“Those that Fail to Learn from History…”
I’m Andy Temte and welcome to the Saturday Morning Muse! Start to your weekend with musings that are designed to improve financial literacy around the world. Today is May 31, 2025.
You might be curious why we’re spending so much time on the history of trade, money, and other economic concepts at the outset of this financial literacy series. “I just need to learn about getting the most from my employer’s 401k! Get on with it already! I don’t need a history lesson.”
Well, like any educational process, it’s essential to start at the beginning and slowly stack new information and skills onto a solid foundation. If I want to achieve proficiency in the piano, I don’t jump straight to Beethoven’s Moonlight Sonata, I learn about the instrument, it’s evolution, proper form, music theory, and basic scales—lots of scales. It doesn’t matter if I’m building a physical structure or intellectual competency. The foundation matters.
Also, in finance and economics, having a basic understanding of the evolution and history of money and financial tools is key because “those that fail to learn from history are doomed to repeat it,” as Winston Churchill famously wrote.
The current economic cycle in the spring/summer of 2025, which is dominated by unnecessary uncertainty driven by one-sided, threat-based tariffs launched under the auspices of a non-existent “national emergency” is a perfect example of why the history of economics and finance are so important (snark intended).
So what’s the history we should have learned from to inform the approach political leaders are taking in 2025?
The Smoot-Hawley Act of 1930
In 1930, Senator Reed Smoot and Representative Willis Hawley sponsored legislation that raised import taxes (tariffs) in an attempt to protect American farming interests. During the Roaring 20s—a period of significant economic growth, cultural change, and technological advancement—American farmers were being squeezed by cheap European imports of agricultural products and the simultaneous downward pricing impact of overproduction as improvements in farming tech led to more output per acre for many commercial crops.
This is the same time period of massive demographic transition from a predominantly agricultural economy to one driven by industrial output, consumerism, and innovation. Migration from rural America fueled the rise of urban areas starting in the late 1800s, and this movement of people accelerated significantly in the early 1900s. The 1920 census showed that for the first time, more people lived in cities than in rural areas.
These dual pressures of overproduction and rural migration created an environment where American farmers were under pressure. Naturally, they lobbied political leaders hard to protect their interests. The logic goes that if European agricultural imports are taxed at a higher rate, they will be more expensive to American consumers and American producers will be able to sell their goods at a higher price, making farming in the U.S. more economically viable.
The problem is that this tax (tariff or import duty) was paid by American importers and passed on to American consumers. In addition, foreign governments retaliated with tariffs of their own on American exports, making exported goods from agriculture and other industries more expensive, reducing demand for American exports. The bottom line was that prices were higher—inflation accelerated, global trade declined, and global economic output fell.
To tell as much of the story as possible, we also have to discuss immigration in the early 1900s. Isolationism was also on the rise—meaning that we had convinced ourselves that we should avoid or minimize global trade and other global political relationships. In 1924, congress passed the Johnson-Reed act of 1924, which significantly restricted immigration to the United States from places like Asia and Eastern Europe. This contributed to a decline in the growth of the US population in the 1920s. We’ll learn in future episodes that population growth is critical for economic growth and expansion.
So, while the Smoot-Hawley act did not directly cause the Great Depression of the 1930s, its impact on global trade, prices, and production significantly worsened an already bad economic situation that was the result of hubris (excessive pride and confidence—a.k.a., American exceptionalism) during the Roaring 20s, isolationism, and the catastrophic stock market crash of October 24, 1929.
Why Smoot-Hawley Matters in a Modern Context
Does any of this sound familiar? Protectionism and tariffs, check. Isolationism and American exceptionalism, check.
As someone with formal training and decades of experience in economics and finance, I just want to pull my hair out in agony as I see leaders charging ahead with little/no regard for the lessons that history teaches us. I have dear friends and former colleagues with advanced degrees in economics who are also pulling their hair out. So much unnecessary hair loss!!
Next week, we’ll get back to the history of money with an exploration of the evolution of money through time. For today, the modern financial takeaway is that:
Stability and certainty matters,
Consumer confidence and trust is important,
Trade is an essential element of economic growth and prosperity,
We live in an interconnected global economy where “going it alone” is not an option,
Trade agreements must be carefully crafted by experts to strike a mutually-beneficial balance between trading partners,
Most importantly, education matters. Population subgroups will be disrupted as society advances, and attempts to prop up industries for anything other than national security reasons prolongs and makes more painful the demographic shifts that are the result of changes in competitive advantage.
The bluster, bravado, and shouts of “America First” make for great political theater, but history teaches us that these things aren’t great for our national economy or your personal economy. Until next week…
Grace. Dignity. Compassion.
