Beyond Saving's blog
It has been awhile since I put this project on pause. For those who were not around when I started, this series is in response to claims made by numerous people that the Great Depression was caused by laissez-faire capitalism. My sole goal is to demonstrate that the economic conditions prior to the depression were not laissez-faire. In fact, during the 40 years leading up to the Great Depression the federal government was taking an increasingly large role in our economic system. The approach I am using is to simply summarize every major economic law passed from the year 1890 through the Great Depression and provide a little bit of background information. I am attempting to keep my personal biases out of it and simply stick to the facts of what was passed and to the extent I am able to provide quotes from people of that time period. Of course, I am biased and have strong opinions about all of these laws so I encourage anyone interested to follow the links and do some research for themselves. I think this is a period of history that many people don't really know a lot about and I believe it is better to know than to remain ignorant.
Last Friday I was out drinking and playing cards when I ended up in the same house as my ex-wife who I haven't seen in a month or so. At some point we were engaging in small talk and I asked how her side of the family was and how the in-laws dog was. My ex informed me that the dog has cancer and is going to die soon. Now I love this dog to death, I've known her since she was a puppy, watched her all the time and trained her to do most of the cool tricks she knows (she can balance a ball on her nose like a seal ). Needless to say, I was kind of blindsided on my night out having such terrible news thrown at me.
I called my ex the next morning and she offered to bring the dog to the park so I could see her one last time. I seriously considered it, but I asked her to get permission from her mom first because I was uncomfortable doing it behind her back. Today I got a call from my ex telling me that there is no way her mom will let me see the dog. WTF, I always knew she hated me from the day I started dating her daughter, but I didn't know that she hates me that much or is that spiteful. So much for that good old fashioned Catholic "love and forgiveness". Sometimes I hate people, maybe that is why I love dogs so much- they aren't people. /selfindulgentwhining
Shortly after the Panic of 1907 (that I discussed in part 7) Congress passed the Aldrich-Vreeland Act. The act was primarily the creation of Senator Nelson W. Aldrich who secretly brought together a small group of powerful bankers Henry Davison, A. Piatt Andrew, Benjamin Strong, Paul Warburg, and Frank Vanderlip. He sequestered them on Jekyll Island and they devised a rough plan. The Aldrich-Vreeland Act was presented to the Senate without anyone knowing how it was written a secret that was kept from the public until the 1930's. An account of the meeting can be found in a newspaper article written by Vanderlip, one of the attendees. The law was passed by a partisan vote and quickly signed into law by Roosevelt.
In 1906, two laws were passed that laid the groundwork for what would become the Food & Drug Administration. There was a book written by Upton Sinclair a progressive/socialist muckraker that was intended to show the plight of poor immigrants in the US called "The Jungle". The book became quite popular, but much to Sinclair's surprise the public reaction to it pretty much ignored his economic points. Instead, the focus was on the vivid descriptions of unsanitary conditions in meat packing houses.
President Roosevelt was reportedly suspicious of Sinclair but decided to dispatch two people he trusted, Charles P. Neil and James Reynolds, to inspect meat packing plants in Chicago. The Neil-Reynolds report found that the worst of Sinclair's accusations were complete falsehoods (Sinclair had claimed that people fell into vats and were ground up as burger while no one did anything, rat infestations etc.). However, they did report on various unsanitary practices such as failure to regularly clean certain rooms. A transcript of their testimony to congress is available here.
In the mid to late 1800's railroads were the cornerstone of the US economic boom since they quickly became the dominant form of transportation. Naturally, a good portion of the wealthiest Americans were men who owned railroads, since no matter what sector of the economy was growing products, people and raw materials had to be shipped from one side of the country to the other. By the end of the century, small railroads were failing or being bought up by the larger railroads and the industry was in the process of consolidating. This left many parts of rural America with a single railroad providing service either because they didn't have enough to ship to make two railroads profitable or all the railroads in the area were owned by a single person/corporation.
It was common practice for large shippers like Rockefeller's Standard Oil to get discounts well below the normal freight rates say a small farmer would get. I'm sure you can see why a railroad would be willing to accept a much smaller profit per car from a company that filled a predictable and large number of trains on a daily basis and the farmer who purchased a few cars irregularly. Most railroads also charged more for short distance hauls than for long distance hauls, which many small/regional businesses saw as discriminatory towards them. While Rockefeller had more money to negotiate with, the farmers had more votes and was a pretty powerful constituency, demand for railroad regulation became prevalent by the end of the 1800's.
Post Civil War America created the perfect conditions for the development of massive corporations and the emergence of a few men as the captains of industry or the more derogatory term robber barons. This is due to a variety of factors- labor became extremely cheap with a multitude of former slaves now faced with the unenviable position of having to provide for themselves and their families with no education, facing extreme racism and absolutely no significant personal property. Many of them headed north in hopes of getting jobs in factories or west in hopes of getting jobs building railroads and were willing to work far cheaper than whites. Add in large populations of Chinese were immigrating in due to economic problems in China and soldiers returning from war looking for new work and you have the ingredients of a depressed labor market.
