U.S. Economic Normality 1900-1945

1. Executive Summary     2. The Economics    3. Presidential Politics    4. Supreme Court

Return to U.S. Economic Cycle History   Updated 6/12/19   Please link to, textbook/supplement and

1. Prelude

2. The Economics

Overview
3. The Politics

4. The Supreme Court

1. Prelude
The 19th Century ended with conservative Oligarchs from business, finance plus European  Monarchies in control of the world political economy.  Liberalism first inspired by the English Civil War of the 1640’s began to take more interest in economic wellbeing It would increased dramatically and during the mid-19th century with the philosophy of Friedrich Engels. His ideas concerning worker  well-being morphed into Marxism and Leninism.   Elsewhere, the worker cause Union movement. Union  influence would last well into  the next century.  
President Roosevelt  begins Centur with going after J.P. Morgan and banking sponsored trusts and in 1906 passing the Meat Inspection Act and the Pure Food and Drug Act. "Even his friends occasionally wondered whether there wasn't any custom or practice too minor for him to try to regulate, update or otherwise improve."

2. The Economics

New Era
Republicans forged a conservative coalition of businessmen, professionals, skilled factory workers and the prosperous

The Banker’s Panic of 1907,  so named because it started on Wall Street, soon “spread throughout the nation when many state and local banks and businesses entered bankruptcy.”  Banker J. P. Morgan led a group of Wall Street bankers to saved the day with a large shot of bank liquidity. The U.S. Treasury also helped. This was a change from conservative laissez-faire capitalism and many thought it was required as the economy had become too big for private banker Oligarchs to be the lender of last resort.

The 1913  Federal Reserve Act solved the lender of last resort problem and its formation continued the battle of federal government involvement in society activities. Decades of union strikes eventually resulted in Massachusetts and other states passing minimum wage laws. The Clayton Anti-Trust Act was ineffective by our court system.

The 1920’s brought post war prosperity but not before the 1920-21 recession. Monetary Policy was used for the first time as the FED tightened to stop post war caused inflation. A sharp short recession ensued. Before the coming boom there were troublesome times as arguing over the banker supported League of Nations.  At home the 1919 strikes, riots created a growing fear of radicals and terrorists who wanted labor reform. It was part of a worldwide questioning of WWI causing authoritarian central governments.

Both the Federal Reserve  and Wall Street bankers supported England's return to the Gold Standard at a pre- war parity of $4.66 per dollar.  FED chair Strong went against J. P. Morgan and supported the Sterling with both low US interest rates as the Bank of England kept rates high. Morgan did not want low U.S. rates. A run was expected and credits lines from the FED and Morgan totaled $300,000,000. Potential borrows paid one percent. 

3. The Politics

Progressives Ends the Gilded Age But Business Power Returned After WW I.

Progressives sought monopolistic regulation through antitrust laws which were seen as a means to promote fair competition and benefit consumers. Election reform was also high on the agenda. It was a period of social activism and political reform which flourished from the 1890s to the early 1920s. Exposing political machines to eliminate government corruption was an important progressive goal. They hoped to create a peaceful, more democratic federalist republic. A more direct democracy was the goal. 

By putting election reform high on their agenda.  Post WW I Communists and unions created fears of anarchy so conservative government returned. 

Business Power Would Return After WW

Harding easily won with an isolationist policy of the Republican Party conservative wing. A decade long battle with the liberal banker wing resulted, Bankers wanted U.S. dominance of International Trade Interestingly  they easily accepted the pro business administration's insistence they approve foreign loans as it came with military support when countries defaulted of their bank loans.

Change came because 1) Bonus Army deaths caused outrage during the summer of 1932 and 2) Hoover's economic policies had done little to help the needy. Democrats promoted American Liberalism to a New Deal Coalition consisting of well-organized labor unions, Southerners, urban political machines, progressive intellectuals, populist farm groups and Roman Catholic, Jewish, and African Americans religious-ethno constituencies

4. The Supreme Court

Age of Enlightenment Philosopher Locke believed in a natural right to life, liberty, and property. He argued that each man had natural rights of equality, liberty, property, the necessity of consent, and limited government. These beliefs began a U.S. political discussion which centered on minimal state liberalism (today's conservatism) vs. active state liberalism (today's liberalism).

Limited government helped by the Supreme Court fostered the Jim Crow Laws and the Gilded Age. The court did so by making owner property rights more important than worker personal liberties.

