The brief account of the war here is restricted only to the western front and to the major industrial powers engaged in the war.

This is what Lamont said, but the contrast was likely exaggerated—although understandably so. German stores were not “full” when Lamont made his trip, and German housewives were up in arms at the lack of food supplies. Still, the contrast with the devastation in Belgium and northern France was as one of different worlds.

This account of the proceedings at Versailles is focused only on the decisions involving the western front, major industrial countries. The twenty-nine countries at the conference had a long list of war-fed grievances, especially on boundaries, including, for example, ratifying the famous 1916 Sykes-Picot boundaries for the major countries of the Middle East.

* The equations of electricity show that the rate of power loss in transmission increases as the square of the current. Long-distance transmission, therefore, is feasible only with very low current. But power (work output) equals voltage x current, so a specific power value could be transmitted at a range of different voltage/current ratios (100V x 1C = 10V x 10C = 1V x 100C). With AC technology, a vendor could transmit power at a very high V/C ratio, then “transform” it to the ratio required for the target application. By the use of multiple transformers, the same power supply could service both heavy machinery and residential lighting. With only a slight loss in efficiency, it could also be converted to DC, so the installed base of DC equipment could remain in place.

* The four strokes are air intake, compression, ignition, and discharge. Compared to the one-cylinder Otto engines, Ford’s was more efficient because the two piston cycles reinforced each other, which allowed a lighter flywheel and made crank-starting easier. Reducing vehicle weight was a constant with Ford.

* Murphy and Leland had a big payday when they sold Cadillac to General Motors in 1909. After the war, Leland, his son, and Murphy formed the Lincoln Motor Company to compete with Cadillac, but they ran into liquidity problems during the very sharp 1921 economic downturn, and sold it to Ford. A standard tale is that, as the only bidder, he bought at a big discount and savored firing the Lelands. In fact, Leland and his son remained in charge of Lincoln until 1924, and appear to have been treated respectfully. The split finally came over the degree to which the Lincoln designs could be consistent with Ford technology while remaining an up-market brand.

† The squeeze tactic was to form a new company to manufacture parts, owned by all the shareholders except Malcomson. It is not likely that the arrangement would have survived a court test, since it was blatantly discriminatory. More flagrantly, parts pricing was adjusted to ensure that most of the profits would accrue to the new company. Instead of suing, an outraged Malcomson formed a competing company, which allowed the directors to vote him off the board because of the conflict of interest. He was paid $175,900 for his shares, or about $4 million in today’s money. That was probably fair, given the risks ahead, but was far less than they would have been worth a few years later. Malcomson’s supporters also sold back most of their stock, which allowed Ford to obtain a majority position.

* In this period, all of the other car factories required more skilled men than Ford and more men per unit of output. So it’s likely that, by the standards of unskilled men, Ford was already paying a wage premium, which would explain the long hiring queues, but it was not enough to quell the turnover. The inherent productivity of his factories still generated the boffo profits. When General Motors caught, and surpassed, Ford in the ingenuity of its factory methods, it paid its workers more than Ford.

* Contrary to legend, studio moguls, as opposed to directors and producers, welcomed a strong Code. Middle American revulsion with highly sexual movies threatened to bring federal regulation on the industry. (It was actually part of Roosevelt’s first National Industrial Recovery Act.) The era of Code dominance, ironically, was also the golden age of American movies. Casablanca, Double Indemnity, Rope of Sand, The Postman Always Rings Twice, On the Waterfront, A Streetcar Named Desire, The Maltese Falcon, Mildred Pierce, and The Naked City were all made under the Code. Almost all movie critics would agree that the Lana Turner/John Garfield Postman was much sexier than the explicit, but lame, Jack Nicholson/Jessica Lange remake.

