Capitalism And The Great Depression

13 October 2004 (Lecture #20)

• 1896-1932 (except 1912-1920): Republicans keep President because the US is prospering

Hoover

• Associationalism – foster cooperation between big business and government

o Foridney-McCumder Tariff – tax foreign goods à more US sales à higher wages since companies make more $

o Company unions used to pre-empt labor unions; keeps wages normal and allows companies to keep profits

• Rapid economic growth à prices growing faster than wages

o Increased reliance on credit

o Increased speculation – banks begin lending more money and pursue risky speculations

o Overproduction – too much product and increased competition à low profits

• Employment cut to raise profits – backfires because many are cut across the nation and with fewer buyers fewer can buy stuff which cause even lower profits
• Corporate cash dries up à no money left to repay loans

o Have to get out of business because banks could not lend anymore (many businesses unable to repay loans)

o Stocks sell at wholesale – people just want to get out of investments with as much as possible

o Sell-off starts Black Tuesday; does not ruin the econ, but destroys confidence which in turn cripples the economy

• US has unemployment as high as 25% - not nearly as bad as many European countries (namely Germany)
• Hoover cuts taxes and begins Keynesian spending (too little, too late) … Keynesian spending:

o Weak economy: decreased taxes so consumers can spend more and increased government spending to produce jobs

o Strong economy, increase taxes to pay back debt and reduce consumer’s cash to prevent overproduction

FDR

• FDR elected in a landslide over Hoover
• Had a practical administration
• Ended prohibition
• Recognized Germany and Japan as dangerous
• Recognized USSR and allowed the US to trade with them so the US could sell products there
• The New Deal – worked well in the first 100 days; showed people that the government was trying to help them
• 1937: FDR tries to cut back on programs but the economy slips so he adds programs to catch it
• WWII saves the economy and makes it boom
• Long-term consequences

o US businesses forced to become more efficient

o A powerful union movement emerged

o New Deal programs set the foundation for the regulation of big business

Conclusions

• Great Depression proved dangers of unregulated capitalism
• US avoids radical solutions, allowing democracy and capitalism to persist