The new century brought Progressivism from Teddy Roosevelt and Windrow Wilson. Both believed in active state liberalist. The First Red Scare and unionism following WW I brought back minimal state liberalism. The Great recession allowed FDR to use active state liberalism to tame our Greatest Depression. Active state


Liberalism ended with the Second Red Scare.

 

 

 

 

Name

Duration

Months Duration

2. The Economics

Basic Traits

Panic of 1907-08 13 Since the Jackson era banks had been decentralized and during periods of boom, banks able to lend were unchecked. A run on Knickerbocker Trust Company deposits on October 22, 1907 set events in motion that would lead to a severe monetary contraction. The fallout from the panic led to the Federal Reserve System.[24]
1920-21 18 The Spanish Flu epidemic of 1918 killed 500,000 would blunt post war demand. 1) After the war troops returned to few jobs, tight money to hinder 1919 inflation, and low agricultural demand from Europe  caused a short severe recession with severe deflation but Real GDP only lost between 2.7% and 7%. 2) Labor conflict with many strikes caused the First Red Scare. Many blame the newly formed Federal Reserve for this recession
Depression 1929-39  

140

1) A speculative financial boom financed with borrowed money resulted in a Worldwide stock market and banking crash. 2) A brief 1930 recovery was swatted by the Smoot–Hawley Tariff Act.

The Politics

Elections Republicans  Democrats

"And Now the Rest of the Story"

1896 went Republican
as voters blamed Democrats for the Panic of 1893. Moralistic rhetoric and Cross of Gold crusading for easy money by W. J. Bryan alienated conservatives. Over 90% turned out in some districts.


 

W. McKinley
led conservatives well but he has a fluctuating legacy
.
The Spanish–American War began with a dubious USS Maine attack as U.S. business and political leaders wanted an empire. Think Gulf of Tonkin Incident. A Dingley Tariff Act promoted industry, high prices while a
gold standard protected savers causing hard economic times. Political controversy over the money supply in relation to growth and inflation continued.

1900 close 
but a strong economy and a popular Battle of San Juan Hill victor V.P. Teddy Roosevelt was too much for easy money Free Silver candidate W. Bryan. Anarchist Leon Czolgosz assassinated Prescient McKinley making progressive TR president. The Election of 1904 was a landslide with TR for protective tariffs, increased foreign trade, a pledged to uphold the gold standard, expansion of the merchant marine, a strong navy, and an a imperialist Caribbean and Pacific foreign policy.

T. Roosevelt was arguably our most popular president.
Most egoistical?
 T.R.'s involvement in the 1902 Coal Strike. began the Progressive Era and twenty years of labor turmoil. The 1903 Panama Canal acquisition eventually resulted in improved transportation. The Roosevelt Corollary to the Monroe doctrine expanded the US sphere of influence in the Caribbean to protect Panama Canal interests. Panic of 1907 required liquidity and the Treasury deposited $25,000,000 into New York banks. J.P. Morgan with John D. Rockefeller and other wealthy men had provided all Panic of 1893 liquidity. Eventually the Federal Reserve System was the new Lender of Last Resort. Designed by Wall Street bankers the FED would continue under their influence until 2016 and counting!

1908 had Bryan progressivism attacking "government by privilege" with Free Silver  W. Taft good Supreme Court Chief Justice but...
 He expanded "Dollar Diplomacy" to promoted Latin American and East Asian economic development using bank loans and U.S. Companies
Think
Russia's 2014 annexation of Crimea.
1912 was a four-way race the Democrate won
after former President TR failed in his Republican Party nomination attempt and joined the new Progressive "Bull Moose" Party. Socialist labor leader Eugene Debs was also a factor. Wilson won with 42% of the popular vote while Roosevelt's had 27%, Taft's 23% and union leader Deb's had 6%. Wilson allowed business credits to warring WW I belligerents which helped exports and ended the 1914 recession. When the Allies ran out of money and hoping to foster economic growth he allowed a Morgan led bank group to loan to loan them $500,000,000,000. German and Irish Americans were not happy.

1916 still narrowly went to Wilson
as "He kept us out of war." 

See Riots Guns Bribes Tr's Contested 2012 Convention
Editor's Note: Segregated government meant Wilson like TR and T. Jefferson felt Americans were not ready to integrate.

Woodrow Wilson had progressive successes but
his League of Nations failure was monumental.
The 19th Amendment gave women voting rights with little support from the South, among Republicans, and some conservative women. Think women terrorists.

