Throughout history, economics have changed drastically. The Roaring 20’s and Great Depression defined our country, The United States, and impacted everyone differently. The Roaring 20’s, otherwise known as the Age of Intolerance, was an age of social and political change. It was only the beginning of many inventions that sent American into the modern age. America was very prosperous during the 1920’s, but Europe was still feeling the devastation from World War I and fell into an economic decline. America was considered the world’s banker, and Europe was defaulting on their loans and participating less in consumption of American goods.
This was the beginning of the Great Depression that soon spread. During The Great Depression, a period that lasted from 1929 to 1939, many of the upper class families felt no hardships at all, while others suffered drastically with unemployment sky-rocketing, an intense loss of income, and other family-destroying factors. Looking closer, one may observe the factors of who and what influenced both The Roaring 20’s and The Great Depression and how different the two ages were from an economic viewpoint. In 1919, Woodrow Wilson was the President of the United States.
WWI had just ended and Americans nationwide were looking forward to peace and security, remaining hopeful for the future. President Wilson was in office from the years 1913 to 1921. Receipts for spending were drastically different from the beginning of his term to the end. In 1913, receipts, which are taxes brought into the United States Treasury, were at $714 million and continuously rose over the years, ending at $6,649 million in 1920. Outlays, an expense, began at $715 million in 1913 and ended at an astounding $6,358 million. This meant that there was a 789% increase in spending from 1913 to 1920.
Prior to The Great Depression, the United States government had no fiscal policy in place. J. Bradford De Long (1998) explains, “The government did not attempt to tune its deficit or surplus to achieve the goal of full employment or low inflation. This is not to say that the federal budget was typically in balance. ” (p. 67). During wartime, the federal government would borrow extremely large sums of money, leaving post-war (prior to World War II) ending with total federal debt equaling only a fraction of a year’s national product. Fiscal policy prior to The Great Depression was to just borrow what was available.
Due to having no fiscal policy, unemployment was 11. 7% and inflation was at 17%. Aside from that, the United States Revenue Act of 1913, otherwise known as the Tariff Act was signed into law by President Wilson. 1913 was also the year the Federal Reserve gained authorization by congress, the senate, and the president. The top tax rate in 1913 was 73% for regular income and 73% for capital gains. President Wilson also came into office with little to no knowledge about foreign affairs or foreign policy but instead of basing the policy on materialism, he wanted it to have to do with morals.
In his Fourteen Points plan, he stated that there should be freedom of the seas at all times and free trade worldwide. At the end of 1919, leading into 1920, there was a $291 million deficit. In 1921, once President Wilson left office and President Warren Harding and Vice President Calvin Coolidge entered office, things began to change again. President Harding’s term would only last about three years, due to a stroke at age 57. President Harding promised a return to normalcy after suffering the many hardships of WWI and was very appealing to Americans.
One accomplishment of President Harding was the establishment of the Bureau of the Budget, which placed formal regulations and restrictions on government funds spending. President Harding also strongly opposed the Fourteen Points plan, a list of principles to be used for peace negotiations to end WWI, which was established by President Wilson. While President Harding was in office, the Fordney-McCumber Tariff of 1922 was passed, raising American tariffs on imported goods. This tariff would protect factories and farms and President Harding highly praised this.
The Fordney-McCumber Tariff also raised rates on manufactured goods to the highest they had ever been to that date. At the end of President Harding’s presidential term, there was a $713 million surplus. After Harding had died, Calvin Coolidge succeeded him and won the election of 1924. President Coolidge would remain in office until 1929. He was described as being very disengaged and taciturn. exhibiting a ferocious temper. President Coolidge believed that the less government, the better, which explains his absence in presidential responsibilities.
While the pair were in office, receipts went from $5,571 million in 1921 to $3,127 million at the end of Coolidge’s term in 1929. Looking closer, there was a 19% decrease in spending each year leading up to the Great Depression. In 1921, outlays were at $5,062 million and decreased to $3,127 million, resulting in a -38% reduction in federal spending from 1921 to 1929. That is about 4% per year, with the most cuts coming from the first two years. Unemployment reduced from 11. 7% to 4. 8%. Inflation followed, reducing from 17% to -0. 6%. Taxes were cut from 73% to 43. % and the Federal Reserve “tightened” the monetary policy, meaning that the interest rates were increased. A raised interest rate is considered to be good but is not what is taught in history textbooks. “Tightening” the monetary policy helps to manage overall economic growth. Tight monetary policies are also helpful to reduce the effects of inflation and the amounts of credit. Tax rates had decreased from 73% for regular income in 1919 to 24% in 1929 and 73% for capital gains in 1919 to 12. 5% in 1929. Still with no fiscal policy in place, the government was continuing to borrow what it could.
At the end of President Coolidge’s term, there was a $734 million surplus. President Coolidge was in office during the Roaring Twenties, which was a period of prosperous economic activity. He is said to have caused somewhat contributed to the Great Depression by doing nothing to stop it and pursuing policies that made it unavoidable. He also decided not to remain in office for a second term; people have speculated he dipped out of office in order to avoid what was coming. Herbert Hoover, who initially served as secretary of commerce under former Presidents Harding and Coolidge, won the election of 1929.
