The Death of Capitalism The Death of Capitalism and the Rebirth of and the Rebirth of
ProgressivismProgressivism
I. The Death of CapitalismI. The Death of CapitalismA. CausesA. Causes
1) ‘20s economy “overheating” 1) ‘20s economy “overheating” (tech + productivity justified?)(tech + productivity justified?) Fed Reserve puts on brakes + Fed Reserve puts on brakes + econ begins slowdown (housing, econ begins slowdown (housing, durable goods, farm)durable goods, farm) Common view until 2007: Fed Common view until 2007: Fed
overshoots “correction,” too overshoots “correction,” too little too late, other mistake little too late, other mistake (1937)(1937) length + depth length + depth
But now?But now? Monetary vs. fiscal policy Monetary vs. fiscal policy
(Friedman vs. Keynes: does (Friedman vs. Keynes: does the Pres matter?; liquidity the Pres matter?; liquidity trap); public rather than trap); public rather than private sector failure?private sector failure?
Stock crash spreads tight money, Stock crash spreads tight money, not v. important cause (mostly not v. important cause (mostly psych) psych)
2) Global economy: 2) Global economy: 1) failure Versailles 1) failure Versailles + 2) gold standard + 2) gold standard (Am not Britain, (Am not Britain, limits fiscal limits fiscal response; off first response; off first less hurt) + 3) less hurt) + 3) tariffs + 4) leftist-tariffs + 4) leftist-gov’ts (jobs over gov’ts (jobs over gold further gold further disrupts) + 5) ag. disrupts) + 5) ag. glut= worldwide glut= worldwide crisiscrisis
B. B. Blame HooverBlame HooverBeliefs:Beliefs:
NotNot straight laissez-faire: the straight laissez-faire: the Great EngineerGreat Engineer
1) Opp. socialism1) Opp. socialism 2) “Self-made” man2) “Self-made” man 3) “American system” sound 3) “American system” sound
(1920s(1920s utopian): only utopian): only need “confidence” to reviveneed “confidence” to revive
4) Jeffersonian economic 4) Jeffersonian economic individualism + property individualism + property rightsrights no compel no compel voluntary action (saw voluntary action (saw success Sec’y Commerce)success Sec’y Commerce)
5) Foreign causes5) Foreign causes thinks thinks globally, can’t act locallyglobally, can’t act locally
11stst 60 Days 60 Days
Agricultural Marketing Act (1929): ag. co-Agricultural Marketing Act (1929): ag. co-ops sustain markets, Federal Farm Board ops sustain markets, Federal Farm Board buy glut sustain pricesbuy glut sustain prices Mix voluntary + direct intervention Mix voluntary + direct intervention
Prob.: a) missed WWI systemic; b) growing Prob.: a) missed WWI systemic; b) growing FFB surplus hangs over marketFFB surplus hangs over market lower lower pricesprices 1932: Cotton Corporation begs plow under 1932: Cotton Corporation begs plow under
(voluntary vs. AAA)(voluntary vs. AAA)
““All of Its Powers" All of Its Powers" Post-Crash advocated heavy Post-Crash advocated heavy
interventionintervention 1) Fed Reserve eases 1) Fed Reserve eases credit, 2) "the first shock must fall on credit, 2) "the first shock must fall on profits and not on wages" (pre-profits and not on wages" (pre-Keynesian: prop up consumption); 3) Keynesian: prop up consumption); 3) construction programsconstruction programs
Prob: 1) fed gov’t v. small: HH nearly 2x Prob: 1) fed gov’t v. small: HH nearly 2x federal public works expenditures but federal public works expenditures but still much less state + private; 2) wages still much less state + private; 2) wages highhigh greater unemployment (maybe) greater unemployment (maybe)
Reconstruction Finance Reconstruction Finance CorporationCorporation
Banking crisis (run)Banking crisis (run) 1931: National Credit 1931: National Credit
Corporation: association Corporation: association of banks (not enough)of banks (not enough)