* There was, of course, a fair amount of hypocrisy involved in the earlier pose of strict morality. In 1890, there were twenty-five houses of prostitution operating in Muncie. Prostitution was outlawed in Indiana in 1915, and in the decade following, a number of Muncie officials were convicted of profiting from prostitution—shades of Sinclair Lewis’s Elmer Gantry. At the time of the research, there were apparently only a handful of “fly-by-night” brothels catering to the working classes—or at least that was what the Lynd researchers were told.

* “Fundamentalism” was a powerful evangelical movement within contemporary American Protestantism, inspired by a 1910 tract, The Fundamentals, prescribing a strictly literal interpretation of the Bible. It was especially strong in the South and Midwest, and Bryan, along with preachers like Billy Sunday, had adopted it in his religious work.

* Researchers on the sharecroppers’ union tracked down Shaw in the 1960s, when he was in his eighties. Shaw turned out to be a consummate storyteller, who could go on for hours. The eventual transcripts were published as a 550 page book, a splendid ground-level documentary of the pre–Civil Rights deep South. The sharecroppers’ union was organized by the American Communist Party, but was focused only on labor and civil rights issues; it was intended to be biracial, but the membership was all black.

* The year 1929 is the first one for which the government produced an official GNP statement, although it wasn’t computed and published until 1942. Academic economists spent several decades replicating that reporting for the years prior to 1929. There are several versions, all of them converging around the same results, going as far back as the 1820s, although the data are much less reliable the further back they are carried. The pre-1929 twentieth century data shown in the Figure are considered to be quite good.

† The US dollar price was linked to gold throughout the war, but its major trading partners had all suspended their gold linkages, so the United States did not export gold. The practical effect was that the dollar became a gold equivalent.

* Modern GDP accounting includes “hedonic” adjustments, introduced to reflect the fact that modern semiconductor technology has brought stunning improvements in capability at steeply falling prices.

* For perspective, Ford sold more than a half million cars in 1916. Still, Edsel and the other senior Ford executives, but not Henry, knew that Chevrolet was their first true, and very dangerous, challenger for control of the mass market.

* That is not much different from the time it took the web and internet to be fully incorporated into business practice. The base internet technology developed slowly through most of the postwar period, before the advances in semiconductor design enabled a rapid expansion of applications starting officially in 1995 when the internet was privatized. That process is still underway, and is shifting from streamlining business processes to new paradigms like the “internet of things.”

* The Standard breakup was simple: there were thirty-seven constituent companies, each with its own stock, which was held in trust for the shareholders by a New Jersey entity that effectively ran the conglomerate. The court simply abolished the trust, which it ruled was the real engine of monopoly, so the constituent firms all became competitors.

† Alcoa was subject to a long antitrust action by the Justice Department, finally losing only in 1938, on a finding by Learned Hand that the fact of monopoly is a violation of the antitrust law, even if the company did not intentionally create it. At the end of the war, in order to create effective competition, the government created two new aluminum companies, Reynolds and Kaiser, equipped with Alcoa technology.

* “Short blocks” were a particular problem. Studies by the Federal Housing Administration in the 1930s recommended block lengths of about 1,300 feet. Twenties developers often created blocks of no more than two hundred to six hundred feet, greatly increasing street area and thus reducing the space for housing, and requiring awkward utility arrangements.

* The US Department of Commerce warned in its Survey of Current Business reports: “As most data covering a particular month’s business are not available until from 15 to 30 days after the close of the month, a complete picture of that month’s operations can not be presented at an early date, but the weekly supplements give every week the latest data available.” The reports were released in the third or fourth week of the publication month, and were revised as new data came in. Distribution of the reports was by mail to subscribers, who were most likely to be professional investors.

* Velocity is often fairly stable, but can change rapidly. In the 1920s, velocity at New York banks doubled between 1925 and 1929, then collapsed to three-quarters of its 1925 rate in 1932.

