The Role of the Government in Reducing Monopoly Power Essay


Choose one of two prompts and write a solid essay:
Option 1: Many have pointed to the Great Depression as strong evidence that market 
economies, if left on their own, will sometimes get stuck in periods of low growth and high 
unemployment. Others have claimed that the Great Depression was primarily a policy failure 
and that government attempts to fix business cycle downturns only delay the economy’s 
natural recovery. To what extent do you think the above viewpoints are valid? Was the Great 
Depression primarily a failure of markets or a failure of government? What does the Great 
Depression teach us about the role of government in dealing with business cycles? 
Option 2: Most economists agree that competition between firms in general produces 
outcomes that are beneficial for consumers. However, profit maximizing firms have incentive to 
drive out competitors and increase their market power to drive up prices. Should governments 
work to reduce monopoly power and push industries toward perfect competition? To what 
extent has United States history demonstrated the need for government action to reduce firms 
market power? 
1. Take a stand – your thesis statement must clearly comment on your view of government’s 
role in the economy in either of the two applications above. You do not have to strongly 
land on one side or the other. For example, you can argue that government has a role in 
responding to business cycles but the specific policies in the New Deal were not well 
designed or that the fiscal policy is not necessary but monetary policy is, etc. (these are 
just a couple examples). Most importantly, you must have a consistent position that you 
argue throughout the essay 
2. Your essay must demonstrate understanding of both sides of the issue and contextualize 
the debate both historically and theoretically. Although you need to argue your own point of 
view, it should also be clear that you understand arguments of people who disagree with 
3. You should use some of the concepts and sources we have talked about in class, but your 
essay must reference at least two sources other than those cited in the slides or 
posted on CCLE. For this essay, pure data sources will not count towards the two 
(although can definitely still be used as additional evidence for your argument). I want to 
make sure you do some research to see what some other people have thought about these 
4. For either question, stick to historical evidence as much as possible. For example, in the 
Great Depression question do not talk about the Great Recession or Covid and in the 
market power question do not talk about Google and Amazon. You can (and should) talk 
about more general theoretical justifications in either case, but I want the focus of the 
examples in the essay to be primarily on historical events in the United States. Try to focus 
on examples before 1950. 
 Here are some sources that should help:…………    (the second section of this “II”) talks about how competition promotes dynamic markets and why it is important which is key to the prompt

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Early American Capitalism
Chris Surro
Goal for this Class
What Did the Early US Economy Look Like?
How did the US go from colony to economic power?
Hamilton vs Je erson
Capitalism and the Constitution
The economic theory of constitutions
How does the US Constitution contribute to or deter a capitalist,
market based society?
The U.S. Cotton Industry
Eli Whitney and the cotton gin
Goal for this Class
A Note on Sources
I will try to expand on the material in Capitalism in America rather
than just repeating it
Other sources I discuss will be posted on Bruin Learn as optional
Another recommended book on the history of capitalism is
Americana by Bhu Srinivasan, which I will draw on in some parts
More detailed source: Cambridge Economic History of the United
Early American Economy
Early Settlements
Some of the rst ventures into America were funded by the English
Virginia Company
O ered settlers a share in the pro ts of the company in return for
working the land
Would receive the land after a period of time
Known as “indentured servitude”
Early colonists struggled with famine and disease
The south came to rely on staple crops while north more diversi ed
Early American Economy
Con icts with the British
The Stamp Act says we shall have no commerce, make no exchange of
property with each other, nor recover debts; we shall neither marry nor make
our wills, unless we pay such and such sums, and thus it is intended to extort
our money from us, or ruin by the consequences of refusing to pay it
– Benjamin Franklin
American revolution in large part driven by opposition to British
interference in American markets
British Mercantilism
Navigation Acts (1651, 1660, 1663)
Restricted trade from countries other than GB to the colonies
Early American Economy
The Success of Colonial America
After early struggles, American economy thrived
By 1776 – Highest output per person
Low restrictions on competition
Constitution limited government intervention
Still a Subsistence Economy
No banks until 1780s
90% agriculture
Poor transportation (primarily by river) and communication
No centralized economic statistics until 1790 census
Early American Economy
The Economy After the War
A “Culture of Growth”
Protestantism and the Enlightenment
Value of hard work and reason
“any man’s son may become the equal of any other man’s son”
Territorial expansion
Population increased from 3.9 million (1790) to 31.5 million (1860)
Most patents per head in 1810
Annual RGDP Growth rate: 3.7% from 1800-1850
Early American Economy
Early American Economy
The US Constitution
Articles of Confederation placed little power in federal government
1789: Current US constitution signed and Washington appointed
as rst US president
What e ect does the US constitution have on the economy?
