Free Lords of Finance: 1929, the Great Depression, and the Bankers Who Broke the World by Liaquat Ahamed Page B

“Poppycock! 727 ” Instead, he approached the subject with a sort of casual insouciance that his economic advisers found unnerving but which nevertheless allowed him to cut through the complications and go to the heart of the matter.
    His simplistic view was 728 that since the Depression had been associated with falling prices, recovery could only come about when prices began going the other way. His advisers patiently tried to explain to him that he had the causality backward—that rising prices would be the result of recovery, not its cause. They were themselves only half right. For in an economy where everything is connected, there is often no clear distinction between cause and effect. True, in the initial stages of the Depression the collapse in economic activity had driven prices downward. But once in motion, falling prices created their own dynamic. By raising the real cost of borrowing, they had discouraged investment and thus caused economic activity to weaken further. Effect became cause and cause became effect. Roosevelt would have been unable to articulate all the linkages very clearly. But he had an intuitive understanding that the key was to reverse the process of deflation and kept insisting that the solution to the Depression was to get prices moving upward.
    There still remained a chicken-and-egg problem. How to get prices up without first having to wait for economic recovery? Several years before when Roosevelt needed help with the trees on his estate in Hyde Park, his Hudson Valley neighbor and friend Henry Morgenthau introduced him to an obscure fifty-nine-year-old economist, George Warren, professor of farm management at Cornell, under whom Morgenthau had studied as an undergraduate.
    The short and stocky professor, with his owlish spectacles, Quaker-like earnest demeanor and a bunch of pencils protruding from his top pocket, had none of the earthiness that one might associate with an expert in farming. He had in fact grown up herding sheep on a Nebraska ranch and still lived firmly rooted to the soil on a five-hundred-acre working farm outside Ithaca, New York, where he raised cash crops and a large herd of Holstein cows. He had published a variety of books and pamphlets on agriculture, including a monograph titled
Alfalfa
and another,
An Apple Orchard Survey of Wayne and Orleans County, New York,
which exhaustively documented the various techniques for growing apples in upstate New York, down to which manures worked the best; a standard textbook,
Dairy Farming;
and twoseminal works,
The Elements of Agriculture
and
Farm Management
. He had also devised a system for inducing chickens to lay more eggs. As a teacher, he was known to be dismissive of theories and made a point of taking his students out to working farms. His quaint pastoral homilies on these visits had become part of the Cornell folklore—“You paint a barn roof 729 to preserve it. You paint a house to sell it. And you paint the sides of barn to look at”—although none of his students were quite sure what they meant.
    During the 1920s, as agricultural prices kept falling, this expert on cows, trees, and chickens had also spent a decade researching the determinants of commodity price trends. In 1932, he and a colleague published their work in an exhaustive monograph titled
Wholesale Prices for 213 Years: 1720–1932,
which created enough of a stir that, in 1933, it was issued as a book. Warren was able to document how trends in commodity prices correlated strongly with the balance between the global supply and demand for gold. When large gold discoveries came onto the world market and supply outpaced demand, commodity prices tended to rise. By contrast, when new supply lagged behind, this showed up in declining prices for commodities. It was easy to quibble with some of the details of the thesis—the correlation was not perfect because a variety of other factors, not least of which were wars, intervened to blur the link. Nevertheless,