Political leaders and intellectuals such as Waldo Frank, Sinclair Lewis, and Ida Tarbell, among others, significantly contributed to the popularization of the progressive idea in the United States in the early 20th century. These individuals, through their writings (such as Main Street (1920), Babbitt (1922), The New Yorker and The New Republic propagated Publication in the 20th century, McCall ), propagated the progressive idea which suggested a deviation from the old and obsolete ways of doing things and embracing the new age ideology which sought to create a collaborative society. Particularly, these progressives were attracted to the potentials the new age has in creating an all-encompassing and collaborative society which formed the basis of fascism specifically in the 1920s and 30s before it degenerated into Nazism. This, in fact, led to various publications to applaud the glories of fascism under Benito Mussolini, and subsequently, these concepts significantly impacted President Roosevelt’s tackle of the Great Depression in 1933 after winning the Presidency.
Unlike most other recessions, the 1920-1930 recession subsisted for more than 2 years, which is unusual compared to the 8 other recessions United States has faced up till 2009. This is so because of the mistake committed by the Federal Reserve by increasing rates when the economy growth was declining in 1929. As a way to maintain economic balances and correct imbalances, monetary policy is utilized by the Federal Reserve to ensure the various pieces forming the economy are properly connected. Essentially, monetary policies are a macroeconomic tool used by the Federal Reserve to regulate the interest rate in a way that would ensure appropriate correlation with the realities of the overall economy. Against this backdrop, the Federal Reserve is responsible for regulating the interest rate to correct economy anomalies relating to inflation and deflation. However, the monetary policy was erroneously applied, and this resulted in a mismatch between the intended correction and the actual outcome. During the period of 1920-1930, the economy was declining, and as a corrective measure, interest rates should have been lowered to encourage spending and resultantly battle the deflation crisis, on the contrary however, the Federal Reserve increased interest rates which consequently crunched economy growth due to tightened monetary policy, resulting in the inability of the people to spend more in terms of lending, investing, buying and borrowing. This contributed to the collapse of the economy, leading to the Great Depression.
Notably, other factors such as slipups in the banking policy and trade policy also contributed to the Great Depression.
Traditionally, the operations of banks in the early decades of 20th Century was limited to a one-bank-one-state policy, due to a perceived threat from ‘big banks’ overthrowing their smaller contemporaries. This limitation restricted the scope of their operation such that they largely served the small communities who were majorly farmers. Following the aftermath of 1929-30 recession, agriculture sector faced a significant decline and this resulted in low liquidity and finances which made it difficult for the banks to sustainably operate, and this led to banks going bankrupt and consequently culminated into series of shockwaves paralyzing thousands of banks in the United States.
Lastly, the trade policy was proposed to correct the supply-demand mismatch in the agriculture sector of the country which resulted in supplies superseding the goods demanded. And as a natural corollary, this forced agriculture suppliers to drive down costs in order to match up with demands. The policy, otherwise known as the Smoot-Hawley Tariff was implemented in 1930, and was intended to increase the amount charged on agricultural products imported into America in order to avail the supply-demand mismatch situation. However, upon implementation, the policy turned out to charge 60% tariffs on not just agricultural imports, but also on manufactured imports from other nations and this was not lightly taken by other countries like Great Britain and Spain, among others, who responded to this by greatly increasing their tariffs on imports from America, which resulted in an international trade war. Considering the already culminated recession in America, this war further deepened the sore on the wounds of America’s recession.
Furthermore, the progressive ideas which prevailed during the 20th century aided Roosevelt’s understanding of the Great Recession. This idea deviated from the 19th century ideas which they believed birthed capitalism. Essentially, Frank Roosevelt, in rationalizing the cause of the Great Recession, believed that the depression was caused by capitalism and individualism which were necessarily geared by profiteering and self-gratification. He chiefly laid the blame on business leaders and bankers who could be regarded as key players in the economy and ought to have the foresight and put in place necessary measures to forestall the contingency. Also, Frank Roosevelt’s understanding of the Great Recession outside the scope of the later economists was due to the extent to which the prevailing knowledge permitted. This prevailing knowledge was the progressive idea which chiefly sought to discard and criticize the treacherous old ways, and advocated for the deposition of the economy power on the state. He stressed on action over deliberation, the collective benefits over that of the individual, and the analogy of war. Essentially, the later economists were able to comprehend the intricacies involved in how an economy operates which led to the formulation of the macroeconomic concept as means to analyzing and forestalling future economic contingencies.
President Roosevelt used the analogy of war as a way of gearing collective responsibility in tackling the impacts of the Great Depression. He emphasized on the need for a positive, speedy and actionable approach to achieve this end. This approach by him is aimed at empowering the executive to wield such power as would enable him to impose certain implementations as opposed to a deliberative approach which is encumbered by bureaucracy.
In 1933, the National Industrial Recovery Act was enacted as part of his plans of incorporating the new cultures to erode the ills of capitalism and ensure social justice. Certain positive directions which were proscribed by the law were rolled out to stamp out the seeds of capitalism in the United States. These include the directive against provision of similar products and offering of lower prices. For instance, in substitute goods. Like in a military setting, also, President Roosevelt implemented the analogy of war to drive discipline and cooperate responsibilities in the economy process of the country. In fact, to ensure the practicality of the analogy of war, a former military officer was made the Head of the National Industrial Recovery Act. Also, President Roosevelt, in 1933, enacted the Agricultural Act which was implemented using the war analogy as well. The war analogy brought about certain positive actions which determined the process of the business of the agriculture in America during the 1930s. This includes the provision of subsidies to agricultural companies to require them to reduce their production capacity to drive up the prices of various commodities which have been overproduced and have lost their value.
By
John Olorunfemi
Junior Analyst