Constitutions and Capitalism
The Theory of Constitutional Law
In many ways, a constitution is not
Sets out a selection of laws we do not
want to be directly voted on
James Buchanan
Economics Nobel Prize winner 1986
Worked on the theory of constitutions
The “Unanimity Rule”
Constitutions and Capitalism
Imagine an apartment complex is voting on three proposals
1. Allowing dogs in the apartment
2. Building a pool
3. Increasing rent in return for free parking
Assume people who support each proposal get 3 units of utility
from their preferred policy being passed and lose 1 utility for each
proposal they don’t want passed
Assume 60 people live in the apartment
20 want dogs, 20 pool, 20 parking (no overlap between groups)
Constitutions and Capitalism
Majority Rule
None of the policies pass (each gets 20/60 voting yes)
What if the residents agreed on a constitution including all 3
By passing all three policies together, each group is better o
+3 utility from the proposal they like, -2 from the 2 they don’t
The Constitution passes unanimously even though each proposal
individually fails
Constitutions and Capitalism
Were Buchanan’s ideas just a front to protect the elites?
Recent arguments have claimed Buchanan and his followers push
to constrain democracy so that they can pass their preferred
Nancy MacLean: Democracy in Chains (2017)
Later in the class we will return to similar themes when we talk
about “neoliberalism”
See the optional reading: James M. Buchanan, The Architect of the
Radical Right
Constitutions and Capitalism
The US Constitution
The constitution does not impose a capitalist system
But it does include provisions that help push the economy in a
market direction
(See the optional reading “The Constitution as an Economic
Document – this section draws from that reading)
Basic Principles of the Constitution
Separation of Powers
Compared to other countries, strong separation of executive,
legislative, judicial powers
Considerable range for states to create their own sets of laws
Constitutions and Capitalism
The Dormant Commerce Clause
The Constitution gives the federal government the right to regulate
interstate commerce
Interpreted by the courts to mean that states cannot discriminate
goods produced in other states
Creates free trade across states in the union
The Bill of Rights
First amendment: free speech and press
Fourth amendment: Protection against unreasonable search and
Fifth amendment: Protection of life, liberty, and property
Constitutions and Capitalism
Is the Constitution Good for Growth?
a government strong enough to maintain law and order, but too
weak to launch and implement ambitious schemes of economic
regulation or to engage in extensive redistribution, is probably the
optimal government for economic growth.
– Posner (1988)
Living or Dead Constitution
Living constitution: the constitution must be constantly
reinterpreted to re ect the current environment
Dead constitution (originalism): The constitution should be
interpreted based on the way it was originally intended
Early American Economy
The Role of Patents
Greenspan and Woolridge claim protection of intellectual property
played a role in the US dominance
How much do patents matter for innovation?