* Unemployment data were quite imprecise at this period. Definitions were still cloudy, and the numbers themselves were residuals of two much larger surveys—of the labor force participation rate and employment-to-population ratio. Small estimation errors in the large surveys can cause big swings in the residual calculation. Later scholarly estimates suggest that actual unemployment may have been three million or so higher than the Historical Statistics data cited above. (See Margo, “Employment and Unemployment,” in the endnote for a good discussion of the data issues.)

* The “Dust Bowl” phenomenon was real in the sense of a decade-long 1930s environmental disaster, due to persistent drought and the lack of soil-conserving agriculture by small farmers. Outmigration increased sharply, but farmers were the least likely to migrate, and those that did mostly moved to adjoining areas. “Okie” migration to California was proportionally no greater than from other areas. Farmers who did move from the Dust Bowl in the main improved their economic position.

* Currency hoarding lowers banks’ deposits and so reduces the power of the money multiplier. Friedman and Schwartz criticize the Fed for not recognizing the impact of hoarding. But the impact of currency hoarding on the stock of money was first identified in the literature only in 1934, and would have taken rather longer to become part of a central banker’s tool kit.

* The IUI shares were subject to preemptive rights of existing shareholders to buy the new shares in proportion to their current holdings—an obvious oversight, since it could dilute insider control. CSC shares had no preemptive rights, and had the additional protection that voting rights were conferred by trust certificate upon named trustees for a term of years, whether or not the shares were sold. Later, as Insull’s stock machinations became increasingly desperate, the two companies masked questionable operations through a kind of two-card monte—shifting shares back and forth between the two companies and subtly manipulating their values at each turn.

* A “genius businessman” Kreuger may have been, but he was fundamentally mistaken about the commonalities between oil and matches. Rockefeller’s dominance in oil was based on economies of scale. The capital required to build a global oil business was enormous, but it created great market efficiencies, allowing Rockefeller to steadily reduce the price of oil to a level where smaller companies could not compete. The capital required for a match factory, however, was modest enough that a regional player could compete as well as a national one—which is why match manufacturers needed a government franchise to make reliable profits.

* The “bill of exchange” was the effective currency of trade. Goods purchased in Hong Kong, say, would be paid for by a bill evidencing the amount owed and the terms of the purchase, usually specifying full payment when the goods were actually received. Mostly British banking houses bought and sold those bills at less than face value depending on the time to final collection and other risks of the transaction. Bills from distant locales usually worked their way to London, where the final holder would collect the sum due from the merchant. The Bank of England was a major buyer of commercial bills, so its “discount rate” or rate of interest on bills, established the market rate. If the bank pushed up the discount rate, trade would suffer, and if it lowered the rate, economic activity usually increased.

* Most of continental Europe used some form of proportional representation—allocating legislative seats according to the percentage of votes received by each party. Unlike the winner-take-all systems of Great Britain and the United States, it assures a voice for minority constituencies. Its characteristic failure mode is that the multiplicity of parties requires constant brokering to form one unstable coalition after another.

* Mellon may be best remembered for allegedly stating during the 1920s deflation that policy should be to “liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate.” That comment was attributed to Mellon many years later by Hoover in his memoirs. Hoover did not like Mellon, who was skeptical of interventionist policies in the Great Depression. I have found no independent evidence of his actually saying it.

* There were actually two experts’ committees, the “first committee” charged with advising on stabilizing the German economy, and a “second committee” charged with determining the amount of German capital exports to date. The state of German financial records made that impossible, so the second committee made a rough estimate and disbanded, filing a two-page report.

* Gold was high-powered money, and the floods of it into the United States could have caused the Fed to lose control over the money supply. So Strong matched each influx of gold by draining an equivalent amount of other high-powered money from the Federal Reserve banks.

* Assume a 15 percent undervaluation of the franc to the dollar: an American wishing to buy French wine first must convert her dollars to francs, and because of the undervaluation of the franc, she would get an effective 15 percent discount on the wine. A Frenchman importing American beef, however, would have to pay a commensurate premium to equate his francs to the seller’s dollar price.

* The lump-sum single payment required to pay off the full obligation at the present time.