Another key factor was the railroads which had expanded dramatically to assist the war efforts of both sides leaving a new, faster and cheaper form of transportation throughout most of the east and was ready to expand west. Taking advantage of the cheap labor railroads quickly expanded, both privately and through government projects making it possible to exploit the natural resources in large areas of the midwest and eventually the rockies that were previously too far away to be useful. Areas that once took months to reach by wagon were could now be reached in days. Led by the railroads, virtually every industry experienced a boom; especially agriculture, steel, coal and oil.
With the death of President McKinley on September 14th, 1901 Theodore Roosevelt was sworn in at only 42 years old- he remains the youngest president we have ever had. President Roosevelt was very ambitious and had the perfect conditions to push through much of his agenda. He took over after the death of a popular president in an economy that was booming and both the House and Senate were held by comfortable republican majorities. President Theodore Roosevelt was able to effectively spend his political capital to promote a variety of progressive policies. He promoted his policies under the moniker of the "Square Deal" claiming that they did favor any particular group but were fair to all.
I want to start by discussing two massive public works projects that were initiated early in Roosevelt's presidency. The Newlands Reclamation Act and the Isthmian Canal Act (what we now call the Panama Canal).
The Newlands Reclamation Act was a law that federalized irrigation projects in the desert areas of the west. It gave substantial control to the Secretary of the Interior to irrigate public lands (most of the west was publicly owned at the time) and then sell those lands to people with the requirement that at least half of the land is farmed. The proceeds from the sale would then be spent on more irrigation projects.
The election of 1896 centered on economics issues. If you remember from my previous post, the country was in a very deep recession since the panic of 1893. Unemployment was still in the double digits, which metal to base the currency on was still a hot political issue and there was a whole lot of uncertainty. McKinley ran on a platform supporting protective tariffs and the gold standard. While McKinley himself was not a hardliner on the gold standard, it was a position he was forced to take for political reasons as his democratic opponent was William Jennings Bryan a very prominent silverite.
I have been a little remiss in discussing tariffs because quite frankly I find the subject boring. But arguments over tariffs were as important at that time as the metalism arguments. Tariffs are taxes on imports and there was a large "protectionist" movement that was mostly fueled by industrial tycoons. Protectionists supported high tariffs which would make it more difficult for foreign companies to offer competitive prices and therefore encourage people to buy domestically. Obviously, domestic industry leaders liked this because it cut out a competitor. Large domestic trusts like the sugar trust that held 90%+ of the domestic production were especially enthusiastic about pursuing high tariffs.
In 1894, the Democratic Party was under significant pressure to reduce the tariffs imposed by the 1890 McKinley Tariff. As I discussed in my previous blog the economy was in recession and the average Americans purchasing power had dropped. Government revenue had been significantly reduced by the recession.
However, it was difficult to build a consensus between the House and the Senate- a bill that started as significant tariff cuts was diluted by over 600 amendments in the Senate. The result was the Wilson-Gorman Tariff, a hodgepodge of tariff cuts and tariff increases that became law without the signature of President Cleveland.
For purposes of discussion here, the most important aspect of the Wilson-Gorman Tariff was that for the first time an income tax was imposed during peacetime. The tax consisted of 2% on all income over $4,000 for individuals and corporations.
This wasn’t the first income tax imposed in the US. The first was the Civil War income tax imposed in 1861 which was a progressive tax with rates ranging from 3%-10%. It was passed along with a slough of other taxes as an emergency measure. After the war, the income tax was gradually reduced and eventually eliminated in 1872 along with most of the other taxes imposed during the war.
A serious economic issue back in the late 1800's was which metal should be used to back up the currency. In 1873, the US adopted gold as the official legal tender. Silver was still used in small coins, but was no longer legal tender for large debts.
Back in those days, the value of US currency was tied directly to gold. You could bring gold in to a mint and trade it for its equivalent in gold coins minus a small fee for seignorage. When the country adopted the gold standard, naturally certain sectors of the economy were upset. It created a large divide across party lines with a large group arguing for "free silver".
The "silverites" as they were called, argued that having the value of the dollar pegged to silver was better than gold because silver was more inflationary, while gold was monopolized by the industry tycoons. They supported silver over gold, but many were willing to accept bimetallism; the use of both metals.
The 1870's and 1880's saw a lot of expansion into the western US as railroads expanded their lines and increased the number of trains running. This created a boom for both the farmers and railroads. Farmers in the western midwest were now able to export grains (mostly wheat) overseas and railroads made good profits transporting the grains to ports. Another result of the railroads western expansion was the discovery of silver. Lots of silver.