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A Reassessment of Investment Failure in the Interwar American Economy

Published online by Cambridge University Press:  03 March 2009

Michael A. Bernstein
Michael A. Bernstein
Affiliation:
Assistant Professor of History at Princeton University
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Abstract

A radical shift in the industrial composition of investment and final demand played an important role in delaying a complete recovery from the trough of 1932. Under the conditions of technological discovery prevailing in the 1930s, this shift in the composition of demand made full employment virtually impossible to achieve as recovery from the crash got under way. A complete recovery required a mass of interrelated new techniques and human and physical capital which, in the timid financial environment prevailing after 1929 (and given the uncertainties of the New Deal), could not be organized on the necessary scale by private investment markets. These findings pose a new agenda for research on the political economy of the New Deal and on the economic history of the post-World War II era.

Type
Papers Presented at the Forty-Third Annual Meeting of the Economic History Association
Information
The Journal of Economic History , Volume 44 , Issue 2 , June 1984 , pp. 479 - 488
Copyright
Copyright © The Economic History Association 1984

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References

1 I cannot give an exhaustive list of the literature to which I allude here. Some examples are Friedman, Milton, Schwartz, Anna, A Monetary History of the United States: 1867–1960 (Princeton, 1963);Google ScholarHansen, Alvin H., Full Recovery or Stagnation? (New York, 1941);Google Scholar and Lucas, R. E. and Rapping, L. A., “Unemployment in the Great Depression: Is There a Full Explanation?” Journal of Political Economy, 80 (01/02, 1972), 186–91.CrossRefGoogle Scholar

2 I am using Lebergott's data. I believe they remain the most appropriate. See Lebergott, Stanley, Manpower in Economic Growth: The American Record Since 1800 (New York, 1964);Google Scholar also cf. Darby, M. R., “Three-and-a-Half Million U.S. Employees Have Been Mislaid: Or, an Explanation of Unemployment, 1934–1941,” Journal of Political Economy, 43 (06 1983), 487–93.Google Scholar

3 See, for example, Zevin, R. B., “The Economics of Normalcy,” this Journal, 42 (03. 1982), 43–52;Google ScholarMishkin, F. S., “The Household Balance Sheet and the Great Depression,” this Journal, 38 (12. 1978), 918–37;Google Scholar and Bloch, B. and Pilgrim, J., “A Reappraisal of Some Factors Associated with fluctuations in the U. S. in the Interwar Period,” Southern Economic Journal, 39 (01. 1973), 327–44.CrossRefGoogle Scholar

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5 This is not to suggest that political and international barriers to deficit spending and easy money should be ignored.Google Scholar

6 See Hansen, Full Recovery or Stagnation?, pp. 274–82;Google Scholar and Steindl, Joseph, Maturity and Stagnation in American Capitalism (New York, 1976), p. 160.Google Scholar

7 See Bernstein, Michael A., Long-Term Economic Growth and the Problem of Recovery in American Manufacturing: A Study of the Great Depression in the United States, 1929–1939, unpublished Ph.D. dissertation (Yale University, 1982), Chs. 3–4.Google Scholar

8 This evidence is compiled and reported in Dewhurst, J. Frederic and Associates, America's Needs and Resources (New York, 1947), Appendix 21. The data were deflated to 1967 dollars before the percentage calculations were made.Google Scholar

9 See Bernstein, M. A., “The Response of American Manufacturing Industries to the Great Depression,” unpublished paper (Princeton University, 1983).Google Scholar

10 See Dewhurst, J. Frederic and Associates, America's Needs and Resources, Table 27 and Appendix 7; and U. S. Department of Commerce, Survey of Current Business (May 1957),Google Scholar as reported in Henderson, John P., Changes in the Industrial Distribution of Employment: 1919–59, University of Illinois, Bureau of Economic and Business Research, Bulletin 87 (1961).Google Scholar

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14 See “What Business Thinks,” Fortune, 20 (10 1939), 52ff;Google Scholar and “The Third Fortune Forum of Executive Opinion,” Fortune, 22 (12 1940), 103ff.Google Scholar

15 See Galambos, Louis, Competition and Cooperation: The Emergence of a National Trade Association (Baltimore, 1966), p. 160.Google Scholar

16 See, for example, the classic study by Baran, Paul A. and Sweezy, Paul M., Monopoly Capital (New York, 1966).Google Scholar

17 Some reflections on the disruptive impact of shifts in industrial life cycles are offered in Abramovitz, M., “Welfare Quandaries and Productivity Concerns,” American Economic Review, 71 (03. 1981), 1–17.Google Scholar

18 This intriguing fact was unearthed by Christopher Barrett, a candidate for the A. B. degree in the Department of History, Princeton University, in the course of his research on the nineteenth– century history of Trenton, New Jersey.Google Scholar

19 See Furnas, J. C., “Ford's Leftover Idea,” Letter to the Editor, New York Times (Feb. 16, 1983), A-30.Google Scholar

20 See Broude, Henry W., Steel Decisions and the National Economy (New Haven, 1963), Ch. 5.Google Scholar