* In his report, Gilbert went on: “The effect of all this procedure is to present the financial position of the Reich in a most artificial light. These outstanding revenues, consisting principally of loans to be issued, do not represent effective revenues whereas the outstanding expenditures represent actual authorizations to spend, which in large part are already committed. This system of accounting, in other words, permits budget surpluses to be shown which do not actually exist and which will only come into existence in the future to the extent that loans are actually placed. Expressed in another manner, the budget surpluses shown can often be realized only through borrowing.”

* Interbank payments clearing is the process of aggregating the debits and credits between banks in a network in order to transfer only netted amounts. Especially in the gold standard days, a central netting and clearing mechanism greatly economized on the use of monetary gold.

* The processing tax was declared unconstitutional in 1935, but the funding was replaced by general revenues.

* Note that Roosevelt’s statement implies a commodity price base for the dollar, rather than gold. That was a favorite device of Irving Fisher, and Keynes flirted with it as well. Roosevelt may have picked it up from Morgenthau, but it suggests the eclecticism of his policy search.

* The “Warren-Pearson Indices” are still used by the US Department of Commerce for prices of pre-1914 commodities. Most criticism, as Keynes pointed out in a positive review of one of the Warren-Pearson books, centered on the reliability of the early-period data, which they tried to refine by statistically based inferences from other data, like freight loadings. Keynes admired their diligence, but thought they might have used greater caution in applying the results. The gold historian, C. O. Hardy, pointed out that for an English series covering the seventy-five years preceding the war, the proposed correlations were definitely right for only twelve of the years, definitely not correct for twenty-two years, and “roughly right” for forty-one years. Given the time spans and the data mining difficulties, “roughly” or “definitely” right for fifty-three of seventy-five years, or 71 percent of the time, might still be interesting information. Warren was also drafted by the US Department of Agriculture to develop the base 1910–1914 parities for the AAA.

† Kindleberger’s critique is similar to that of Roosevelt’s committee. He wrote that “Once it is agreed that it is important and necessary to raise world prices, two means are available.” The first is for “the countries of the world to embark simultaneously on programmes of government spending… carefully articulated… [so] each country’s exports grow as fast as its imports,” or “for all countries of the world to devalue in terms of gold, simultaneously, and in the same proportion.” But those were alternatives, he conceded, that were “impossible in 1933.”

* In 2015, the increment in the pretax income going to the top 1 percent at a share of 20.3 percent compared to the previous normal of 10 percent was $1.3 trillion—every year. That’s more than total annual Social Security payments, twice as large as the defense budget.

* Properly, a dynamic stochastic general equilibrium (DSGE) model. It is a mathematical optimizing tool that, in theory, can incorporate all the policy-relevant variables in an economy. It is dynamic because it links agents’ choices, outcomes, and expectations intertemporally; it is stochastic, because it is designed to calculate the impact of random “shocks,” which can be positive or negative; and it is a general equilibrium model because all markets clear and are in equilibrium after each period. So-called new Keynesian DSGE models assign a significant role for expectations in determining current behavior.

* It is almost inconceivable that a comparable program could be launched so rapidly today, which speaks not only to the desperation of the unemployed, but to the leanness of government and business. For reference, the Empire State Building broke ground in March of 1930 and was fully open in only thirteen and a half months, even with an exterior that required ten million hand-laid bricks.

* Economists agree that, irrespective of the employer/employee sharing formula, the entire Social Security payment comes from the payroll account. But Roosevelt was surely right that the visibility of the employee contribution has made Americans fiercely protective of the program.

† The Education of Henry Adams is a fine, self-mocking account of the author’s encounter with the triumphalist aspirations of the new social sciences.

