The Super Summary of World History (59 page)

Roosevelt’s interventionist policies created substantial monetary, regulatory, and economic chaos. This led to
increasing
uncertainty
in
the
business
world
and accordingly prolonged and deepened the depression. No one knew what was coming next, and new programs constantly came out of Washington that reduced profits and destroyed business flexibility. All these programs imposed massive additional administrative and legal requirements on business; consequently, predicting the future business environment became impossible. Those borrowing or investing large amounts of money need reliable business projections. If tomorrow brings more chaos, higher taxes, fewer markets, more regulation, and the like businesses cannot make reliable projections and avoid investing money or otherwise accepting risks. Fear of unexpected government moves can shut down business as effectively as enormous taxes.
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As a result,
private
investment
in
industry
fell to
zero
percent (that’s right—0%) through most of the depression, and in 1938 it was actually 800 billion
less
than zero. Investment from private sources went very negative after the crash.
[205]

Liberal economist and politicians roundly reject the classical economic theories supported above. They endorse Keynesian economics or outright socialism. (See:
FDR’s
Folly
, Powell, Jim, 2003, Three Rivers Press). Under their analysis of the Great Depression Hoover failed because he refused to do enough, but Roosevelt’s programs succeeded; however, they also contend Roosevelt’s success was tempered by a
lack
of spending. Keynesians argue that if Roosevelt had spent much more much sooner, like the government did in WWII, the Depression would have ended in two or three years (by 1936).

At least one factor going unanalyzed in the Great Depression is the impact of the great 1919 influenza pandemic. Falling populations can cause economic downturns, and the deaths of 100 million people worldwide could have contributed to the Great Depression. Over 500,000 may have died in the United States, 250,000 in Britain, 400,000 in France, and over 17 million in India. This all took place between 1918 and 1920, and the Great Depression arrived in 1929; thus, most will automatically believe there was no correlation. Still, the deaths of
100
million
people
(probably 5 percent of the world’s population) should have an economic impact. I know of no studies on this issue.

Economic Theories

There are at least six major economic theories floating around, and each made a difference in how governments approached the crisis.
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Here is a quick survey of the basic positions:

1.    
Capitalism
: is a system of private ownership of property, including the means of production, coupled with a small amount of government intervention in the economy. Capitalism does not aim for social justice. Unlike other economic ideas, capitalism’s aim has nothing to do with concepts of justice or equality. Capitalism recognizes human selfishness and claims it is good when harnessed correctly. It is a
classless
theory, where people make money by competing and not by government action. Economic control is by
private
market
competition,
where individuals or corporations compete against others to bring goods and services to the market desired by private citizens (they hope). This is a decentralized economic system where central planning is minimal. The markets are thought to regulate themselves. Regulation of business is the key form of government control under capitalism, but this regulation is to insure a “level playing field” and to protect the public against crime, but little else. This system was in use in America since its inception as a nation and was only de-railed by the Great Depression and the New Deal era. During the Great Depression, the USA passed many laws governing the economic life of the nation, but left the basic concepts of capitalism in place. In modern capitalist societies “welfare capitalism” has evolved, wherein the government provides safety nets for people who are out of work or otherwise unable to support themselves. Prior to the Great Depression the USA was, for decades, the world’s fastest growing and strongest economy.

2.    
Socialism
: is a system of government ownership of most businesses and central planning of the economy. It is also a system of social justice. Under socialist thinking, equal property distribution is justice which will uplift the lower classes and bring universal peace accompanied by the reconciliation of all peoples (no joke). In this summary we will only deal with the economics of socialism. Socialist think the community as a whole should own the means of production; however, as applied in Europe in the 1930s, it generally meant the government nominally controlled the largest businesses but required very high taxes and the redistribution of wealth through social welfare programs. Governments embracing socialism guarantee free or low cost medical care, housing, food and other essentials to the populous. England, France, and other European economies began turning to socialism after World War I. Modern socialism continues to stress the importance of full employment, generous benefits to laborers, and high taxes to support the educational, medical, and welfare aspects of society. Central planning forces the production of products the government deems desirable, or prevents the manufacture of products deemed undesirable. This utopian dream of universal peace is yet to be achieved.

3.    
Marxism
: was developed by Karl Marx and Friedrich Engels. Its aims include the liberation of workers from exploitation, coercion, and misery. The theory opines societies’ fundamental elements are determined by their methods of production. The method of production eventually decides the property relationships of society, and these property relationships determine everything else—including religion, politics, and classes of persons in that society, et al. In modern capitalist societies of the late 1800s, Marx and Engels believed history was reaching its climactic moment, as these societies would soon succumb to violent overthrow by the working classes. The proletariat (working classes) would establish the final society—one without classes—where each person worked and gave to others freely as their needs dictated. In this final classless society, ownership does not exist. Marx and Engels theorized the proletariat revolution was inevitable. This theory of an ultimate unavoidable utopian society eventually developed into Soviet style communism unlike anything envisioned by Marx. No nation has installed a utopian Marxist government, and no society ever managed anything like the utopia Marx and Engels imagined.

