The Great Depression was cause by a demand problem: there wasn’t enough demand for goods, prices crashed and so did employment.
The policies put in place by the New Deal were almost all intended to increase demand and prices. Farm support, social security and so on. Elites were slaughtered by the great crash of 29 and the Depression. Not all supported the New Deal, in fact many don’t, FDR bragged they hated him. But obviously FDR had elite support.
This chart shows what happened:
I think that’s pretty clear. Union membership soars with new Deal, plateaus, then slowly declines. Elites after WWII were not nearly as scared, the economy was good, and Truman’s veto was over-ridden when an anti-union bill which made foreman inelligible for union support passed.
Over time public support for unions also declined. What happens is that those who remembered the depression and the time before it age out: we’re not talking GI, we’re talking Lost and older generations. The GI saw the depression, but they didn’t experience the roaring 20s. They didn’t get what life was like before all the wage, price and demand supports put in place by FDR.
But the mid 70s these people are out of power: not only was there a wave of deaths, but in the 70s there was a movement to replace them in Congress. The incomers wanted process fairness, not outcome fairness and they replaced the old timers. (Matt Stoller has written about this extensively.)
Soon afterwards the neoliberal era dawned, and its intention was to make the rich richer and everyone else poorer: to crush wages, ostensibly to deal with the supply shock by stopping people from consuming goods and services which required petroleum products. Children of the 70s supply shocks, they were terrified of inflation and figured that rich people don’t produce inflation which matters. (This is before the era of private jets.)
In general all successful political action requires some part of the elite to support it. It doesn’t have to be all, it doesn’t even have to be a majority (it wasn’t during the New Deal) but it must exist. Popular support is a power source, but it requires transmission and an engine to turn it into action.
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bruce wilder
People who watch the movie Its a Wonderful Life and recognize Mr. Potter as genuinely representative of real actors in political and economic life as opposed to those who just see an entertaining cartoon or fairy tale.
bruce wilder
I think a really good historical narrative of the Great Depression — one that fully explains analytically what happened in the U.S. and world economy in the 1920s — has yet to be written. That economists ignore economic history is regarded in some circles as a scholarly shortcoming, but I will say that the incapacity of economists to do economic history — to explain the most dramatic and important economic event of the 20th century not to mention any part of the 300 year history of the industrial revolutions — is an indictment of economic theory for criminal faults.
The explanation you offer — a shortfall of (aggregate) Demand — is kind of the Keynesian explanation. I have read Keynes’ General Theory several times and all I can say is that it is 1.) a Great Book because it shows a great intellect wrestling with an important problem in its field of expertise, but 2.) Keynes’ argument is a hopeless mess. If you want to study how to think, it is instructive. If you want to understand the economy, probably not so much.
Karl Polyani waves his hands a lot, but he has the essence of the problem posed by the advance of a money economy where money is institutional infrastructure run for the benefit of extremely wealthy people.
Exactly what set up the rapidly developing economy of the U.S. in the 1920s — caught up in heady experience of the maturing of Second Industrial Revolution while a large part of the country, still agricultural in orientation, was confronting the implications of a collapse of agricultural prices — is way beyond the scope of a comment. There were major contradictions locked into the development path of agriculture and of electricity generation and energy and rail transportation that created coordination problems the so-called market economy was ill-equipped to manage and made debt structures challenging to re-negotiate, so to speak. That’s what Keynes sensed but could not articulate adequately, I think. In any case, the combination of those coordination problems with an international monetary system founded on a gold exchange standard triggered a massive, sustained deflation in the U.S. that destroyed the banking system and drained the U.S. economy of “effective demand”. And even while it was happening, month after month, few seemed able to understand even dimly what was happening, what the mechanisms were. The remedies proposed and implemented were based in large part on faith in moral imperatives and slogans bordering on hope in magic incantations and rituals. People were afraid, deeply afraid, but that didn’t make them any smarter.
The Great Depression is what happened as a consequence of the unmanaged growth of U.S. economic power at the time of its first maturing into a kind of early adulthood (a metaphor obviously). We living now may get to experience its unmanaged collapse into senescence. Lucky us.
Oakchair
The Great Depression was cause by a demand problem:
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The book “Monopoly Capitalism” published in 1966 by Paul Baran and Paul Sweezy discusses how this problem is a result of our monopoly capitalist system and never went away. Into the 60’s unemployment + military employment was equivalent to unemployment in the Depression.
Through emergent properties, consolidation, and collusion prices no longer follow any sort of demand curve.
The book details how planned obsolesces of products and imperialistic forever wars are a result of monopoly capitalism trying to solve the demand shortage in a way that is supported by the ruling oligarchy.
Another feature is mass spending on marketing/advertising as the monopoly system no longer competes using prices and quality, but competes based on psychological manipulation.
Indirect marketing costs even in the 50’s-60’s were a large part of the cost of goods. New more expensive products are functionally little different from the old ones (worse now a days), but they have a new aesthetic. They cost more because manufactures spend so much money trying to appeal to a population who has been in the clutches of advertising since birth.
In the book cars were used as an example but a modern example would be Apple, Microsoft et al put out a new user interface every few years. The quality and function of the product is the same if not worse, but the new interface tricks consumers into believing they’re buying something new and improved.
Some long term outcomes of this system mentioned are increased social problems, worse emotional and mental states, a shallow society obsessed with appearances, and disproven ideas get discarded less and less because the marketing apparatus has fetishized them and turned them into an status identify.
The book was published in 1966 and it’s revealing how even then people could see quite clearly where our society was heading.
PDF of “Monopoly capitalism” at the link.
http://digamo.free.fr/barans66.pdf