Federal involvement in agriculture began with the very successful Federal Farm Loan Act though many debate the continued need for agricultural subsidies.

Federal revenue boosted by income tax. Some states have replaced it with a consumption tax. The Keating–Owen Act restricting child labor abuses was ruled unconstitutional by Hammer v. Dagenhart as courts ruled regulation belonged to the states.

Wilson did not let Republicans join in WW1 peace discussions
 
so US did not join the League of Nations. Fair treatment of Germany was not possible as of WWI carnage and colonial needs of both England and France meant opposition to Wilson's self-determination push.

1920 affected by a post war recession, postwar labor strife, and the First Red Scare.
Harding easily won with an isolationist policy. His conservative wing would win a decade-long battle with bankers who wanted U.S. international trade dominance. The Treasury insistence on foreign loans eventually led to banking trouble. Think German industry helped by American Business.. Excessive eating, drinking, and smoking may have contributed to Harding's 1923 death.1924 Coolidge win easily
as a strong economy and a split between liberals and conservatives Democrats. Coolidge more than doubled the democratic vote and they doubled the Progressive Party vote. Some feel the election marked the "high tide of American conservatism," as both major candidates campaigned for limited government, reduced taxes, and less regulation.
W. Harding began a second conservative run.
Tight Monetary Policy and a major federal spending decrease caused the forth most severe U.S. Recession. It began the FED effectiveness debate. Think Rand Paul. The Emergency Quota Act of 1921 continued U.S. immigration restrictions base on race. Think D. Trump. The act brought pro-Western Europe quotas as revolution in Eastern Europe brought unwanted immigrants. Think European immigration crisis.

C. Coolidge restored public confidence after
Harding's political scandals.
He left office with considerable popularity. Think seven years of an expanding economy. World War Adjusted Compensation Act or "Bonus Bill" was passed over a Coolidge veto. Think austerity in good times and later Hoover would not pay early in bad times causing the 1932 Bonus Army riots. Immigration Act of 1924 excluded Asians and Arabs and limited Africans. The Great Mississippi Flood of 1927 led to Flood Control Act of 1928.

Election of 1928 a booming economy
 to a landslide as Hover easily beat Democrat Smith who had anti-Roman Catholic and Tammany Hall issues. Think J. Kennedy and then B Obama.
H. Hoover a was a 19th century
Classical Economics politician,
was done in by support for prohibition though he did more to alleviate the Great Depression than history purports.
Election of 1932
The Great Depression provide the background. N.Y. Governor F. Roosevelt avoided divisive cultural issues and chose southern conservative John Nance of Texas as his running mate.
Election of 1936 was the most lopsided Electoral College presidential election.
Election of 1940 saw voters accept FDR's third term because of World War Two.
Election of 1944 NY Governor Dewey campaigned against big government New Deal programs but he couldn't get a change of course despite poor presidential health rumors that were somewhat dispelled by Roosevelt's vigorous campaigning.

Election of 1948 was a major upset as H.S.Truman fooled the pollsters when his whistle stop strategy proved personality had defeated New York Governor John Dewey's political machine.
Franklin D. Roosevelt continued the Presidential trend of doing anything "he" felt necessary" to protect the nation. Think John Adams, Abe Lincoln, FDR, R. Nixon, G.W. Bush. President Roosevelt was first to use massive debt to solve a non-military problem (Great Depression poverty). Like military debt, this new debt would be refinanced with little ever paid back (retired). The size of the deficits/debt over time has been lowered to reasonable levels by nominal GDP growth. Think Can this be done with projected SS, Medicare and pension contingent liabilities.
Harry S. Truman,
a product of the Kansas City Old boy's network, made these difficult decisions 1) used "the bomb" to quickly end WW2, 2) quickly recognized the new State of Israel 3) used the Marshall Plan & NATO to prevent a repeat of post WW I type international problems 4) officially ended Monroe Doctrine isolationism with the Truman Doctrine 5) set president when his ignored Congress with his "police action" in Koran and 6) he relieved from duty popular war hero General Douglas MacArthur who had trouble following Korean War presidential instructions.

Rulings Established Power Centers


1) Sovereignty of Federal Government Over Sates Governments

2) Protection Individual Rights From Arbitrary Governmental Actions
 

3) Supreme Court as "Supreme Constitutional Authority"  

4) Protecting Business