4.    
Communism
: is a philosophy flowing from Marxism requiring the vesting of
all
property and authority in the community at large (the state). Its aims are justice, freedom, and humanity. In pure Marxism, each gave according to his ability, while the wealth of society was given according to ones needs, and without intervention by state authority (it did not exist); however, all communist states allow government acquisition of all property and all authority (power), making the state all powerful. This results in an autocratic centrally planned society. The government controls all aspects of life (for the good of all—of course). Prior to Stalin, the political bureau of the communist party was the sole determiner of the “will of the people” according to the Constitution of the USSR. In the Stalinist USSR of the 1930s and to Stalin’s death in the 1950s, only Stalin determined the will of the people in spite of the USSR’s Constitution (what document ever stopped a murderer?). After Stalin, the Soviet leaders partially melted into the political bureau for collectivist decision making, but the real and final power always rested with the leader of the party. As an economic system it has failed many tests, including the Soviet Union, Red China, and North Korea.

5.    
Mercantilism
: an economic theory developed in the 1600s stressing the importance of international trade to acquire gold or silver; hence, shoring up a nation’s currency and economy. The ideal economy required importing raw materials at low prices and exporting finished goods at high prices, thereby attracting money (read, precious metals) into that nation’s economy. By maintaining a favorable balance of trade (exporting far more than importing), a nation would remain economically strong. Huge theoretical problems surfaced in the 1750s, because the Mercantilist theory assumed a fixed amount of trade; thus, attaining more trade for your nation required taking it from others. Later economists argued the size and strength of a nation’s economy determined its “wealth” not the amount of gold in its vaults. Economists also determined the amount of international trade was not fixed; thus, killing mercantilism as a theory. However, the reader should note that many nations in 2010 still operate on a quasi mercantilist theory by stressing the development of heavy industry, and adopting policies that make exports more important than imports (in the 1930s many nations were doing the same). Japan and China are the key modern examples—although they would deny using this theory. Both China and Japan stress the development of heavy manufacturing for export, and the import of low cost raw materials for manufacturing purposes.

6.    
Fascism:
is a political philosophy requiring individuals be subservient to the state, and controlling the state was a strong leader executing the desires of the people (Stalin took a shortcut, he just executed the people). Social justice is feigned by fascists, but it is not a central concern. It is highly nationalistic and glorifies war. This becomes an economic philosophy because heavy industry is subject to state control, and getting everyone to work is a major goal of this political ideology. The Fascist would not care about a bicycle shop, but they became very concerned about what the nation’s major industries were producing, and they would order the major industries to produce what was good for the expansionist Fascist state. Under the Italian form of fascism industries were organized by type, and a committee of government and industrial bosses ran each economic sector through these committees—although the government had the ultimate say. Modern corporatism is said to be a form of fascism. Germany was the premier Fascist state in the 1930s; however, Benito Mussolini had introduced fascism into Italy years before Hitler initiated it in Germany. It totally failed as an economic and political philosophy; however, it is not dead. Many nations actually practice fascism while calling it something else. Cuba under Castro is an example of a fascist state calling itself communist.

Note
the key distinctions between capitalism and, as a group, socialism, communism, and Marxism: Every one of capitalisms’ competitors stress social and economic justice. These philosophies stress the harm capitalism brings to workers through exploitation, economic oppression, and misery. To gain “justice” property owners in non-capitalist systems are separated from their money and property by the state. As a necessity, the three counter-capitalist philosophies emphasize the group is superior to the individual, otherwise the government cannot justify seizure of the capitalist’s property. Somehow, they think that once capitalism is dead something beautiful automatically takes its place. Once capitalism is gone human nature will change, all evil will be wrung out of the world, and a society without problems will bloom. In stressing the communal over the individual, the groups’ power increases to totally submerge individuals. The Greeks who faced down the Oriental tyrants of Persia would not have agreed with the communal standard. They argued, with word and sword, that the individual is superior to the group. Capitalism agrees with the ancient Greeks. So does Ayn Rand and others.

In
capitalist
societies several theories exist concerning the interface between the economy and government. One is minimal government interference or
laissez
faire
economics—sometimes called classical economics. This was advocated by
Adam
Smith
in
The
Wealth
of
Nations
, published in 1776, and was the dominate capitalist economic theory until the 1850’s, after which governments took more economic control. Classical economic theory held that an economy would recover from downturns automatically. During the Great Depression the theory came under attack.
John
Maynard
Keynes
submitted another theoretical approach to capitalism in 1936. Keynes argued classical
laissez
faire
economics failed in situations like the Great Depression. His theory explained that an economy would not correct itself automatically and could spiral down indefinitely if not stopped. The economy needed a kick, and that kick was to increase
aggregate
demand
by
increasing
government
spending
(or by lowering taxes). Keynes felt the
potential
total economic output could be measured against the
actual
output, and if there was a significant gap that gap could be bridged by government spending. Thus, like Hoover and Roosevelt, the theory tells the government to spend its way out of economic problems. In 2009 the United States under President Obama spent money in the trillions to escape an economic recession. Obama spent more in 2009 than all the previous administrations combined, building the national debt to 12.4 trillion. In 2010 it is obvious the strategy failed. A society cannot spend its way out of economic trouble.