The Great Depression as Historical Problem

Author(s): Michael A. Bernstein

Source: Magazine of History, Vol. 16, No. 1, The Great Depression (Fall, 2001), pp. 3-10
Published by: Organization of American Historians
Stable URL: http://www.jstor.org/stable/25163480
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From the Editor/Historiography

Great

The

Depression

as Historical

Problem

A. Bernstein

Michael

is now

It

the

1930s,

To

history.

about

its causes,

this

was

depression

the Great

there

Those

at the

of a profound

symptomatic

to be

tends

who

no

exists

there

Depression

economic

protracted

day,

although

its consequences.

regarding

since

half-century
severe
and

the most

American
ment

over

well

crisis

of

rates of the fifties and sixties obscured

in

dissolved

agree
general
some consensus

time

the

that

argued

in the mecha

weakness

of

development

Keynesian

As

theory.

economic

the

result,

slump of the interwar period came to be viewed as a policy problem

rather than the outgrowth of fundamental tendencies of capital
ism. The
be

was

presumption
to

owing

repeated

that

the

the Great

increasing

analysis and policy formulation.

the

that

monplace

erratic

The

business

performance

Depression

sophistication
was

"tamed"

the American

and

com

"obsolete."

economy

the

during

1980s and more recent challenges associated with

globalization have made this notion itself obsolete. Entirely new
1970s and

varieties

economic

of

Revolution"

has

that

climate
the

at a time

been

shaken,

optimism

of dramatic

and

real

a new

in the

the

"Keynesian
come

has

"classicism"

to

reconstruction

to remem

it is important

opinion,
for Keynesian

economics

in the world

emerged

economy

and

concomitant prosperity in the United States. Such hope had been

absent in the decade of the Great Depression, and even during the
war

years

would

there

had

been

apprehension

that

a return

to

fears

of

the prewar debates

a return

to hard

and

times.

to engage

struggled

the

with

to understand

of an older

ideas

devastating

generation

at a time

events

when

orthodox theories and remedies no longer sufficed. Indeed, the

vast majority of contemporary economists have grown decidedly
to arguments

hostile
focus

on

have

avoided

the

concerning
run or on

short
the

structural,

tives more characteristic

the Great
policy

that

do not

respect,

they

Depression
In this

failure.

and

institutional,

long-run

perspec

of the work of their forebears who sought

a historical
within
framework
Depression
or
more.
so
several
decades
spanned
By
doing,
they have
not
some
causes
of
of the
appreciation
simply
possible
the Great

Depression

itself, but also of the subsequent

performance
this reason

of

approaches,

that

the American
I seek,

to persuade

economy
a reassessment

through
you

since

of the

ing of "The Great Depression

insight

as Historical

that

Great

and

development

It is for

mid-century.
of these

afforded

an

lost

older

analytical
by an understand

Problem."

under

except

output

confidence

that

asserting

emerged,
of

thought.

of economic

postwar

have
levels

Indeed,

in economic

prominence

ber

alter

circumstances.

exceptional

In this

thinking

cannot

government

who

choose

to situate

economic

of

Indeed, the belief became

cycle
of

never

could

any

Yet far from being resolved, the concerns and misgivings of the
depression and war years simply faded from view. It has by now
long been fashionable to claim that "Keynes is dead," and few
economists

nisms of capitalism were only briefly heard. After World War II,
their views appeared hysterical and exaggerated, as the industri
alized nations
sustained dramatic rates of growth and as the
economics profession became increasingly preoccupied with the

the moment

for

depression

come close on the heels of victory. But the high growth

in the Literature
Trends
in the
The older literature concerning
the Great Depression
United States may be broadly classified into three categories. One
set argued that the severity and length of the downturn was the
direct result of the collapse of financial markets that began in
1929. Such work emphasized the causes of the 1929 crash and
those factors that amplified its impact. Another
school of thought
concluded that the economic calamity of the 1930s was the direct
result of poorly formulated and politically distorted actions under
taken by the government. A third set of research took a broader
OAH

Magazine

of History

Fall

2001

the Editor

Bernstein/From

some writers (such as Irving

created by the Treaty of Versailles,
Fisher and Lionel Robbins) argued that the depression was the
inevitable

The

for those
challenge
of us who
teach about
this profound
economic
is to find
crisis

response,

predictable
ments,

in

ways
to link the

which

trade

and

the demise

demands

veritable

personal

caused

the

immediate

of

these

reasons

the

whatever

depression

the

for its unparalleled

length
the events of 1929.

in a long-run

of

origins

the

and

and

and severity predated

from

The Stock Market Crash as Cause

short-run analyses of the Great Depression

attribute.

