Analysis of 1929 Depression Survivors' Advice

As the 2007 Depression continues, we expect that still-living survivors of the 1929 Depression will be getting more air-time. In our mind, it is sad that an economic calamity had to occur before these people's well-tested advice is given its due. The frugality and thrift which is so deeply ingrained in the individuals would have prevented much of what is occurring today - if only the greater public would have listened.

But that is neither here nor there; we want to discuss both the advice that these survivors offer (taken from two articles), and some inherent problems. First, the advice: in this article from The Ledger, one individual recommends a 20% personal savings rate; another says not to buy things one cannot afford. The most interesting insight, at least to us, is the thought that the young of the United States, having lived with nothing but a knee-jerk consumeristic lifestyle are in for a serious shock, at the very least. All in all, we recommend this article; it's interesting to hear the perspectives of these survivors, and their advice is never out of style.

On the other side of the coin is the bad advice, as seen in this otherwise excellent article from Utica Observer-Dispatch. One of the survivors says that the 1929 Depression was completely different from this 'recession,' but fails to suggest how or why (as an aside, she gave corollaries and outcomes of the 1929 Depression, not causes). The general thrust of the article seems to us to be that "the government is prepared;" “I don’t think [a Depression] could happen again” said one interviewee.

These two articles highlight some inherent difficulties in turning to 1929 Depression survivors: these people are old. There are sharp-as-a-tack survivors (we know one), but that term does not describe every survivor. A not-insignificant number of these survivors are not in as full of command of their faculties as they once were. This has a number of implications.

First, even when the advice survivors give is sound and useful, they cannot defend why it is as such; to them, it is only the way things must be done. Because of that, these survivors come across as a bit senile at best, or outright loonie-tunes at worst, from the perspective of later generations. It is easy enough for one to dismiss well-defended advice; it is infinitely easier to dismiss advice without supporting argument.

Second, because of the loss of facility which comes with increasing age, many of these survivors probably have to rely - at least in part - on what they hear and read, rather than anything they actually remember. The post-1929 Depression mantra carries with it a healthy dose of Franklin Roosevelt worship, and Herbert Hoover bashing. Both of those Presidents have similarly damaging policies; Roosevelt's was remarkable for being aggressively un-Constitutional. This loss of first-hand memory allows for retroactive continuity: the 'memories' of the survivor are clouded by the rhetoric of later generations defending the expansion of the Federal Government.

And finally third: these survivors can only reflect the point-of-view of persons who didn't die during the 1929 Depression. Almost all survivors came from fairly well-off families; they owned their own home, they could hold some jobs, they could buy and grow some food. There were many more families which had none of the above, and many simply died of stress and starvation. The survivors who speak today do so through a bias: they were comfortably-off before the 1929 Depression, and so had a cushion between death and survival. They did not see the absolute horror that the 1929 Depression brought to the United States.

We expect the 2007 Depression will bring similar horror. The only question, in our minds, is when.

Deep Frugality: A Crash Course

In October of this year, the world entered the 'crash' phase of the 2007 Depression: markets tanked; orders were canceled; shipping froze; factories began closing; mass layoffs accelerated. The crash is continuing world-wide, and shows no signs of letting up. What this means for pretty much everyone, among other things, is loss of income - usually a lot.

How best to deal with that loss of income? The thing that will give the most immediate results is to cut spending. Rather than cut expenses willy-nilly, it is best to have a plan. First of all, you need to think long-term. Create a program for how you are going to divvy up your income, and then live within that guideline.

If you really want to thrive, you should think about saving 50% of your income. This may sound outrageous, but there are people who can do this - sometimes whole countries. No matter how little you make, you must 'pay yourself first'. This is especially important if you want to improve your condition. The prognosis for wages and salaries in the future is not good. Your hope for financial betterment will depend most likely on self-employment and investment.

Another severe suggestion is to limit your housing expense to 25% of your income. If you are paying more than that, you are at risk. In many parts of the country, such a limit is quite a stretch, but there are ways to meet it - usually by sharing space.

As for cramming the rest of your spending into 25% of your income, you must rethink what your 'needs' are. You do not need the following: new clothes; prepared food; cable tv; and many other things. When your income is low, managing on this limit is quite austere. You need to accept that. Resist social pressures to spend. Ignore marketing. If your friends try to tease you into spending, educate them - or find new friends. The alternative to frugality is to remained mired in creeping poverty, and risk sinking into destitution.

There are infinite ways to cut expenses, and develop Peasant Virtues. Sometimes it is even fun. You will learn new skills, and perhaps make new friends.

Peasant Virtues

As our income has fallen, we have been trying to rediscover the skills our ancestors used to manage their financial affairs. We break the skills into three sets: Industry, Frugality, and Thrift.

Industry is not here referring to factories and mines, but the idea of doing things for one's self. Hungry? Don't run to McBurger Kong, but make a meal for yourself. Cost of fresh food got you down? Grow some. The basic principle here is what economists call import substitution. Instead of importing goods and services into your household and exporting money, you substitute the fruits of your own labour (sometimes literally) for what you would buy from others.

Industry is also about figuring out what you can do to make extra money, on the side - if you still have a job, or as self-employment. Lots of things always need doing. If you can't figure out what to do to make money, keep busy around the home - chances are there are many worthwhile projects. Also, you may teach yourself some marketable skills.

Frugality is all about enjoying what you have as long as possible before you replace it. And when you do replace it, do that as inexpensively as possible. Let's suppose you have an article of clothing, say a sweat-shirt, and it's getting a little ratty on the collar and cuffs. Does it still keep you warm? Then keep it! You might say, "But it's shabby." Listen: a new one costs money (even if you make it yourself), and this one is free. Any money you spend is infinitely more money than not spending money. A new thing is not infinitely better than an old, shabby but serviceable thing. When you spend money to replace something which still works, you are being irrational. It's OK to be irrational now and then, but don't try to pretend that you are being rational by coming up with reasons that the new thing is better.

When it comes time to replace something, go first to rummage sales and thrift stores. Often you can find very good quality things at minuscule prices. Frugality is also about finding which stores get you the best prices, finding the best deals, conserving energy, and repairing things as cost effectively as possible.

Thrift has two components. The first is to look at money coming in as something to be saved, not spent. This is, for inhabitants of the developed world, counter-cultural. One hears countless messages to spend from family, friends, coworkers, employers, salespeople, and marketing. If your financial situation is not so good, the more you save the faster it will improve.

The second component of thrift, which answers the question of where the best place for most people to put their savings, is: Never, ever borrow money. People have gotten very lax on this in recent decades, and the results have been catastrophic. If you are fortunate enough not to have burned by your debts so far in the Depression, don't take any more chances. When all your debts are paid, you may then delve into the joys of learning to invest your savings. On this last point we must insist that you learn to manage your own affairs, and not leave the decisions to 'experts'. The experts have done very badly lately.