On this day in economic and financial history…
President Franklin D. Roosevelt’s first days in office are often recalled for the bank holiday proclaimed shortly after his inauguration. However, this was not undertaken in a bubble, nor was it an unprompted act. By March 1933, many states had already declared banking holidays, and the proverbial straw that broke the camel’s back fell on Feb. 14, 1933, when Michigan Governor William A. Comstock became the first state executive to implement a statewide banking holiday.
The nation’s economic picture had deteriorated through the previous year as unemployment soared and the Dow Jones Industrial Average (INDEX:.DJI) plummeted, destroying many billions in wealth in a highly leveraged market. Although the Dow had begun to regain ground by 1933, it was not enough to stave off widespread bank failures. Comstock made his decision in part to save the Union Guardian Trust Company, the Ford Motor Company (NYSE:F) family and company’s bank of choice. Ford stood to lose millions if the bank went under and was unable to agree to a reasonable solution with the Undersecretary of the Treasury that might allow the bank to stay open. This forced Comstock’s hand, and the resulting forced closure of Michigan’s 550 financial institutions caught everyone by surprise.
The lack of available cash confused and depressed the statewide economy, as many merchants were unable even to dispense change. The Federal Reserve Banks of New York and Chicago committed $40 million to help bail out the state’s banks, which held $1.5 billion in depositor assets behind closed doors, while officials in Detroit worked frantically to stave off more failures.
Rather than ameliorate a bad banking situation, Comstock’s enforced holiday made the national situation worse. The act was a blatant admission that banks could not be trusted and were not safe stores of assets, and millions across the country took the news as a reason to withdraw their funds. By the time Roosevelt stepped in with a federal guarantee for the nation’s banking industry three weeks later, Americans had withdrawn $1.8 billion, increasing the currency in circulation throughout the U.S. by a third. Henry Ford, the man perhaps most responsible for lifting America into the modern age, became in 1933 one of the men most responsible for its descent into economic madness.
A steady hand on the reins of commerce
On Feb. 14, 1903, President Theodore Roosevelt created the United States Department of Commerce and Labor when he signed the bill for its establishment. This new Cabinet-level government agency had been devised during Roosevelt’s trust-busting crusade against the business monopolies that controlled much of the American commerce and labor environments. In subsequent years, Commerce and Labor were separated into their own independent departments, with Commerce broadly focused on improving the living standards of Americans through proper business policy and Labor at the vanguard of workers’ rights, safety, and benefits issues.
Nearly every facet of America’s relationship with the companies doing business on its soil is managed through these two organizations, which, combined, marshaled a $21.6 billion budget and nearly 60,000 employees for the 2012 fiscal year. The U.S. Patent and Trademark Office, the Bureau of Economic Analysis, and the Census are key parts of Commerce, providing a valuable service to many economics and markets bloggers through the vast reams of data generated every year. In addition to giving bloggers something to pore over, these organizations play key roles in guiding business innovation and setting economic policy.