Roosevelt, Keynes, and the Great Depression

 

Source: econlib.org

Franklin D. Roosevelt and John Maynard Keynes

The causes of the Great Depression and the methods that led to its demise are many. Some economic historians believe the Great Depression resulted from the stock market crash of 1929, while others believe it was caused by the collapse of international trade due to the Smoot-Hawley Tariff. Some historians chalk the rise of the Depression to government policies, the failure of the money supply, and bank failures and panics.  

The economic theory used to explain the causes of the Great Depression and its ultimate demise is the Keynesian theory of economics which John Maynard Keynes created.  

Like the start of World War I, which was the result of decades of heightened militarism, secret alliances, competitive imperialism, and widespread nationalism, the Great Depression was the result of decades of economic issues. In the wake of the First World War, countries like Germany and Austria could not pay the reparations demanded by the winning side. Because of the loss of funds, countries like the United Kingdom and France could not repay the loans they took from the United States to fight the German and Austro-Hungarian Empires.

Keynes, a British economist, believed that the classical economic approach of laissez-faire economics would end the Depression. The laissez-faire approach to economics mandates that there should not be government intervention in the economy. Keynes' theory stated that a loss of consumer and investor confidence was the reason for the sudden reduction in spending by consumers and investors.

Keynesian economists believed that to keep from losing more money, they needed to stay away from the market and hold on to their real money. Because they had money, they could buy more as the prices of goods fell.

Keynes is considered one of the greatest economic minds of the past two centuries. Keynes was part of the Paris Peace Conference and disagreed that Germany and Austria should pay massive war reparations. He believed they should spend some but only what they had the "capacity to pay."[1] Like many, he felt the excessive amount the Germans and Austrians were made to pay exacerbated the impending international financial problems.

Keynes believed that one way to combat the post-WWI financial problems was to hire jobless workers to work on infrastructure projects such as building roads, bridges, and other government-funded projects. He discussed this approach with President Franklin D. Roosevelt in the 1930s.

In The General Theory of Employment, Interest and Money, Keynes argued that to rectify the Depression, people needed to be employed, and governments should practice deficit spending during economic slowdowns. He believed that governments needed to spend money to stop the financial crisis the world had succumbed to.

Many in government, including President Herbert Hoover, ignored Keynes' calls for reform. They were scared of change since the same process had been in place since the introduction of laissez-faire by its biggest defender, Adam Smith.

As the Depression wore on and with the United States had a change in leadership, some appreciated part of Keynes' theory. With unemployment at a record high, the government had not done much except for the bread lines that the unemployed would stand in for hours if not days.

Unlike some economists, Keynes' believed that capitalism needed to be saved, although free-market capitalism needed to be ratified. He stated that countries needed to create public-works projects. He believed that reducing relief payments to jobless workers and increasing tax revenues from companies that supplied projects would balance the cost of public works projects. Keynes' met with many world leaders, including Franklin D. Roosevelt and other government officials, Wall Street investors, business leaders, and university economists.

Finally, in 1936, after the publication of The General Theory of Employment, Interest and Money, the United States stood up and took notice. While the United States government had been operating employment programs such as the Works Progress Administration, Keynes' theories would become further ingrained in the New Deal plan created by Franklin D. Roosevelt's administration.

Keynes' theory stated that the United States government needed to borrow billions of dollars to stabilize the economy. Roosevelt and his New Deal decided to do half of Keynes' recommendations. This decision meant unemployment decreased but not as much as Keynes' theory suggested.

In 1937, Roosevelt's government took a drastic turn. They decided to balance the budget rather than do more deficit spending. Some job programs ended, government spending was cut, and taxes were raised. These policies were in direct opposition to Keynes' suggestions. These policies would dip the country into a second depression in 1938.

Keynes' continued to debate his position to save the country's economy, and in the end, his policies would be embraced for a time. These policies would stay in effect until the beginning of World War II. Just like in World War I, the United States would remain neutral militarily, but they would be involved industrially and economically. The United States would provide aid and loans to Europe, as they did during World War I. Industrial manufacturing would fire up, creating machines for the war and helping the United States dig its way out of the Great Depression. Once the United States got involved in World War II, the country was out of the Depression, and for the next several decades, the United States would be on firm economic ground.

References

Bernanke, Ben S. “The Macroeconomics of the Great Depression: A Comparative Approach.” Journal of Money, Credit and Banking 27, no. 1 (1995): 1–28.

Keynes, John Maynard. The General Theory of Employment, Interest and Money. New York, Harcourt, Brace, 1936.

Skidelsky, Robert. John Maynard Keynes, 1883–1946: Economist, Philosopher, Statesman. New York: Penguin Books, 2003.

White, Eugene N. "The Stock Market Boom and Crash of 1929 Revisited." The Journal of Economic Perspectives (1986-1998) 4, no. 2 (Spring, 1990): 67.

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[1] Robert Skidelsky, John Maynard Keynes, 1883–1946: Economist, Philosopher, Statesman. (New York: Penguin Books, 2003), 95.