* Schecter Poultry v. United States was nevertheless a major blow to the administration’s legislative strategy, for reasons that had nothing to do with the NIRA. The court ruled that a Brooklyn poultry packer, most of whose chickens came from out of state, escaped federal regulation since “when the poultry had reached the defendants’ slaughterhouses, the interstate commerce had ended, and subsequent transactions in their business, including the matters charged in the indictment, were transactions in intrastate commerce,” which obviously would greatly circumscribe federal reach over commerce. After Roosevelt unveiled his “court packing” plan in 1937, one of the Schecter justices, Owen Roberts, reversed himself in a later quite similar case.

* Once the gold price was stabilized in January 1934, the Treasury replaced the Federal Reserve as the custodian for American gold. Up until then, the Fed had made a practice of “sterilizing” gold inflows by offsetting them with new liabilities so base money would not be increased. The Treasury’s practice was to pay for gold inflows with drafts drawn on the Fed, which it replenished with new gold certificates. As the Treasury spent down those replenished funds, the monetary base was increased by the same amount as the new gold inflow. When the Treasury decided to sterilize the inflows, it paid for the gold with drafts on the Fed as before, but deposited the resultant certificates into an inactive Treasury account and repaid the Fed out of its current balances, thus avoiding net money creation.

* Despite stated worries about the inflationary potential of large excess reserves, the primary motive for the Fed’s action was to take back monetary controls usurped by the Treasury. The conventional Fed monetary tools, controlling the level of reserves through the discount rate and open market operations, were useless if the banks carried large idle balances. The Fed was quite circumspect in implementing the reserve rules, and stayed in close contact with the Treasury throughout.

* In his famous MacMillan Committee testimony, Keynes pointed out that the “Treasury view” following the tenets of classical economics was that “unemployment, except of a merely transitory character of which one need take no serious account, is an impossibility.”

* Note that the source data are in index numbers, 1929=100, so they show only relative changes of the two variables, with no information on their absolute values, although business profits were high in the late 1920s, and Figure 5.2 suggests that workers were getting a dwindling share of the pie.

* I can’t prove this, of course. But in the 1980s, I worked as a valuation consultant for buyout firms, with a particular focus on manufacturing. It was a period when America’s factories were being decisively outperformed by German and Japanese competitors. Few of the companies selling their manufacturing units had any idea how poorly they were run.

† Roose treats residential and business construction together. By 1937, they were less than a third of the peak quarterly rate in the 1920s. His text suggests without quite stating that they moved down roughly at the same rate. Producer durable equipment, however, enjoyed “a vigorous expansion” bringing them back to the 1929 level by 1936, and almost 20 percent above the 1929 peak by the second quarter of 1937.

* Farm productivity varies with the weather, and the outputs of government and many types of service workers don’t lend themselves to productivity measures. In the case of a kindergarten teacher, for example, would larger class sizes be an index of productivity?

* When Great Britain returned to the gold standard in 1925, most of the smaller European countries followed, but most of them did so at devalued exchange rates, some at just a tiny fraction of the prewar parity. The point of their “resumption,” however, was just to peg the value of a currency to a strong outside standard as a point of stability. Small-country currencies were rarely accepted in international trade.

* Total private mortgage debt was $41.3 billion; the number above strips out farm mortgages and residential mortgages held in corporate names. The ratio of household mortgage debt to GDP today is 53 percent. Given the fact that the home mortgage finance industry had been a major factor in the economy for barely a decade, the growth is impressive. The day’s economic managers likely had little idea of the time bomb they were sitting on.

* The layered utility holding companies of the 1920s and 1930s resemble in many ways the collateralized debt obligations (CDOs) that played such a prominent role in the 2008 financial crash. Holdings were highly stratified, with very high returns and very high risk accruing to the most junior tranches. In both cases, basically sound financing concepts were stretched to the breaking point in pursuit of profits and control—and inevitably they broke.

* The depreciation reserve is not a cash reserve but is an accounting charge to reflect the wear-and-tear cost to an asset. When the electrical utility industry was in its rapid-growth mode, the thirty-year-depreciation standard was probably far too long, since a plant had to be constantly upgraded to keep up with the growth in demand.