They

came,

to follow. Thus
a weak banking

the

the

crash

short-run
on

the

concerned

approach

consumer

wealth

and

spending.

were

arguments
confidence

convinc
completely
was
it was
subjective,

thesis

on

focused

the

causes

immediate

and

summer

that
market,

impacts

than

rather

thirties

of the

than

rather

argument

real

caused

being

have

may
by such
excessive

generated

feelings.

the
rejected
frequently
on the grounds
it abstracted
that
events
in
interwar
the
monetary

of

and

1929,

a softness

in construction

in 1928. Such critics as John Kenneth

apparent
shared a com

circumstances

panic,

and

credit
too

boldly

economy.

Indeed, business cycle indicators turned down before the stock

market crashed. Indices of industrial production started to fall by
the

mon

arrange

crash

the

Depression.

of

business

economists

speculation

the

slump,

transcended

All

that led to a

credit

once

and

twenties,

in

payments

States

unstable

Extremely

short-run

the

the economic

Later
to analyze

that

in international

reparations

virtually impossible to evaluate in the light of historical evidence.

There was also the objection that notions like these mistook effect for
cause;

attempted

of

govern

severity of the downturn, itwas argued, resulted in a drastic

in credit.
devaluation of consumer wealth and a loss of confidence
The resulting decreases in purchasing power left the economy
saddled with excess capacity and inadequate demand.
None

It suggested

make

into the United

in the

the Great

effects

pessimism

context.

to European

loans

The

social

contemporaries.

perspective

struc

credit

worse.

of the gold standard

credit.

version

ing. Because

and

of

emerged

thereby

Another

of

experience

unstable

the collapse of the banking system was quick

excessive credit and speculation, coupled with

with

years
and

and

on

back

that Germany

explosion

ments

network,

interwar

chaotic

situation

the

gold created a net gold flow

the

of

economics

the

cutting

made

merely

Moreover,

substantive

of

consequence

ture of the twenties. The principal irritant consisted of a dangerous

circle of obligations and risks, epitomized by the Dawes Plan of
1924, in which the United States lent funds to Great Britain,
France, and Germany, at the same time the Allies depended on
German reparations to liquidate their American
debts. By 1928
American banks were already quite wary of the situation, but their

and

"cause
never

run

effect

the

reverse.

from

Had

the
the

to

economy

economy

was

activity

Galbraith
been

the

held
stock

fundamen

of the New York Stock Market collapse of 1929, and they asserted
of wealth and disruption of the
that the resulting devaluation
the
intensity of the crisis. The "business
banking system explained
confidence" thesis was perhaps the best example of this school of

tally sound in 1929 the effect of the great stock market crash
and the loss
the shock to confidence
might have been small...
of spending by those who were caught in the market might soon

that caused the

It held that regardless of the mechanisms
the dramatic slide of the stock market created intensely

the evidence did

and spending hypothesis,
not provide compelling proof. The dramatic decline in consump
tion expenditures
after 1929 may have been due to the stock

thought.
collapse,
pessimistic
confidence

took hold,
A more

expectations
was
so severe

stifling

in the business
and

investment

comprehensive

community.
that

unexpected

The

shock

a dramatic

to

panic

and thereby a full recovery.

formulation

of

the

short-run

argument

the question of why financial markets col

directly confronted
to
distortions
and institutional
the political
lapsed. Looking

4 OAH Magazine of History

Fall 2001

worn

have

As

market

it may

debacle;

dampened
outgrowth
farm

off."

for the wealth

have

arisen

once

expectations

had

been

by the events after 1929; or it may have been an

trend in construction
of a declining
activity and in

incomes

during

tions have been

the

twenties.

But

even

incapable of unambiguously

recent

investiga

explaining

a large

Bernstein/From

portion
we

sure

for

say

can speak of a drop, but

in spending. We

of the decline

cannot

it happened.

why

Policy Errors as Cause

Another
the Great Depression
approach to understanding
evaluated the extent to which the slump was the result of system
to this school of thought, inadequate
atic policy errors. According
information, and political pressures distorted
theory, misleading
the policy-making process. Such investigators asMelvin Brockie,
Kenneth Roose, and Sumner Slichter maintained
that from 1932
onward

the American

showed

economy

great

recov

for

potential

ery, only to be set back profoundly by the 1936 recession. They

asserted that the New Deal's Industrial Codes raised labor costs
and

material

stimulus

input

thus

prices,

existed. The

rhetoric

whatever

negating

monetary

and

ideology of the Roosevelt

to the downturn by
Administration
have
further
contributed
may
the
confidence
of
the
business
community. Not
jeopardizing
several
labeled
the
downturn
of 1936
investigators
surprisingly,
1937 the "Roosevelt Recession."
It was not solely criticisms of actual government policy in
which these writers indulged to explain the depression's unusual
In some

severity.