Herbert Hoover-his life before Presidency

 

Herbert Hoover

Young Herbert Hoover, during his time

working in the mines of Perth, Western Australia, 1898

 

This term, my goal for this blog is to chronicle people who do not get the recognition they deserve for their contributions to economic history. Last week, I discussed George Westinghouse's many contributions to the Second Industrial Revolution. This week, I took Dr. Edwards' suggestion and researched Herbert Hoover. Hoover is typically known for his one-term presidency during one of the country's most transitional periods: the Depression. He is also known for being defeated in his bid for a second term by one of history's greatest minds: Franklin D. Roosevelt. Hoover's term as president is considered one of the worst in United States history. He was so unpopular that his defeat by Roosevelt marked the first time in eighty years that a Democrat had won the election. This caused the first party realignment in the country since the 1860s.

In this blog post, however, President Hoover's presidency is not the topic of discussion. Hoover's pre-presidential adventures will be the focus of this blog post. The subject of this blog post deals with Hoover's early years before he began president in 1939. Born in Iowa in 1874, Hoover was raised in a Quaker household. By 1884 both of his parents had passed away, and he was put in the care of his maternal uncle, who ensured he had a proper education, though he was not a particularly stellar student. Hoover was described as a shy child but possessed charisma and a steady internal compass, which would allow him to be a natural leader.

Despite his lack of love for learning, Hoover was a student at Stanford University during its first year of operation and studied geology. He also became popular amongst the students and was elected student treasurer of his class.

After graduation, Hoover became a mining engineer who traveled the world, revolutionizing the mining industry. His first few jobs in mining were in Sierra Nevada Mountains in the western United States. In late 1890, Hoover was hired by the London gold mining company Bewick, Moreing, & Co. and sent to Australia to manage the company's mines.

 

Herbert Hoover in Australia, ca. 1900

(Image source: Hoover Library)

     He traveled extensively across Western Australia and later described the conditions as excessively harsh. During his time there, he helped cut costs, improved mining efficiency, designed the mining management housing, designed office buildings, and helped renovate the nearby mining town where many workers lived. Like many business owners during this period, he was known as a harsh boss who hired cheap immigrant laborers, increasing profits.

After six months in Australia, he was sent by the company to China, where he attempted to use his skills to open gold mines there, but the Chinese government was not as open as the Australians were. In addition, China was not as industrialized as was necessary for good mining to take place.

During his time in China, Hoover was made a partner in Bewick. Unfortunately for Hoover, the British government would investigate the company for labor practices in Australia, and his time with Bewick officially ended in 1908 when he sold his remaining shares of the company.  His work in mining was not over. Hoover co-founded the Zinc Corporation, and his companies mined for zinc in New South Wales, Australia.

Between 1908 and the start of World War I, Hoover worked as a mining consultant and was sent worldwide to revive mining companies with operating problems. His work gained him international attention, and he was highly sought after.

With the onset of World War I, Hoover would be involved in the war in various ways. His first contribution to the war was the creation of a committee dedicated to finding passage for Americans caught in Europe when the war began.

Next, he worked with the United Kingdom and Belgium to bring food relief to Belgians in the German-occupied territory. Food was delivered and distributed to the territories. All empty food sacks were collected and sent back to England, where they were made into clothes for those affected by the war.

When Germany declared war on the United States in 1917, he was invited by President Woodrow Wilson to work for the United States government as the head of the Food Administration. His appointment aimed to decrease American food consumption for the war effort. 

Wartime signs issued by the United States Food Administration during World War I.

            After the war, Hoover continued focusing on helping those affected by the war. The United States Food Administration became the American Relief Administration. The ARA was responsible for relief efforts in Central and Eastern Europe. The ARA also brought relief aid to Russia during the 1921 famine in the years after the revolution.

            Hoover was also involved in the Paris Peace Conference as an aide to President Wilson. Like Wilson, Hoover championed the creation of the League of Nations and to fix the issues that caused the start of the war in the first place: militarism, secret alliances, imperialism, and nationalism. Harsh punishments, he observed, would do nothing but breed resentment.

            By 1920, Hoover had become a well-known and popular figure in the United States. Hoover was a hard-working man who helped many around the world. His years as president, during a difficult time in American history, overshadow his earlier accomplishments. 

Reference

https://hoover.archives.gov/hoovers/president-herbert-hoover

Hoover, Herbert. The Memoirs of Herbert Hoover, New York: Macmillan, 1952.

Mouat, Jeremy and Ian Phimister. "The Engineering of Herbert Hoover." Pacific

Historical Review 77, no. 4 (11, 2008): 553-84,

George Westinghouse-Jack of all trades, master of ALL

Video link: https://youtu.be/3ymSm0AAS3I

George Westinghouse, Jr. was one of the many industrialists, entrepreneurs, and inventors that made left a lasting legacy during the Gilded Age in America (1877-1900). Unlike many of his time, he is not one that is automatically thought of in the discussion of this time period. His accomplishments, however, still impact us today. Whether it is his contributions to train travel and automobiles, or the introduction of benefits for his employees, his impact cannot be understated.