Evidence is mixed
Petra Moser: Evidence from World Fairs
Examines inventions across countries with di erent levels of patent
Finds that countries without patents still produce high quality
Countries with weaker patents produce mainly in industries where
secrecy is easier
Early American Economy
The Great Exhibition (1851)
Thomas Je erson
Alexander Hamilton
3rd President of the United States
1st Secretary of the Treasury
Je erson vs Hamilton
Je erson vs Hamilton
Two Views of US Society
Je erson
Decentralized power
Agrarian republic of yeoman farmers
Commercial republic
Focus on urban development, manufacturing, trade
Another key debate between the two was the role of a central bank
The US Banking System
Early Central Banks
First Bank of the United States (1791-1811)
Established by Hamilton to help pay war debt
Aimed to create a common currency for the US
Strongly opposed by Je erson and Madison
Second Bank of the United States (1816-1836)
Signed into law by Madison
Ended by Andrew Jackson
The US Banking System
The Free Banking Era (1837-1863)
Banks totally free to issue their own currency
Minimal regulations
Must use government bonds as collateral
No branches
Exchange rates uctuated, merchants kept reports with values
Private clearinghouses developed to help manage exchange
The US Banking System
The Conventional View of Free Banking
Complete chaos
Gold and silver ew about the country with the celerity of magic;
its sound was heard in the depths of the forest: yet like the wind
one knew not whence it came or whither it was going
Wildcat banks
Named for being established in places only wildcats could nd
Issued bank notes, never redeemed them for gold or silver
The US Banking System
A More Positive View
More recent research has advanced the view that the free banking
era worked reasonably well
Hugh Rocko (1974)
Wildcat banking had small costs in most states
Rolnick and Weber (1983)
Falling asset prices explain most of instability in the period
Requiring banks to hold government bonds is main issue
Gorton (1999)
Branching laws and insurance made banks more risky
Controlling for these factors, free banks have similar failure rate
The US Banking System
The End of Free Banking
National Bank Act (1863)
Required banks to receive a charter from the government
Ended the free banking era
Bank Panics
Regardless of cause, bank panics were frequent
1819, 1837, 1857, 1873, 1884, 1893, 1907
1913: The creation of the Federal Reserve
We will return to this topic later in the course
North vs South
A Growing Divergence
Slave states in the south stuck to farming as primary industry
Northern states industrialized
93% of patents came from the free states
Gap in real GDP widened as South doubled down on slavery
Invention of the cotton gin
Eli Whitney (1793)
Drastically improved cotton productivity
Enabled the South to survive primarily producing cotton
The Cotton Gin
Eli Whitney
Born in Massachusetts in 1765
Graduated from Yale with a degree in law
Ended up becoming a tutor on a South
Carolina plantation
The Cotton Gin
Separating cotton seed a di cult
Whitney invented a machine that reduced
the amount of labor needed by 50 times
The Cotton Gin
Whitney’s Motivation
How advantageous this business will eventually prove to me, I cannot say. It is
generally said by those who know anything about it, that I shall make a fortune by
it…I am now so sure of success that ten thousand dollars, if I saw the money
counted out to me, would not tempt me to give up my right and relinquish the
– Eli Whitney
From Invention to Commercialization
Whitney and business partner Phineas Miller struggled to pro t from
their product
Tried to monopolize production of cotton gin, but di cult to prevent
Eventually convinced the state to pass an act compensating the two in
return for free use of the machine throughout the state
The Impact of Slavery
Capitalism and Slavery
Is slavery a natural extension of capitalist exploitation?
Marx argued that capitalism would result in capitalists earning
more of the surplus while workers get only enough to survive
The New York Times 1619 Project
Published August 2019
Argued that much of the US economic system originates in slavery
Traces the development of inequality and even the 2008 nancial
crisis to practices that started in the slavery era
Remains controversial
The Impact of Slavery
Alternative View
The United States grew in spite of slavery rather than because of it
Slavery made a few landowners rich, but did little for the economy
as a whole
Cotton only made up 5% of US economy in 1860
The US was moving to an industrial economy
Could it have moved even faster without slavery?