cases

also

they

criticized

the

for not

government

that the private sector moved too

doing enough. They maintained
in
in
the
mid
1930s
raising prices. As a result, by 1937
quickly
consumers increasingly resisted higher prices as they sought to
the large debt

liquidate
maintain
to

their

consume

competitive

ment

savings

policies

action

Economic

fell,

subsequently

times.
a

and
were

presumably

(such as the creation

to

Committee

The

average

recession
the

in the
crash of 1929 was less important than certain developments
that
had
deleterious
interwar
the
economy
impacts throughout
period. Some authors (for example, Seymour Harris and Paul
Sweezy) argued that during the 1920s the distribution of national
income

became

overall

propensity

the
skewed,
increasingly
lowering
economy's
to consume.
as Charles
such
Others,

fo
Kindleberger, W. Arthur Lewis, and Vladimir Timoshenko,
cused on a shift in the terms of trade between primary products and
manufactured
of the
goods, due to the uneven development
nations.
in
terms
and
industrial
This
the
of
agricultural
change
a
in
created
credit
crisis
world
markets
trade, they argued,
during
the bad crop yields of 1929 and 1930. At the same time that
economies

agricultural

were

losing

revenue

because

of poor

har

vests and declining world demand, the developed economies were

contracting credit for the developing nations and imposing mas
sive trade restrictions such as America's Hawley-Smoot
Tariff of
1930. As the agricultural nations went into a slump, the industri
alized countries (most notably the United States) lost a major
market
more

for their output. Hence,

and more

Industrial organization
Means

most

of 1929 became

the downturn

severe.

prominent

economists
among

them)

(Adolf Berle and Gardiner

sought

an

explanation

of

in the
the depression in the trend toward imperfect competition
American economy of the early twentieth century. After the crash
of 1929, prices became increasingly inflexible, due to the concen
trated structure of American
industry and the impact of labor

propensity

took

hold.
but

solution,

of the Temporary

Pro

govern

National

the Concentration

Investigate

and to

in the decade

incurred earlier

in uncertain

the Editor

of Eco

nomic Power) was too little, too late, and was often inspired more
by

than

political

economic

concerns.

was essentially an
the Great Depression
was
of
failures
outgrowth
policy
problematic at best. To be sure,
one could with the benefit of hindsight engage in some forceful
criticism of economic policy during the 1930s. But it seems a futile
The

exercise.

notion

After

that

all,

in many

respects

the Roosevelt

Administration

(especially the Board of Governors of the Federal Reserve System)

did what many of its predecessors had done in the face of a cyclical
downturn.

must

One

suddenly became
question

remains:

ingly worked
consensus

ask,

how

therefore,

why

were

traditional

that

policies

in the past and that represented

among

officials

government

so inept in the interwar period. Moreover,

generations

of

economists

had

the
seem

a theoretical

suddenly

so per

verse

in the 1930s? What

in the structure and
had changed
in
of
the
interwar period that
national
the
economy
operation
made orthodox economic
and
theory
policy inadequate?
Long-Run

Factors

as Cause

literature that focused on long-run factors in the Ameri

can depression was distinctive
in holding that the stock market
The

An

unemployed

Photograph
(Courtesy

worker

stands

outside

vacant

by Dorothea
Lange for the Farm Security
of the Franklin D. Roosevelt
Presidential

OAH Magazine of History

1930s.
store,
Administration.
Library.)

Fall 2001

the Editor

Bernstein/From

annually averaged only a bit over

5 percent. A fall in export de
mand, then, could not have played
a major

or pro

in worsening

role

longing the Great Depression.

Theories
of
Economic Stagnation
Continued research on theGreat
Depression necessarily relied upon
the work of Joseph Schumpeter on
econo

inmodern

processes

cyclical

mies. Schumpeter held that the in

terwar
three

was

period
major

an

era

in which
ac

of economic

cycles

in the United

States (and
tivity
reached
Europe) coincidentally
their nadir. These cycles were 1 ) the
Kondratieffy a wave of fifty or more
associated

years

with

introduc

the

tion and dispersion of major inven

tions; 2) the Juglar y a wave of
ten

approximately

duration

years'

that appeared to be linked with

population movements; and 3) the
in front of fire." Belle Glade,
1941.
Florida, February
"Negro laborers sitting around
of the Library of Congress,
Post Wolcott.
LC-USF34-057095-D.)
by Marion
(Courtesy

a wave

Kitchm,

Photograph

of about

inventory

typical

cycle.

the one side, these "sticky prices" further limited the

constrained

already

power

purchasing

of consumers.

