Prevailing Economic Theories and the Great Depression

Introduction

Most nominal students of history are aware of the Great Depression that began with the Stock Market Crash of 1929. While this economic disaster is well documented, few remember a similar, if not worse event in the Panic of 1893.[1] Laisse-faire was the prominent economic philosophy of the United States in 1930, and few realize the clamoring of other competing economic voices of the time. Lawrence White, in The Clash of Economic Ideas provides an excellent perspective of other prominent thinkers on economics and how the competition of other ideas provided an interesting backdrop to the suffering of the economic crisis not only in the United States but worldwide.[2] Nowhere is the political turmoil more evident that the 1901 assassination of President William McKinley by an anarchist. That the United States should have such political adherents as anarchists present is a surprise to many.

Laissez-faire was the long standing and widely accepted economic policy in place since the latter 1800s and a policy embraced by Republican Presidents.[3] By the turn to the twentieth century economists argued for change from the Laissez-faire views of classical economists to a modern view of government regulation and social control.[4]

In a far wider discussion, social scientists argued how to best address the issues brought by the Great Depression, without destroying the personal worth and integrity of the American persona. The prevailing theory viewed government help for the poor as detrimental and promoting sloth and laziness. Thus, when Franklin Roosevelt promoted Social Security and other programs decided to help poor Americans, he was greeted with accusations of being a socialist.

Capitalism and Its History in Post-War America (1865-1930)

From its inception in America capitalism experienced a downturn in the economy on a regular basis. About every ten to fifteen years a correction was inevitable. The Panic of 1873 came on the heels of the end of the Civil War as both North and South were forced to retool and redirect from a wartime to a peacetime economy, with the South having little in the way of past manufacturing to rebuild. Another downturn followed in in 1887, and a major depression occurred in 1893 which was believed to rival the Great Depression of 1930. Other less severe corrections happened in 1907 and in the post WWI Era of 1922, as America again retooled for a war to peace economy.

Questions of How to Address Economic Events

Fisher maintains that Laisse-faire was a go-to doctrine as a fail-safe when governments were weak and inept, and that the doctrine failed as governments grew stronger and exerted greater control.[5] Laissez-faire lies at the extreme on one end of the economic pendulum and socialism at the other. When FDR began to exert governmental controls to ease the Great Depression and give direct aid to hurting people, the accusation of socialism, necessitated the adding of Harry Truman to his final presidential ticket, as an offset.

Aside from the political reasons for the failure of the prevailing economic theory in 1930s, the need for another economic model spelled the end, in a sense to American individualism. Fisher notes that at the heart of Laissez-faire was the idea that the economy should be left to its own devices, and that individuals should leave each other alone to pursue their own economic goals. Individuals should be left to pursue their own self-interests, and since society is composed of individuals, society should be left to its own pursuit of the goals of Jefferson’s Declaration on Independence.[6]

Conclusion

The Great Depression was a wakeup call that the American experiment had grown in ways that were much too diverse to control themselves. American individualism, as exhibited by the barons of industry of the Industrial Revolution had assessed the theory of Laissez-faire to the extreme resulting in monopolies, labor abuses, and unbridled greed without much concern for their fellowman and had pushed the great experiment to the breaking point. The 1920s was the final hurrah with its runaway stock market predicated on the individual’s gamble for free money and an overheated real estate market ending in total disaster. The result was a swing of the pendulum from the conservative right to the left towards socialism, and finally aligning the focus by the help of the government’s strong hand back to the people who had been long overlooked.

Bibliography

Primary Source

Fisher, I. (1907). Why Has the Doctrine of Laissez Faire Been Abandoned? https://doi.org/10.1126/science.25.627.18 (Accessed 06.08.2022).

Secondary Sources

Steeples, Douglas W., David O. Whitten. Democracy in Desperation: The Depression of 1893. London: Greenwood Press, 1998.

Waugh, Joan. “‘Give This Man Work!’: Josephine Shaw Lowell, the Charity Organization Society of the City of New York, and the Depression of 1893.” Social Science History 25, no. 2 (2001): 217–46. http://www.jstor.org/stable/1171547.

White, Lawrence H. (Lawrence Henry). The Clash of Economic Ideas: The Great Policy Debates and Experiments of the Last Hundred Years. Cambridge: Cambridge University Press, 2012.

[1] The advent of the radio in the 1920s and its wide availability provided Americans with a daily rundown of the terrible consequences of the economic depression. In 1893, while the Depression might have been worse, America was still very rural and newspapers, while widely available in cities, were not disseminated in rural areas. Steeples, Douglas W., David O. Whitten. Democracy in Desperation: The Depression of 1893. London: Greenwood Press, 1998. [2] Lawrence Henry White. The Clash of Economic Ideas: The Great Policy Debates and Experiments of the Last Hundred Years. Cambridge: Cambridge University Press, 2012. [3] Of the sixteen presented from Abraham Lincoln to Herbert Hoover, twelve administrations were Republican, and four were Democrats. [4] I. Fisher, (1907). Why Has the Doctrine of Laissez Faire Been Abandoned? https://doi.org/10.1126/science.25.627.18 (Accessed 06.08.2022). [5] I. Fisher (1907). [6] Ibid.