1932: RFC: loans to 1932: RFC: loans to banksbanks Limited: 1) public listLimited: 1) public list
fear runs; 2) high cost to fear runs; 2) high cost to banks (collateral)banks (collateral)
Broke ideological barrier Broke ideological barrier to fed reliefto fed relief greater greater demandsdemands 20% unemployment (10 20% unemployment (10
million); Midwest 50-80% million); Midwest 50-80% (esp. big cities)(esp. big cities)
BlundersBlunders 1) Hawley-Smoot Tariff (1930) highest 1) Hawley-Smoot Tariff (1930) highest
ever (protectionist/ “beggar-thy-ever (protectionist/ “beggar-thy-neighbor”)neighbor”) retaliatory tariff war retaliatory tariff war globalization of Depressionglobalization of Depression
2) 1932: greatest tax hike US history (to 2) 1932: greatest tax hike US history (to point): balance budget (deficit $2.7B, point): balance budget (deficit $2.7B, 60% of expenditures; proportionally 60% of expenditures; proportionally larger deficit any ND budget) + hoped larger deficit any ND budget) + hoped revitalize credit markets (confidence + revitalize credit markets (confidence + pay back debt)pay back debt) poor hit hardest poor hit hardest
Death to the Great Death to the Great HumanitarianHumanitarian
3) Refused direct Fed aid to poor: a) 3) Refused direct Fed aid to poor: a) loss local control, b) undermine loss local control, b) undermine “confidence,” c) dole“confidence,” c) dole long-term long-term econ prob (Europe), d) undermine econ prob (Europe), d) undermine charactercharacter 1930 drought: $45M save AR livestock, 1930 drought: $45M save AR livestock,
resisted $25M feed farmers (loan; Red resisted $25M feed farmers (loan; Red Cross pick up slack)Cross pick up slack)
4) Bonus 4) Bonus Army/March/Expeditionary Army/March/Expeditionary
ForceForce June 1932: vets demand June 1932: vets demand
$1000 bonus (1945)$1000 bonus (1945) Congress denies, but Congress denies, but pays way home for mostpays way home for most
More militant stayMore militant stay vagrants, squatters, vagrants, squatters, HoovervillesHoovervilles police police riotriot federal cavalry federal cavalry (MacArthur, Eisenhower, (MacArthur, Eisenhower, Patton): tanks, tear gasPatton): tanks, tear gas
Claim made Claim made that Bonus that Bonus Army full of Army full of communists communists (untrue)(untrue)
Response Response fueled by rise fueled by rise of Hitler and of Hitler and militarism: US militarism: US revolution?revolution?
V. V. unpopularunpopular killed chances killed chances election 1932election 1932
New York Times New York Times (March (March 2, 1930): "No one in his 2, 1930): "No one in his place could have done place could have done more“more“
FDR adviser: "Practically FDR adviser: "Practically the whole New Deal was the whole New Deal was extrapolated from extrapolated from programs that Hoover programs that Hoover started… his policies started… his policies were substantially were substantially correct." correct."
C. Hoover C. Hoover EvaluatedEvaluated
Political Political ineptitude ineptitude stymied stymied successsuccess
Hoover unable Hoover unable to substantially to substantially break with old break with old order and order and thinkingthinking must must save system save system w/o violating w/o violating basic ideas of basic ideas of capitalism and capitalism and democracydemocracy
II. Rebirth of II. Rebirth of ProgressivismProgressivism
FDR far more FDR far more successful in successful in passing legislation passing legislation (at least until 1938)(at least until 1938)
Willing to Willing to experiment with experiment with anything to save anything to save capitalism and capitalism and democracydemocracy
Began conservative Began conservative (’32 election: (’32 election: balance budget, balance budget, Prohibition), pushed Prohibition), pushed to radicalism to radicalism (Wagner Act, Social (Wagner Act, Social Security)Security)