On

the other,

were

There

income

several

focused

in

weaknesses

these

on an increasingly

did not marshal

unambiguous

theories.

unequal

evidence

Those

au

distribution

to make

their

of
case,

nor did they specify precisely how such factors came to life in the
interwar economy. While Berle and Means claimed to have demon
strated a relative price inflexibility in concentrated economic sectors
during the 1930s, their critics were unconvinced. Given that the
aggregate price level fell by one-third in the early thirties, they argued,
how inflexible could the general price system have been? The "sticky
prices" thesis also relied on an assumption of perfect competition in
all markets other than those where the imperfections existed. If this
assumption were relaxed, the thesis did not hold.
The terms of trade argument similarly had a major flaw. The
major

in

weaknesses

the

American

economy

of

the

interwar

period were domestic, and the collapse of demand on the part of

agricultural nations was not highly relevant. During the 1920s,
exports

as

share

of

the

6 OAH Magazine of History

nation's

gross

Fall 2001

national

product

by those of Simon

Abramovitz

in the capital goods sector,

noncompetitive
pricing predominated
were
to
less
meaning producers
buy new plants and equip
willing
ment. Price inflexibility thus inhibited the recovery of both final
product demand and investment demand.
thors who

alleled

had

Richard

and

and, more

Easterlin.
of waves

existence

the

documenting

Kuznets

some

par

recently, Moses
was

Kuznets
of

were

efforts

Schumpeter's

unions. On

forty months'

length that had the appearance of a

in

successful
to

fifteen

twenty

years in length. These periodic swings, according to Abramovitz,

demonstrated
that in the United States and other industrialized
and early twenti
countries, "development during the nineteenth
eth centuries took the form of a series of surges in the growth of
output and in capital and labor resources followed by periods of
retarded growth." Significantly,
"each period of retardation in the
rate

of growth

of output...

culminated

in a protracted

depression

or in a period of stagnation inwhich business cycle recoveries were

disappointing,
failing to lift the economy to a condition of full
or
doing so only transiently." The specific behav
employment
ioral mechanisms
that could account for the Kuznets phenom
in the United States in the
enon (and its precise manifestation
were
focus
of
continued debate. It is in
the
1930s)
necessarily
this

context

"secular
In
economic

that

we

can

understand

the

large

literature

on

stagnation."
general,
maturity,

theorists

stagnation
as

it was

sometimes

agreed

that

called,

stagnation,
involved

or
a "de

crease of the rate of growth of heavy industries and of building

[and] the slowing down of the rate of growth of the total
activity...
of
quantity
production, of employment, and usually of population.

the Editor

Bernstein/From

It [also involved] the rising relative importance of consumer

goods." However,
they differed in emphasis, falling into two
defined
groups: those who focused on the decline of new
broadly
and

technologies

were

who

those

more

with

concerned

the

shrink

age of investment outlets as the rate of population growth fell.

Followers of this second school held that as population growth
in housing, clothing,
fell off, and as major markets
food, and
services

consequently

for new

outlets

contracted,

investment

arguments

concerning

For one,

theory had limitations.

and

maturity

encourages
a

anticipate

population

power.

ing

in

the

in population

the

of

number

however,
in purchas

but

the market."

broaden

inconsistencies

many

of

response
to be

so

sible.

There

on

and

assertions.

questionable

were

of

always

the

motor

Propo

of economic

stages
newer

forms

of

and

growth
investment

amounts

large

on

impact

task

of

innovations

investment

to

periods
informa

and

technique

(in
earlier

during
in later

way

latter innovations may not have absorbed

investment

spending

would

at all. While

expenditure

they

and efficiency of production,

not

have

been

to

adequate

the

thus

most

version

sophisticated

of

the

economy

idea.

maturity

well
version
toward
ment
and

qualities

of many

as their

frequent

appeals

of

maturity

thesis

the

of

the

the

was

that

factors.

long-run

as

Steindl's
tendencies

in capitalist
inherent
concentration,
capital
develop
over
led to a lethargic
attitude
toward
time,
competition
investment.
the emergence
of concentrated
Specifically,

cut.

are most

unfea
to

in order

prices
a

tend

seems

reduction

given

industry,

in the growth rate will depend

In a sector

is concentrated.

industry

in a concentrated

contrast,

By

these

market,

of underutilized
to undertake

any

of

utiliza

capacity

in unemployment.

firms will

capacity,
net

price

imply not only declines

increases

also

rate

their

in capacity utilization
but

circumstances,

in the rate of growth,

for declines

to reduce

tend

companies

In

profound.

presence

investment.