Historic Pittsburgh. "George Westinghouse Museum Collection." https://historicpittsburgh.org/collection/george-westinghouse-museum-collection

Tesla, Nikola. The Autobiography of Nikola Tesla and Other Works. Edited by Thomas Commerford Martin. San Diego: Canterbury Classics, 2021.

Postbellum Economy (1865-1900)

 

This week's blog topic is the economic growth of two specific territories of post-Civil War America from 1865 to 1900. For this blog, I decided to compare the Southern agriculture economy to the Northern textile economy. While the directions called for two datasets, I was able to find three that would benefit my discussion.  The three datasets that I chose to validate my discussion are the U.S. Census of Manufactures, The National Bureau of Economic Research (NBER), and the Historical Statistics of the United States, 1789 – 1945.

Information found in these databases is as follows:

1.    The U.S. Census of Manufactures provides information about the analytic statistics for States and counties which includes:

a.    Principal industry in each county with a number of establishments, capital invested, cost of raw material, the number employed by sex, the annual cost of labor, and the annual value of products;

b.    Recapitulation by counties;

c.    Recapitulation by industry.[1]

2.    The National Bureau of Economic Research (NBER) is an organization that prides itself on evaluating economic research to educate policymakers, business owners, and economic academics.[2]

3.    Historical Statistics of the United States, 1789 – 1945.[3]

These datasets provide valuable information on the economic situation in the United States during the post-Civil War, also known as Reconstruction.

In the wake of the Civil War, many things changed economically. For example, Southern workers' income decreased after the war due in part to losing its main source of labor after the Emancipation Proclamation. Prior to the war, Southern workers made more than the Midwest workers by roughly ten percent. After the war, Southern workers' pay dropped to seventy percent of that of Midwesterners. By 1900, Southerners' pay increased and was now fifty percent lower than that of Midwesterners.

            In the early years after the Civil War, the South sought to rebuild after the devastation that was left behind by the war. There were conflicts over how to create a new South while upholding the rights of African Americans that the Fourteenth and Fifteenth Amendments enabled.

            In an effort to "help" African Americans, sharecropping was introduced in the South. Initially seen as a positive, it was quickly recognized as a way to keep African Americans from doing more than living hand to mouth. The newly freed slaves were entitled to hand over much of their harvested crops to the landowner as rent for their lands. The sharecroppers were, however, allowed to sell their surplus crops for their personal benefit.

Regarding the South's relationship with the North, they were also behind the North in development. Part of the problem with the South's inability to rebuild and be on par with the North was partly due to the fact that the North was environmentally equipped to succeed in textiles. The South was never capable of having factories like the North due to its lack of coal and other natural resources the North had. The South was great at agriculture, but with the loss of "free" labor after the war, the South was not able to keep up.

In the North, industries expanded, and new ones emerged. The Second Industrial Revolution saw an increase in steel manufacturing, electrical power harnessing, and petroleum refining. In addition, the railroads expanded to remote parts of the country, which would create a national market economy. The industrial growth in the North changed the country.

With this change came a new class of rich industrialists and, as a byproduct, the growth of an affluent middle class. The "blue collar" class of workers is also created. Many of these workers were immigrants from other countries or migrant workers arriving in urban areas from the countryside.

Despite the upturn in prosperity, many in America suffered. The new class of blue-collar workers was not employed year-round. Many were employed only employed during certain times of the year. No matter how long one was employed, their wages were low. This led to the creation of labor unions that helped regulate worker opportunities.

            While urban workers were struggling, their contemporaries on farms also faced hard times. With the rise in better technology, production increased, and increased competition between farmers led to lagging food prices on cultivated goods. With increased competition, many left the farm and moved to the city to gain employment in factories. Despite the low wages paid to factory workers, it was seemingly better than those on the farm.

            Despite the harshness of urban America, the industrialists ruled the American economy. Now legendary names such as Rockefeller, Vanderbilt, and Carnegie carved America out of the raw materials that had been part of the ecosystem but were untouched because they had no means to harvest them. The Second Industrial Revolution enabled these men and their families to drag America to the world's economic forefront. Long before America was a leading military or political force, it was an economic leader in the late nineteenth century. America's money spoke volumes before its military might did. This strength would enable America to enter the twentieth century and become an international player.

Reference

Davis, Lance E., Jonathan RT Hughes, and Stanley Reiter. "Aspects of quantitative research in economic history." The Journal of Economic History 20, no. 4 (1960): 539-547.

Popp, Andrew, and Susanna Fellman. "Writing business history: Creating narratives." Business History 59, no. 8 (2017): 1242-1260.

Woodward, C. Vann. Origins of the New South 1877-1913. Baton Rouge: Louisiana State University Press, 1951.

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[1] https://www.census.gov/library/publications/1865/dec/1860c.html

[2] https://www.nber.org/

[3] https://www.census.gov/library/publications/1949/compendia/hist_stats_1789-1945.html