See article by Karl Smith in optional readings
The Impact of Slavery
The US Economy After Slavery
After the Civil War, the US economy became one of the most
dynamic in the world
Next class we will discuss the period between the Civil War and
World War I
In many ways this period is the Golden Age of Capitalism in the US
The Golden Age of
American Capitalism
Chris Surro
Goal for this Class
The Golden Age of Capitalism
US economy experienced arguably the largest changes in the
period from 1865-1914
The “Age of Giants”
How were gures like Carnegie, Rockefeller, and Morgan
responsible for this revolution in the US economy?
The Expansion of Government
Government involvement in the economy increased at end of 19th
Economics of monopoly and antitrust
The Golden Age of Capitalism
US Becomes World’s Economic Power
1857: US passes Great Britain in population
1870-1910: Increases share of manufacturing 23.3%-35.3%
Britain’s fell from 31.8%-14.7%
Income per capita 26% higher in the US
The Role of Immigration
US population increased 2.1% per year from 1870-1914
2/3 from native births
1/3 from immigration
Half of manufacturing workers in 1920 were immigrants or children
of immigrants
The Golden Age of Capitalism
Immigration to the United States
Sources of Immigration Video
The Golden Age of Capitalism
Westward Expansion
1848: Gold discovered in California
1847: Brigham Young leads Mormons to Utah
1862: Homestead Act o ers cheap land
Expansion Video
The Golden Age of Capitalism
Canals, Railroads, and Telegraphs
As the United States expanded, transportation and communication
became increasingly important
Entrepreneurs and governments worked to come up with new
ways of dealing with the country’s size
The Role of Government Expands
Government investment in the Erie Canal project was ~$6 million
The entire US budget in 1811 was $8 million
Large xed costs made these types of products di cult for private
sector alone to nd the nancing
The Golden Age of Capitalism
Morse Code and the Telegraph
Samuel Morse developed the technology
for Morse code and the telegraph in 1832
Didn’t nd popularity until it was
demonstrated to broadcast news from
the 1844 presidential convention
Succeeded in large part because of the
help of Ezra Cornell, whose investments
in a variety of successful ventures
provided the funds to start Cornell
Samuel Morse
The Golden Age of Capitalism
I weigh my words, when I say that in my judgment the limited liability
corporation is the greatest single discovery of modern times, whether you
judge it by its social, by its ethical, by its industrial or, in the long run,—-after
we understand it and know how to use it,—by its political, e ects. Even steam
and electricity are far less important than the limited liability corporation, and
they would be reduced to comparative impotence without it
– Nicholas Murray Butler
Advantages of Corporations
Easier to raise money from large group rather than a few large
private partners
Limited liability made investing in risky and expensive projects like
railroads feasible
The Golden Age of Capitalism
Telephone: 1876
Skyscraper: 1885
Light Bulb: 1880
Kellogg’s: 1906
Coca-Cola: 1886
Macy’s: 1858
The Golden Age of Capitalism
Agriculture and Food Processing
Animal eugenics, nutrition, and veterinary improvements
Milk yield per cow increased 40%
Blight-resistant crops
Meat processing assembly lines and refrigerated railcars
The Downsides of Industrialization
Upton Sinclair’s The Jungle
It was all so very businesslike that one watched it fascinated. It was pork-making by
machinery, pork-making by applied mathematics. And yet somehow the most
matter-of-fact person could not help thinking of the hogs; they were so innocent,
they came so very trustingly; and they were so very human in their protests – and so
perfectly within their rights! They had done nothing to deserve it; and it was adding
insult to injury, as the thing was done here, swinging them up in this cold-blooded,
impersonal way, without pretence at apology, without the homage of a tear.
The Golden Age of Capitalism
The Age of Giants
John D. Rockefeller
Standard Oil
Andrew Carnegie
Carnegie Steel (later
U.S. Steel)
J.P. Morgan
The Golden Age of Capitalism
John D. Rockefeller
Born in Richford, NY in 1839
Father was a con artist, bigamist, and
potentially a rapist
Started as a bookkeeper making $16/month
(about $500 in ation adjusted)
Started Standard Oil in 1868
Eventually had an in ation adjusted net
worth of $418 billion
I would rather earn 1% o a 100 people’s e orts
than 100% of my own e orts.
