The Smoot-Hawley Tariff and the Great Depression
[Reprinted with permission from Alan Reynolds, “What Do We Know about the Great Crash?” National Review, November 9, 1979]
Many scholars have long agreed that the Smoot-Hawley tariff had disastrous economic effects, but most of them have felt that it could not have caused the stock market collapse of October 1929, since the tariff was not signed into law until the following June. Today we know that market participants do not wait for a major law to pass, but instead try to anticipate whether or not it will pass and what its effects will be.
Consider the following sequence of events:
The Smoot-Hawley tariff passes the House on May 28, 1929. Stock prices in New York (1926=100) drop from 196 in March to 191 in June. On June 19, Republicans on the Senate Finance Committee meet to rewrite the bill. Hoping for improvement, the market rallies, but industrial production ( 1967 = 100) peaks in July, and dips very slightly through September. Stocks rise to 216 by September, hitting their peak on the third of the month. The full Senate Finance Committee goes to work on the tariff the following day, moving it to the Senate floor later in the month.
On October 21, the Senate rejects, 64 to 10, a move to limit tariff increases to agriculture. “A weakening of the Democratic-Progressive Coalition was evidenced on October 2...
Source: Cato-at-liberty - Category: American Health Authors: Alan Reynolds Source Type: blogs
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