President Hoover promised to bring continuous peace and prosperity to the United States in the same fashion as the Roaring 20’s did. He claimed that he had no fears for the future of the country. In October, only seven months after taking office, there was a reckless drop in the value of the United States stock market, which cued the beginning of the Great Depression. Millions of Americans nationwide lost their jobs, homes, and life savings. The unemployment rate sky-rocketed to 24. 9%, which is perceived as an economic disaster. Inflation was at -5. 1% and people were waiting in bread lines for food.
President Hoover did not intervene during the crisis, believing that the government should only play a minimal role, otherwise, it would pose a threat to individualism and capitalism. He also believed that assistance should be provided locally and voluntarily, instead of nationally or by the government. President Hoover continued to veto many bills that would have aided Americans that were struggling, and for these reasons he was considered to be heartless and unaffected by the suffering of millions of Americans. This was due to his belief in Laissez-Faire, meaning “hands off” on government regulation.
Although he appeared to be Laissez-Faire and history books portray him as such, his spending and tax policies support otherwise. Beginning in 1929, receipts were $3,862 million and later decreased to $1,997 million in 1933. Outlays began at 3,127 million in $1929 and rose to $4,598 million in 1933. This translated to a 47% increase in spending; about 12% per year. Taxes also increased from 25% to 65% in 1932. These high tax rates were due to the SmootHawley Tariff Act of 1930, which raised United States tariffs on over 20,000 imported goods to record levels.
According to the tax tables, it seems that President Hoover was more in agreement with Franklin Delano Roosevelt, as they both continued to raise the tax rates. At the end of President Hoover’s presidential term in 1933, there was a deficit of $2. 6 billion. During this time, the monetary policy was “loose”, inducing bailouts and low interest rates. President Hoover’s initial response to the stock market crash was to balance the budget. Ironically, he did the opposite. Inheriting a large budget surplus, Hoover turned it into one of the largest deficits i American history.
Nearing the end of his term in 1932, Hoover was becoming increasingly unpopular due to his lack of adhering to responsibilities while in office. President Hoover also believed the Depression to be partly caused by people who were no longer spending or investing out of fear. When it came time for the election, Franklin Delano Roosevelt beat him by a landslide. In 1933, Franklin Delano Roosevelt stepped into office. When President Roosevelt took office, the United States was in turmoil. Nearly 25% of the labor force was unemployed and millions of people had lost their homes.
Only days before and lasting into President Roosevelt’s first few days as President, customers were frantically withdrawing large sums of money out of banks. This caused a bank panic, otherwise known as the Banking Crisis of 1933. President Roosevelt had decided that a nation-wide bank holiday was to be declared, shutting down the banks for nearly one week in the month of March of 1933. The bank holiday resulted in a period of dire economic stress. In 1933, receipts were at $1,997 million. President Roosevelt blamed the economic crisis on the self-interest basis of capitalism.
Soon after, he began his efforts into relief, recovery and reform for the United States economy. President Roosevelt established the Civilian Conservation Corps (CCC) to combat unemployment, which hired 250,000 young men to work on rural projects. Also aiding with agricultural relief, President Roosevelt established the Agricultural Adjustment Administration (AAA), which forced higher prices for merchandise by paying farmers. He also exhibited many other accomplishments, such as establishing a federal minimum wage, the NIRA, and overall efforts into economic recovery.
This recovery was brought on by pump-priming, or stimulating the economy during a recession by lowering interest rates and tax rates, and through government spending. Government spending rose from 8% of GNP in 1932 to 10. 2% of GNP in 1936, or 98. 8% from 1933 to 1939. That translates to about 16% per year. Once President Roosevelt took office, unemployment fell from 25% to 17% in 1939. Receipts were also increasing and concluded at $6,295 million in 1939 from only $1,997 million. Inflation got to -1. 4%. Taxes had increased from 63% to 79%.
The top tax rate in 1939 was 79% for regular income and 30% for capital gains, compared to what it was in 1929. With a closer look, corporate taxes were raised between 1936 and 1937. President Roosevelt attempted to balance the budget but could not find politically viable policies to do so. When he came to the realization that he could not balance the budget with all the debt the country was in, President Roosevelt shifted to Keynesianism developed by John Maynard Keynes. Keynes was finally implementing fiscal policy into the economy, which (at this time) promoted deficit spending to induce economic recovery during a national fiscal crisis.
President Roosevelt was supporting deficit spending during this time. It is also to be noted that the monetary policy was again, “loose”, meaning that money supply was expanding and becoming readily available to citizens to promote economic growth. At the end of 1939, there was a $2. 85 million deficit, leading into WWII. Looking back over time, one can definitely see the many economic differences between the two time periods. The Roaring Twenties and the Great Depression had many different policies, enabling them to prosper and later, die down.
Using unemployment and inflation as our guide, we see that during the Roaring Twenties, unemployment began at a rate of 11. 7% and rose to a maximum of 4. 8% in 1929. Throughout 1929-1939, unemployment was already at an economically disastrous rate of 24. 9%, only to end at 17% in 1939. It is very apparent that the policies, both monetary and fiscal, of the years 1919-1929 were much more effective than the policies of the years 1929-1939. With no fiscal policy in place, the Roaring Twenties seemed to have been thriving and by having a “tight” monetary policy, the economy appeared to be a lot more beneficial and effective.