The Golden Age of Capitalism
Andrew Carnegie
Born in Dunfermline, Scotland in 1835
Moved to the US when he was 12
First job changing spools in a cotton mill
$1.20 per week ($35 in ation adjusted)
Made millions investing before starting in
Eventually reached in ation adjusted net
worth of $372 billion
Not evil, but good, has come to the race from the
accumulation of wealth by those who have the
ability and energy that produce it.
The Golden Age of Capitalism
J.P. Morgan
Born in Hartford, CT to the rich Morgan
Worth “only” $118 million
Rockefeller: And to think, he wasn’t even a rich
Had a hand in a large part of the American
General Electric, AT&T, Nabisco, U.S.
Steel, Aetna Life Insurance, 21 railroads
The Golden Age of Capitalism
Robber Barons?
These economic giants owned large parts of the US economy
Their companies either bordered on or became outright monopolies
How harmful was this to the US economy?
Mergers and Monopolies
Companies increasingly relied on horizontal mergers to drive out
Rockefeller and Morgan built giant conglomerates
E cient or exploitative?
Prices fell and quantities increased
Not what we would expect from monopoly
The Golden Age of Capitalism
Rockefeller on Competition
Pestered by overproduction in the early oil industry, Rockefeller tirelessly
mocked those “academic enthusiasts” and “sentimentalists” who expected
business to conform to their tidy competitive models. Like some of his
contemporaries, he didn’t see how they could build vast, enduring industries in
a volatile economy disrupted by recessions, de ation, and explosive boom and
bust cycles, and he decided to subjugate markets instead of responding
endlessly to their changing price signals. Thus, Rockefeller and other industrial
captains conspired to kill competitive capitalism in favor of a new monopoly
– Ron Chernow, Titan: The Life of John D. Rockefeller (1998)
Compare to Marxist theories of capitalist development
But…Rockefeller saw this as a positive development
The Golden Age of Capitalism
Despite rapid growth and increasing standard of living, working
conditions were bad by modern standards
Towards the end of the 1800s, unions formed to bargain for shorter
hours, higher wages, safety, etc.
The Haymarket Affair
May 4, 1886: Initially peaceful strike of McCormick Harvesting
Machine Company led to violence
An unknown individual (thought to be an anarchist) threw a bomb
that killed a police o cer
Resulted in lack of sympathy for union movement
The Golden Age of Capitalism
The Homestead Strike
Carnegie was extremely successful in lowering the price of steel
Necessarily required cutting costs, including labor costs
Carnegie’s business partner, Henry Clay Frick, unsympathetic to
[Frick had a] simple, uncomplicated attitude toward labor, to regard men as
a commodity like anything else used in manufacturing – something to be
bartered for as cheaply as possible, to be used to its utmost capacity, and to
be replaced by as inexpensive a substitute as was available
– Joseph Frazier Wall, Carnegie biographer
Carnegie supported unions, but yielded to Frick
1892: Strike eventually led to armed con ict
Failed assassination attempt on Frick ended support for the strike
The Golden Age of Capitalism
Under its sway we shall have an ideal state, in which the surplus wealth of the
few will become, in the best sense, the property of the many, because
administered for the common good, and this wealth, passing through the
hands of the few, can be made a much more potent force for the elevation of
our race than if it had been distributed in small sums to the people themselves.
Even the poorest can be made to see this, and to agree that great sums
gathered by some of their fellow citizens and spent for public purposes, from
which the masses reap the principal bene t, are more valuable to them than if
scattered among them through the course of many years in tri ing amounts.
– Andrew Carnegie, The Gospel of Wealth
Rockefeller, Carnegie, Cornell, etc. provided funds for libraries,
schools, arts, science, etc.
Who is best at providing these goods? Wealthy Individuals? Firms?