In

be

in
the

increasingly

cumulative

pro

cess is thereby established wherein a decline in the rate of growth,

by generating reductions in the rate of capacity utilization, will
lead to a further decline in the rate of expansion as net investment
is reduced. Individual firms, by believing that decreases in their
investment

will

alleviate

the

intensify

their

problem

own

burden

of excess
The

economy-wide.

capacity,
the

greater

proportion of the nation's industry that is highly concentrated,

the greater the tendency for a cyclical downturn to develop into
a progressive (and seemingly endless) decline.
A further consequence of the existence of highly concentrated
sectors in the national economy is the impact it has on demand.
The higher profit margins secured by large firms are indicative of
an

skewed

increasingly

their

the

revenues,

effective
a

when

slump
of
of

penetration

demand

occurs.

The

industrial

to

rising excess

for recovery,

government
is therefore

markets,

is central to Steindl's
in

potential

spend)

propensity

marginal

is combined with

shocks,

com

when

that,

output

aggregate

exogenous
foreign

of

of firms to invest (or otherwise

a rising

generates

intervention

alterations

distribution

the reluctance

bined with

What

Not

arguments

stagnation

to external

are

income

the

surprisingly, he did so in part by explicitly situating the Great

in the United States within a long-term development
Depression
framework. His work linked economic stagnation directly with
the behavior
of capitalist
the
enterprise,
thereby avoiding
mechanistic

the

national

capacity

The Work of Josef Steindl

Itwas the Austrian economist Josef Steindl who provided

For

as prices

save. Declining

recovery.

systematic

raise

sales.

reduction

to which

tion. Reductions

merely

were

innovations

example)

given

improved the organization

may have
their

of

have

new

Heavy

for

in managerial

tion processing. These

very

type,

housing,
may

if

but

foundered.

argument

Their

themselves.

that

assumption

capital-using

cars,

theorists

stagnation

implicit

their

capital-saving,
railroads,

of the

an

to

in

the

the impact of a decline

margins

own

to some

price

reductions do not compensate

was

contained

may
for

firm

each

disinclined

apparent

jeopardized

revenues

Firms'

fluctuations.

in a slump
that
even
incentives
be

the squeezing out of competitors

is relatively easy, large
declines in demand will result in the reduction of profit margins for

nents of this school claimed that the lower rate of technological

innovation (said to be a primary cause of the economy's inability
to recover from the depression) derived from the state of techno
logical knowledge at the time, yet they offered little justification
of this position. A further objection to the technology argument
work

to economic

firms

extent

the

and

Much
like the population theory, the variant of stagnation
that
focused on the decline of technological
theory
change em
bodied

in concentrated
industries is intensified
inflexibility
an
and
this
has
important impact on the
during depressions,
Price

profit
not

does

paupers

is

that

capacity

revival.

profit margins will tend to be inelastic in the face of lowered demand.

At the macroeconomic
level the implications of inelastic

entrepreneurs

is important,

What

increase

the

increase

The

because

market.

broadening
is not

context

in this

investment

economic

where

growth conflated population with effective demand. As one

critic put it: "[i]t is sometimes maintained
that the increase in
population

required

therefore,

economic

an

for

of excess

the utilization

prevented

compensate

were

quickly limited.
Both variants of stagnation

markets

barring
or

spending,
greatly

lessened.

thesis is the concept of long-term

structure

that

make

the

economy

as

whole

less capable both of recovering from cyclical instability and

of generating continued growth. He assumed the emergence of
oligopolistic market structure to be inherent in the process of
capitalist development, because of capitalism's tendencies toward
the development
of large-scale manufacturing
techniques and
financial

concentration.

Economic

maturity

and

the

threat

of

stagnation result because the growing incidence of "[oligopoly

of funds by shifting profits to those
brings about amaldistribution
industries

which

are

reluctant

to use

OAH Magazine

them."

In order

of History

to escape

Fall 2001

the Editor

Bernstein/From

must
be redistributed
capital
or new
industries.

Stagnation,
tive

sectors

Indeed,
Roosevelt's
forcefully

the

competi

of

accumulation

corporate

incen

The

surpluses.

tive of the tax, it was claimed, would lead firms to issue more
or
investment
of their surpluses in the form of productive
of capital resources
dividends. As a result, the mobilization
would

be more

profits

efficient

and

tax

one

to be

proved

Interestingly
tween
stagnation

investigators
in

an

industry
Yet,

competitiveness.

