On 2001-09-20 18:14, Brian Rush wrote:
Regarding the cure of the Depression and the postwar boom, I'm finding that a lot of posters are catching some of the essentials correctly, but failing to connect the dots.
First of all, to understand how the Depression was cured, it's important to understand what was wrong in the first place. And to understand that, you need to look at the right function of the economy, and that is NOT productivity or production or supply. It is demand.
There was absolutely nothing wrong with the U.S. economy's ability to produce goods and services during the Depression. The country was swamped with wealth that could not be distributed, goods that could not be sold. Why could they not be sold? Because people who wanted them didn't have the money to buy them. And why was that? Initially because jobs didn't pay enough, and later because jobs not only didn't pay enough but in large measure didn't exist.
During the war, on the other hand, there was a shortage of goods and services and no shortage of demand. Why? Because so much of the country's productivity was channeled into the war effort, at the same time as most people were employed at good wages. After the war, this accumulated buying power represented a huge demand for goods and services of all kinds, which prompted investment in consumer production, which kept employment high, which kept demand high, which kept profits high, which justified further investment -- and so on.
Cecil said:
the post-war boom had absolutely nothing to do w/ government intervention, but w/ 5 (or 16) years of pent-up demand - nothing more.
Not five or fifteen, but four: 1942-1945. Important to understand that "demand" in the technical economic sense does not mean merely the
desire to buy, but also the
ability to buy. For a consumer to represent "demand," he's got to have money. In the Depression, demand wasn't pent-up, it was extremely low, because so many people had no money.
Over the war years, yes, demand accumulated. But that in itself was due to government intervention, not, to be sure, done for that purpose, but nevertheless done to that effect.
As to my assertion that FDR economics had been discredited, take a look at his supreme court packing and lots of other stuff. Even you maintain that much of his program had to be repealed after the war.
Every leader makes mistakes. Most people would agree that Roosevelt's court-packing scheme was one of them. That doesn't mean FDR was "discredited."
What I said was that the wartime emergency regulations were repealed afterward. The key elements of the Second New Deal were Social Security and the Wagner Act. We still have those.
Kevin said:
With an enormous world market(subsidized in part by the Marshall Plan -- another government program) needing goods, I'm not certain a hands-off policy was even necessary to continue the boom. It was going to happen even if America was only nominally capitalist.
That "enormous world market" was almost
entirely subsidized by the Marshall Plan. Again, demand means money as well as need. The war-devastated world had little money. With productivity shattered, there was little of value to offer in exchange for America's relatively undamaged productivity output. So there was, in fact, no "enormous world market." Both supply and demand were American almost
in toto.
By the time world demand increased to make this statement no longer true, so had world production, to the point that the U.S. no longer held a monopoly. In fact, that's a tautology. "Beggar thy neighbor" is as pointless when the culprit is war as when it is a tarriff.
If we're looking for a generational reason for the post-war boom, I would put my money on the power wielded by the returning GI's.
I agree. But part of the reason for that is that the GIs tended to be skeptical of laissez-faire, as illustrated by your characterizing them as a union boss' dream.