Charles H. Brunie: Milton Friedman on how anti-Semitism played a role in causing the Great Depression





[Mr. Brunie spent almost four decades at Oppenheimer, has been on the board of the Manhattan Institute almost since its founding, and is a member of City Journal’s publication committee.]

... Milton once told me: “Anti-Semitism may have been a factor in causing the depression of the 1930s, especially the 1929–1932 part, when the money supply declined over one-third. One of the governors of the Fed kept a very gossipy diary,” Milton explained. “In it, he noted he had had lunch with J. P. Morgan, Jr. in the fall of 1930.” At that time, Milton continued, there were only two prominent Jewish banks in the country: Manufacturers, which catered to the rag trade around Seventh Avenue in New York; and the Bank of the United States, many of whose depositors were Jewish immigrants. With no deposit insurance, and with deflation approximating 10 percent per year, one could have made a very respectable real return during those times of adversity by pulling out of the bank and putting currency in the mattress. So there was a classic “run” on the Bank of the United States. The Fed governor asked Morgan, “Are you going to provide liquidity to the Bank of the United States, as you have done for some two dozen other banks in the past few years?” Morgan replied, “No, I’m going to get those Jewish b------s for what they did to my late father.”

The son reputedly believed in the power of the so-called “Jewish press,” and his anger probably stemmed from how embarrassed his father and family had been during the Pecora Investigation of 1911, a follow-on to the money panic of 1907–08. J. P. Morgan, Sr. had a bad case of rosacea, an inflammation of the face, which resulted in a particularly large red nose in his case. One of the papers had dressed a dwarf in a young girl’s dress; J. P. picked “her” up and put “her” on his lap. Whereupon “she” reached up and twisted his nose. Flashbulbs went off all over the place, and it was front-page news the next day.

In the absence of help from the younger Morgan, the Bank of the United States failed, the first major bank to do so. In a chain reaction, depositors in other banks began to withdraw their money, banks failed across the land, the money supply contracted by a third, and GDP shrank by the same proportion.

By contrast—and a very dramatic contrast, at that—at the end of the 1907–08 money panic, J. P. Morgan, Sr., who reputedly had the ability to stay awake for two or three days straight, had locked up 24 or so major money men and investors on a Sunday night in his magnificent library on 36th Street, off Madison Avenue. He said, in effect, “I’m putting up some money on the opening tomorrow morning, and none of you is getting out of here until you promise to do the same.” (When I moved into my current home in Bronxville, New York in 1968, my next-door neighbor—Jackson Chambers, then in his 80s—told me, “I was a banking examiner for New York State during that crisis. As I recall, J. P. Morgan said, ‘I’m putting up 100 percent of my net worth on the opening, and none of you is getting out until you pledge to do the same.’” Clearly, investing 100 percent is a world of difference from “putting up some money.”) That buying caused a bottom to the market and ended the panic. But because they were buying when the Dow was down over 50 percent in a bit more than a year, they were pilloried for “making money during adversity.” Hence (among many other reasons) the Pecora Investigation, which led to the creation of the Federal Reserve System, the imposition of a federal income tax, and the passage of the Sherman Anti-Trust Act....


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