The Golden Age of Capitalism
University of Chicago
Carnegie Hall
Carnegie Mellon University
The Rise of the Government
Trust Busting
A fundamental base of civilization is the
inviolability of property; but this is in no wise
inconsistent with the right of society to regulate
the exercise of the arti cial powers which it
confers upon the owners of property, under
the name of corporate franchises, in such a
way as to prevent the misuse of these powers
The capitalist who, alone or in conjunction with
his fellows, performs some great industrial feat by
which he wins money is a welldoer, not a
wrongdoer, provided only he works in proper and
legitimate lines. We wish to favor such a man
when he does well. We wish to supervise and
control his actions only to prevent him from doing
The Rise of the Government
The Sherman Antitrust Act (1890)
Section 1. Trusts, etc., in restraint of trade illegal; penalty
Every contract, combination in the form of trust or otherwise, or conspiracy,
in restraint of trade or commerce among the several States, or with foreign
nations, is declared to be illegal.
Section 2. Monopolizing trade a felony; penalty
Every person who shall monopolize, or attempt to monopolize, or combine
or conspire with any other person or persons, to monopolize any part of the
trade or commerce among the several States, or with foreign nations, shall
be deemed guilty of a felony
The Rise of the Government
The Clayton Antitrust Act (1914)
Expanded and clari ed the Sherman Act
Made illegal
Price discrimination
Exclusive dealings or tying of products
Mergers and acquisitions
Any individual directing two companies
If these were deemed to be harmful to the consumer
The Golden Age of Capitalism
Review of Monopoly Theory
Assume a market has a demand curve given by
P = 1000 ? 2Q
Firms in this market have a cost curve given by
C = 200Q
1. What is the equilibrium perfect competition price and quantity
that would be produced in this market?
2. If there is a single rm acting as a monopoly, what price and
quantity will they choose to maximize pro t?
3. Can you think of any reasons why monopoly power might be
preferable to perfect competition? (not necessarily in this speci c
The Great Depression
Chris Surro
Goal for this Class
The Great Depression
The early 1900s: Setting the stage for the Great Depression
The 1930s: The worst economic decade in United States history
Theories of the Great Depression
What caused the Great Depression?
What ended the Great Depression?
Legacy of the Great Depression
How did the Great Depression change perspectives on capitalism
and the government’s role in the economy
The Early 1900s
The Panic of 1907
A new regulation on railroads passed in 1906 set o a steep
decline in stock prices
As banks faced increasing pressure, they turned to J.P. Morgan for
additional liquidity
The Creation of the Federal Reserve
In 1910, a group of bankers met in secret on Jekyll Island in
Georgia and produced a plan to create a new central bank
In 1913, Woodrow Wilson signed the Federal Reserve Act to
establish the Federal Reserve with the goal of preventing future
banking panics
The Roaring 20s
The Depression of 1920-21
18 month decrease in GDP
Estimates of size of drop between -2.4% and -6.9%
Massive de ation
Around 15% drop in consumer prices
35% in wholesale prices
Relatively quick return to trend growth rates
The Roaring 20s
Harding and Coolidge
Warren Harding
Calvin Coolidge
President from 1921-1923
President from 1923-1929
The Roaring 20s
Warren Harding
Our most dangerous tendency is to expect too much of government, and at
the same time do for it too little
– Harding’s inaugural address
Calvin Coolidge
I believe in the American Constitution. I favor the American system of
individual enterprise, and I am opposed to any general extension of
government ownership, and control. I believe not only in advocating economy
in public expenditure, but in its practical application and actual
accomplishment. I believe in a reduction and reform of taxation, and shall
continue my e orts in that direction
– Coolidge, 1924
The Roaring 20s
US Real GDP Per Capita 1900-1929
The Roaring 20s
US CPI 1900-1929 (1990=100)
The Great Depression
Herbert Hoover
Elected president in 1928 to succeed Coolidge
We in America today are nearer to the nal triumph over poverty than ever
before in the history of any land. The poorhouse is vanishing from among us.