no

clear

to

tended

as

the

as

I discovered

on

focus

determinant

primary

in my

during

number
a

of

own

some

industries were relatively vibrant during the

others appeared virtually moribund. Clearly, the

concentrated

highly
decade, while
evidence

which
dynamic

market

concerning

Steindl

based his

or not

involves

of firms or the extent

do with

matrix,

the

industry's

theory. Whether
several

of capital
position

the durability

was

structure

issues

unrelated

concentration
in the

of its output,

frail

a given

economy's

to

reed

upon

industry
the

in particular,

Depression

do not,

analysis

of mature

and

of course,

obscure

to an understanding

of his contribution

of the
in

economies

capitalist

general. That importance derives from the fact that Steindl at

tempted to situate the decade of the thirties within a larger historical
framework. In this context, he could view the Great Depression as the
outcome of an interaction between cyclical forces dating from 1929

and

of

sector's

research,

in Steindl's

weaknesses

tendencies

a
spanning
development
half-century
able to understand
the Great
Depression

of long-run
he was
thus

In short,

or

The U.S. Economy Since the Great Depression

Steindl had, of course, focused his work on the interwar
economic crisis of the 1930s. His central theses regarding maturity

of market

the

of the

composition

as a historical problem.

be

industry

Great

to the shifting

respect

a whole.

and

relationship

in American

The

more.

contro

and

unpopular

from the New Deal,

By applying a static conception

have

as

the importance

and

recovery.

the undistributed

1936,

the most

concentration

the Great Depression.

structure,

of

exists

there

enough,
and

of

to generate

likely

Act

to emerge

versial pieces of legislation

it was repealed in 1938.

firms

more

in the Revenue

Embedded

industry with

economy

some members
of
during the Great Depression,
"Brain Trust," such as Rexford Tugwell,
argued
for the imposition of an "undistributed profits tax" to

the

prevent

to more

either

is

number

issues having

to

input-output

and the relative maturity

economies

capitalist

seemed

particu

larly compelling when viewed in terms of the long-run historical

experience of the Great Depression. Yet both the postwar record,
at least in the case of the United States, and some of the theoreti
cal lacunae in his earlier claims, led Steindl to modify some of the
the 1976 republication of his
arguments of his 1952 book. With
Maturity and Stagnation in American Capitalism, Steindl allowed
that technical innovation, product development,
public spend
initiatives might provide the
ing, and research and development
means

to

investment

from

escape

concerned

tremely

of

in advanced

stagnation

that

most

inertia.

Even

accumulation

so,

was

he

ex

in mature

strategies

nations would focus on military-industrial

activity
and war itself. Using both public and private invest
ment funds for other purposes, while obviously desir
able, would be "exceedingly hard" given "the workings

capitalist

institutions."
of political
The wisdom (not tomention
observations

1976
veys

the more

American

recent

one

the

the prescience)

apparent

as

soon

of American

evolution

of Steindl's
as one

sur

capitalism.

in the latter half of the twentieth

accumulation
on

century,

becomes

confirmed

side,

of

many

Steindl's

suppositions regarding expansion in advanced industrial

states. On the other, it demonstrated both the unique and
abiding flexibility of capitalism in the face of contradic
tory

tendencies

tance

toward

of political

economists
temporary

to be

reveals

forces
In all

superfluous.

history

and

underutilization,

and social
the

conceptual

often
these

the

impor

thought

power

by
con

respects,
and

im

portance of what Steindl had to saywhen he first examined

the crisis of the 1930s. But it also reminds us of the
and human agency in
unyielding impacts of contingency
economic

"Flood

Mayfield,
Kentucky,
refugees."
Evans.
by Walker
(Courtesy

Photograph
Congress,

LC-USF34-008217-D.)

8 OAH Magazine of History

Fall 2001

1937.
February
of the Library of

performance

over

time.

World War II achieved in the United States, of course,

what the New Deal could not?economic
recovery. With
rate began
the start of war in Europe, the unemployment
to fall so that by the time of the Japanese naval offensive

THEEDITOR
BERNSTEIN/FROM

at Pearl Harbor, only 7 percent of the labor

force remained idle. American
entry into the
war

almost

brought

instantaneous

resolution

of the persistent economic difficulties of the

interwar years. Between
1939 andl944
the
national

product,

in current

measured

dollars,

increased by almost 125 percent, ultimately

rising to $212 billion by 1945.
Yet asWorld War II came to a close many
economists and businesspeople worried about
the possibility of a drop in the level of prosperity
But these apprehensions
and employment.
to
In the first year after
be
unwarranted.
proved
the war, gross national product fell less than
the

in government

reduction

postwar

;;'-%^^g|||:;^

spend

did not even reach 4 per

ing; unemployment
consumer
cent;
spending did not fall at all,
and eventually rose dramatically. Although
recessions
mid
year

occurred between
1945 and the
most
of
them
lasted
1970s,
only about a
or

less,

and

none

of

them

"A shanty
Rothstein.

