Depression-proof investing

Amity Shlaes is tweeting tidbits from Coolidge’s comings and goings as a countdown to the publication of her all-new biography of the 30th president. Yesterday, she shared that Coolidge bought shares in Standard Brands at the time of its creation by merger. The financial news media of the day touted this and other food company stocks as being depression-proof, much as stocks of food and other consumer staples firms have been thought of ever since. I’m not sure if Coolidge had a sizable or diversified stock portfolio; I expect he owned shares of New York Life, where he was a director,

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Dateline Northampton, June 19, 1931

80 years ago on this day, Calvin Coolidge devoted his daily column to a subject near and dear to his heart ( as it ought to be to ours), namely, government debt.He scarcely could have anticipated the day when the national government would be debating ever more extravagant debt ceilings. I wonder if his thinking really is so old-fashioned and outmoded or whether we might do well to follow his advice regarding the virtues of thrift and economy.

As the income and earning power of the people decline, due to depression, governmental debts and expenses become a real problem. We have been going through an era when nearly all the public debts except those of the national government have been increasing. The expectation was that the general expansion of business would make it easy to pay them. Now the opposite condition prevails.
Ba retiring and refunding its debt the national government is saving nearly half a billion dollars annually in interest. The only other course would have been more extravagant spending or reduction of taxes. Either one of these would have aggravated the present serious situation of the Treasury.

When money is borrowed by a government or an individual to pay current expenses it means living on capital. If carried far enough, disaster results. When debts are paid it means capital is restored. If carried far enough, prosperity and plenty follow. Some of our municipalities borrowed too much in the day of plenty and are not able to meet their obligations. The national government economized some, though not enough, in the day of plenty and is now able to get credit to take care of the day of adversity.

Dateline Northampton, March 13, 1931

Calvin Coolidge’s daily column of March 13, 1931, had as its theme the then recently held conference of the National Progressive Conference. Apparently at that point, no one was yet aware that the progressive movement asa force in U.S. politics was on its last legs, about to be absorbed into the New Deal Democratic Party of the 1930s.  One is struck by Coolidge’s fairness: rather than condemning this gathering of what were after all fairly left-wing characters, he is willing to grant them sincerity, while remaining skeptical about the viability of their programs.

It is notable that Coolidge states as a universally shared viewpoint that the rewards of industry should be “even better” distributed. This alone gives the lie to the standard caricature of him as a materialistic stooge of capitalism. Equally notable is his qualification that this goal will not be reached by “more politics, or more government.” Evidently, Coolidge believed in the invisible hand of markets rather than heavy-handed government intervention to bring about prosperity.

There is no need for hasty judgment on the progressive’s conference held inWashington. Many sincere people attended it. Their assumption that they are better than any of the political parties will do no harm. Apparently they have an ambitious program. They seek to guide all other public officers. Their official members have not always shown great capacity for co-operation. If they now learn to co-operate with each other they later may be able better to co-operate with other members of the Congress.

The conference has accomplished little by naked criticism. Every one knows that the government is not perfect. Almost everyone suspects that it will not be made perfect for some time. Yet we all want to see it improved. We all desire progress, prosperity and an even better distribution of the rewards of industry, although in these we now surpass the world. Very few now believe that these things can be secured by more extravagance, more loafing, more politics, or more government.

The discussion may prove helpful. A reduction of vague ideas to specific proposals usually shows whether they are sound. The formation of a constructive common-sense program for perfecting the country will not be found easy.

In his eminently worthwhile book, “America’s Great Depression” (available as PDF at the Mises Institute website), Murray N. Rothbard characterizes 1931 as “the tragic year” – the year in which international crises as well as Hoover administration misjudgments pushed the country after an optimistic start to the year, ineluctably into the Depression.

From pride to disappointment – Coolidge’s final speech to the Business Organization of the Government

On January 28, 1929 – just a few weeks before leaving the White House – Calvin Coolidge spoke at the 16th and, as it turned out, last meeting of the Business Organization of the Government. Looking back on 8 years of reining in a government structure “permeated with extravagance”, the president listed the stunning accomplishments, chief among them the unprecedented reduction in the national debt and the concurrent tax reductions. Beyond mere statistics, the speech clearly shows that this project was Coolidge’s major opus, the cornerstone of what he wanted to accomplish in office and what he intended to leave as his legacy. Yes, it must have rankled sometimes to be accused by some of “considering nothing but the material side of life” or charged with “advocating a penurious and cheeseparing policy.” But ultimately, having inserted “a golden page in our history,” this least war-like of presidents was justified in stating that “peace hath its victories no less than war.”

Characteristically, Coolidge cautions near the end of his speech that “the margin between prosperity and depression is very small,” urging continued vigilance against extravagance and waste. Not very much later, that depression really was at hand, and Coolidge’s successors chose to follow policies much different from his. Today, economists and historians debate whether their frantic actions, resulting in a huge expansion of government rather than “constructive economy”, prolonged and worsened rather than shortened the Great Depression. Be that as it may, Coolidge himself later stated that he felt out of touch with these new policies. It is poignant to me to note how proud he must have felt at the time of giving this speech, and how devastating it must have been later, when this proudest of his achievements was dragged down by the Great Depression and indeed his own policies were blamed as causes of the economic downturn.