We have not yet reached the goal, but given a chance to go forward with the
policies of the last eight years, and we shall soon with the help of God be in
sight of the day when poverty will be banished from this Nation.
– Hoover (1928)
Stock Market Boom
Stock prices have reached what looks like a permanently high plateau
– Irving Fisher (1929)
The Great Depression
Dow Jones Industrial Average (1915-1929)
The Great Depression
Dow Jones Industrial Average (1915-1929)
The Great Depression
US Real GDP Per Capita 1900-1933
The Great Depression
US CPI 1900-1933 (1990=100)
Response to Depression
Hoover’s Response
“Conventional View”: Hoover was a laissez-faire Republican who
did nothing to try to stop the e ects of the depression
Revisionist view: Hoover laid the groundwork for Roosevelt’s New
Government Spending
Hoover increased government spending in constant 1929 dollars
from around $3 billion in 1929 to $6 billion in 1933
Ran large budget de cits throughout his presidency
Federal Farm Board (FFB)
O ered loans and subsidies to agriculture
Response to Depression
Industrial Labor Program
November 1929: Hoover meets with business leaders
Asked them not to reduce wages
Idea: keep purchasing power high
Problem: rms could not pro tably employ people with falling
prices and constant wages
1931: Davis-Bacon Act
Federally funded projects must pay the “prevailing wage”
1932: Norris-Laguardia Act
Protections for unions
Response to Depression
Restrictions to Immigration
1930: Placed additional limits on immigration
Immigration fell to 10-15% of potential quota
Attempted to keep domestic wages high
The Smoot-Hawley Tariff
Increase in tari s on broad range of goods
Resulted in retaliatory tari s against the United States
Response to Depression
Response to Depression
The 1932 Election
Response to Depression
Franklin Delano Roosevelt
President from 1933-1945
Men may di er as to the particular form
of governmental activity with respect to
industry and business, but nearly all men
are agreed that private enterprise in
times such as these cannot be left
without assistance and without
reasonable safeguards lest it destroy not
only itself but also our processes of
Response to Depression
Bank Holiday
Immediately after inauguration, FDR issued a bank holiday
Entire banking system was shut down for 4 days
Government reopened banks that it believed were secure enough
to survive
Upon bank reopening the stock market saw the largest one day
increase in history (15% increase in the Dow Jones Industrial
Response to Depression
Roosevelt’s New Deal
FDR fundamentally changed the role of government
Many of the programs he created still exist today
Social Security
Federal Deposit Insurance Corporation (FDIC)
Securities and Exchange Commission (SEC)
Federal Housing Administration (FHA)
Federal Communications Commission (FCC)
Farm Credit Administration (FCA)
Tennessee Valley Authority (TVA)
Response to Depression
Alphabet Soup
Roosevelt also instituted a number of temporary programs
Works Progress Administration (WPA)
Goal: employ every unemployed worker
Peaked at about 3.3 million workers (out of estimated 3.5 million
Civilian Conservation Corps (CCC)
Put unemployed to work planting trees, working in national
parks, restoring buildings
Employed more than 3 million in 9 years
Response to Depression
Alphabet Soup
National Recovery Administration (NRA)
Price xing and production quotas
Strengthened unions
Agriculture Adjustment Act (AAA)
Limited crop production to keep prices up
Supreme Court
The supreme court ultimately ruled many of FDR’s policies
Led FDR to threaten to “pack the court”
Response to Depression
Roosevelt Was Not a Keynesian
Programs designed to put people to work
Not intended as a Keynesian stimulus
Next class we will talk about Keynes in more detail
Roosevelt’s Long Term Goals
Not all of Roosevelt’s programs were designed exclusively to deal
with the Depression
He used the Depression as an opportunity to implement long
lasting changes to the American economy
Response to Depression
Lasting Impact of the New Deal
Besides the programs it created, New Deal changed the way
government and the economy
Introduced the idea that the government needed to provide some
basic rights