ap

remotely

proached the severity of the Great Depres

sion. During
these three decades American
output steadily
to the Federal
increased with only minor setbacks. According
Reserve Board's index, manufacturing
production doubled be
tween 1945 and 1965, and tripled between 1945 and 1976.
is hardly surprising in
Such robust economic performance
wartime especially when conflict is global and, with few excep
ismost striking
tions, kept outside of national boundaries. What
about the American economic experience linked with World War
II was the enduring growth and prosperity of the postwar years.
and investment behavior played amajor part in this
Consumption
great prosperity of the late forties and fifties. As soon as Germany
in the
and Japan surrendered, private and foreign investment
United States rose quickly. On the domestic side, reconversion
was itself an investment stimulus. Modernization
and deferred
substantial
replacement projects required
deployments of funds.
Profound scarcities of consumer goods, the production of which
had been long postponed by wartime mobilization,
necessitated
efforts.
and
Even
fear
of
expansion
major retooling
high inflation
on
of
wartime
the
and
wage controls
brought
by
dismantling
price
move
to
firms
and
forward
the
date
of
ambitious
prompted many
investment
On
indi
the
both
long-term
projects.
foreign side,
viduals and governments were eager to find a refuge for capital that
had been in virtual hiding during the war. Along with a jump in
domestic
investment, therefore, a large capital inflow began in
late 1945 and early 1946.
Domestic

consumption

generous

shortages,
wages

of

refuse."

(Courtesy

was

the

second

major

and

rationing,
the war
economy,

controls,
contributed

growth in consumer spending at war's end. The

coupled
to

construction

and

Foreign

jump in disposable

In part

years.

postwar

sectors.

grew rapidly

exports
the

needs

of

devastated

in the
areas

market for the output of American

industry.
American
postwar prosperity and the benefits of world eco
nomic leadership continued throughout most of the 1950s. But
of

the prosperity

the decade,

while

robust

and

impressive,

never

theless weakened by 195 7. This set the stage for the arrival of a new
in Washington,
brand of economics
(and self-con
explicitly
imbued
with
the
of
doctrines
Keynesianism.
sciously)
to the
From the "New Frontier" policies of John F. Kennedy,
successor
"Great Society"
his
of
Johnson,
agenda
Lyndon
of a "New Federalism" by Richard
through the declaration
there

Nixon,

achieving

a dramatic

industrial

for American

could only be met by the one industrial base that had been nearly
untouched by war-related destruction. Explicit policy commit
ments to the rebuilding of allied and occupied territories, such as
the Marshall Plan in Europe, also served to increase the foreign

savings due
the

other

demand

immediate

(but not

with

by Arthur

Photograph

LC-USF33-003000-M1.)

income was bolstered by the rapid reduction in wartime surtaxes

and excises. And
the baby boom of the wartime generation
in high levels of demand for signifi
itself
expressed
economically
cant items like appliances, automobiles, and housing. G.I. Bill
benefits additionally served to increase the demand for housing
and such things as educational services, with associated impact on

of

component

1939.

Herrin,
Illinois, January
of the Library of Congress,

intervention

postwar growth. Bridled demand and high household

to wartime

built of

and

ensued
in

the

an
nation's

era

of

sustained

economic

all) of the "new" economists

simultaneously

inflation?has

more

acceptable
recently

central
life.

The

government
goal

of many

of the early 1960s?

levels of unemployment

shattered.

But

throughout

the sixties and much of the seventies (and for some even during
to secure
the eighties) the perceived obligation of government

OAH Magazine

of History

Fall 2001

THEEDITOR
BERNSTEIN/FROM

overall

economic

remained

one

century

was not

instability

of

more

the

important

economic

American

and

seriously questioned
of

changes

twentieth

history.

economic
American
specificity notwithstanding,
seems to
in
the
of
half
the
twentieth
latter
century
performance
in many respects with the general analytical -.
have conformed
propositions derived from interwar economics. The ability to
Historical

forestall

overcome

and/or

economic

toward

tendencies

tion has depended upon a varied set of circumstances,

and

a continuation

But

domestic.

of

a charmed

such

stagna

both global
existence

is

in
apparently no longer possible. Josef Steindl himself noted,
1976, that "the cheerful extroverted era of [postwar] growth has
come

apparently

reasons

end."

were

this

for

...

countries
energy

and...

in words

And,

of

reduction
in

increase

seem

today

tension

emergence
. . . ."

