraged but did not force major banks to loan money to smaller banks that were experiencing difficulties. NCC members were understandably leery of taking such actions, and loans were rarely given. A year later, Hoover helped secure the Emergency Relief and Construction Act, a last-ditch effort to increase loans to financial institutions, farmers, and railroads. Though it had little effect at the time, its efforts were extended by Roosevelt.
In 1932, Hoover lost in a landslide to Franklin D. Roosevelt due to his failings on the economy and on Prohibition. The election was pivotal from the perspective that it ushered in a realignment of political views. Roosevelt would be elected four times and oversee a period of Democratic domination in American politics. Considering the crises Roosevelt faced as president (including the Depression and World War II), it is difficult to imagine what the world would look like had Hoover’s ineptitude not assisted in this political revolution. Nonetheless, Hoover’s failings should not absolve his successor. Roosevelt continued many of Hoover’s economically ruinous policies, and in so doing extended the duration of the Depression. Unemployment remained high throughout Roosevelt’s New Deal policies. It was only after the onset of World War II that the United States truly dug itself out of its rut. Nonetheless, Hoover became the electoral scapegoat for his actions; then he later became the historical scapegoat due to the favorable impression many had of Roosevelt’s economic policies. It is for these reasons that Hoover will always be remembered as a humanitarian who became an abysmal president whose economic mistakes changed America and the world forever.
67
BAD BUSINESS
Smoot-Hawley
1930
F
ew bits of legislation have managed to do the damage that the Smoot-Hawley Tariff Act, passed in 1930, did to the American and world economy. The bill was introduced by the chair of the House Ways and Means Committee, Willis Hawley, and the chair of the Senate Finance Committee, Reed Smoot. The preceding fall, the stock market had crashed, and this bill was an attempt to revive the American economy. To do this, the act created a stiff tariff on more than 20,000 foreign imports. The plan was to suck money from Europe in the form of tariffs and to make European goods more expensive so that American-made items would have a distinct sales advantage. The bill easily passed a panicky Congress and doubled the effective duties on many manufactured and agricultural products.
The real effect of Smoot-Hawley was almost exactly the opposite of its intent. The European nations, seeing their products being virtually locked out of the U.S. market, passed their own protective tariff bills in retaliation. This meant that most American goods up to doubled in price all over Europe. By 1932, the trade war Smoot-Hawley had started was in full swing.
In 1929, the United States had exported about $4.5 million worth of goods to Europe. A million dollars went pretty far in 1930, when a loaf of bread cost $0.09. By 1931, all U.S. exports there totaled only $1.5 million. Two-thirds of all imports from the United States had been blocked out by the protective tariffs passed between 1930 and 1932. Imports to the States diminished just as quickly, going from $5.5 million to just over $2 million by 1932.
But no one bought new American goods from new American factories to replace the more expensive European imports that the Smoot-Hawley bill blocked out. Had they been able to do so, it might have worked. The reason they could not was that many of the consumers no longer had the money to buy much of anything. This was because of the millions of jobs lost as factories closed because they no longer could export their products to Europe. The unemployed were unable to buy American-made goods, much less more. Job losses made the Depression much worse. Not only were the jobs at the exporters lost, but many American jobs were gone as well. The American agricultural sector also largely depended on exports, and so protectionism made it impossible for farmers to sell their crops. This forced down the price paid for agricultural products. Lower prices put many farmers and farm workers out of work and cost thousands of families their farms.
When a quarter of the buyers of your product suddenly have no money, then your sales are down 25 percent. So you have to lay off some of your workers, cut wages, or eliminate benefits to enable your business to survive. But increasing the number of employed and paying workers less mean that sales for everyone are down again. The unemployed or financially strapped workers have less money to spend. As they continue to spend less, domestic sales continue to plummet and more workers lose their jobs. This cycle of unemployment creating more unemployment, which Smoot-Hawley reinforced, continued until World War II and wartime spending ended it.
The Smoot-Hawley Act had exactly the opposite effect of what was intended. Rather than helping to end a depression, which was started mostly by bad monetary policies, the tariffs it created made the financial situation much worse. Those tariffs caused a trade war that guaranteed that the 1930s saw not just another recession, but the Great Depression.
Reed Smoot and Willis Hawley were soundly defeated in the 1932 elections. Those workers whose jobs they had destroyed voted them out. By 1944, most nations had done away with the worst of the tariffs the bill had created and the postwar recovery became the greatest expansion of wealth in recorded history. It is only in the last few years that a return to protective tariffs for some businesses have reappeared. They were a mistake that changed the world and made a bad economic situation terrible. Let us hope today’s leaders have learned from history.