as

that the

tension

between

within

the

the

capitalist
raw material,

of environment,

the

problems

that

twenty years ago, he noted

"the

. . . the

superpowers

and

to an

as they did over

relevant

In the midst of a return to the unstable growth of earlier

of fiscal and
decades, an altogether reactionary (re)orientation
monetary policy has occurred. A resurgence of general equilib
to cyclical phenomena
rium approaches
has prompted
the
of

formupoignancy
strikingly

this

state

we

when

clear

on
Note
consideration

tend to obscure
for

challenge

the Great

are made
as a

Depression

on

both

of us who

teach

aggregate

of the event.

about

this

profound

data

that

Indeed, the
economic

crisis is to find substantive ways inwhich to link the economics of

the interwar years with the personal and social experience of its-.
It is for this reason that the inspired work of the
contemporaries.
contributors to this special issue of the OAH Magazine of History
should prove so useful to all of us in our work with students. In the-.
pages that follow, readers will find visual and textual examination
of

the many

in which

ways

Americans

endured,

understood,

and

ultimately overcame the burdens of the Great Depression. These

to
articles and lesson plans will assist us all in our determination
convey
interwar

to students
era

and

the
the

singular
remarkable

tion that lived through

nature

1972.
Houghton Mifflin,
Harris, Seymour. Saving American Capitalism: A Liberal Economic
Program. New York: Knopf, 1948.
Keynes, John Maynard. The General Theory of Employment, Inter
1964.
est, andMoney. New York: Harcourt, Brace andWorld,
in
Charles
Poor.
1929-1939.
The
World
Depression:
Kindleberger,
of California Press, 1973.
Berkeley: University
Kuznets, Simon. "Long Swings in the Growth of Population and
in Related Economic Variables." Proceedings of theAmerican
Philosophical Society 102 (1958): 25-52.
Lewis, W. Arthur. Economic Survey, 1919-1939. Philadelphia:
1950.
Blakiston,
Means, Gardiner C, and Adolf A. Berle. The Modem Corporation and
Private Property. New York: Harcourt, Brace andWorld,
1968.
Roose, Kenneth D. The Economics of Recession and Revival: An
Interpretation of 1937-1938. New Haven: Yale University
Press, 1954.

and

quantitative

the human dimensions

those

The StockMarket Crash And After. New York: Macmillan,

1930.
Galbraith, John Kenneth. The Great Crash, 1929. 3d ed. Boston:

problem.

this Issue: As this article amply demonstrates,

of the economic history of the Great Depression

focuses

necessarily

affairs

contemporary
upon

historical

and coherent

significant

of

reflect

Easterlin, Richard A. Population, Labor Force, and Long Swings in

Economic Growth: The American Experience, New York: Na
tional Bureau of Economic Research,
1968.
Fisher, Irving. Booms and Depressions: Some First Principles. New
York: Adelphi,
1932.

of the

economic

accomplishments

crisis
of

the

of the
genera

it.

Schumpeter, Joseph A. Business Cycles: A Theoretical, Historical,

and Statistical Analysis of the Capitalist Process. New York:
1939.
McGraw-Hill,
Slichter, Sumner. "The Downturn of 1937." Review of Economics
and Statistics 20 (1938): 103-15.
Steindl, Josef. Maturity and Stagnation in American Capitalism.
1945. Reprint, New York: Monthly Review Press, 1976.
In Problems of
in Capitalist Economies."
"On Maturity
Economic Dynamics and Planning: Essays inHonour ofMichal
Kalecki, 423-32. New York: Pergamon, 1966.
"Reflections

Government
Bibliography
Abramovitz, Moses. "TheNature and Significance of Kuznets Cycles."
Economic Development and Cultural Change 9 (1961): 225-48.
Bernstein, Michael A. The Great Depression: Delayed Recovery and
1929-J 939. New York: Cam
Economic Change inAmerica,
Press, 1987.
bridge University
Brockie, M. "Theories of the 1937-38 Crisis
Economic Journal 60 (1950): 292-310.
10 OAH Magazine

of History

Fall 2001

Michael
member

and Depression."

on

the

Present

State

of Economics."

Banca

Nazionale del Lavoro Quarterly Review 148 (1984): 3-14.

of Oligopoly." Journal
Sweezy, P. M. "Demand Under Conditions
Political
568-73.
Economy 47 (1939):
of
Valdimir P. World Agriculture and the Depression.
Timoshenko,
of Michigan
Ann Arbor: University
Press, 1933.
United States Department of Commerce. Historical Statistics of the
DC:
United States: Colonial Times to 1970. Washington,

A.

Bernstein

in economics

Printing Office,

is a professor
at the University

1975.

of history

and

of California,

associated
San Diego.

recent book is A Perilous Progress: Economists

America
(2001).
Purpose in Twentieth-Century

most

faculty
His

and Public