Recession Of 1937–1938
   HOME

TheInfoList



OR:

The recession of 1937–1938 was an economic downturn that occurred during the
Great Depression in the United States In the United States, the Great Depression began with the Wall Street Crash of October 1929 and then spread worldwide. The nadir came in 1931–1933, and recovery came in 1940. The stock market crash marked the beginning of a decade of high u ...
. By the spring of 1937, production, profits, and wages had regained their early 1929 levels. Unemployment remained high, but it was substantially lower than the 25% rate seen in 1933. The American economy took a sharp downturn in mid-1937, lasting for 13 months through most of 1938. Industrial production declined almost 30 percent, and production of
durable good In economics, a durable good or a hard good or consumer durable is a good that does not quickly wear out or, more specifically, one that yields utility over time rather than being completely consumed in one use. Items like bricks could be conside ...
s fell even faster. Unemployment jumped from 14.3% in May 1937 to 19.0% in June 1938. Manufacturing output fell by 37% from the 1937 peak and was back to 1934 levels. Producers reduced their expenditures on durable goods, and inventories declined, but personal income was only 15% lower than it had been at the peak in 1937. In most sectors, hourly earnings continued to rise throughout the recession, partly compensating for the reduction in the number of hours worked. As unemployment rose,
consumer expenditures A consumer is a person or a group who intends to order, or use purchased goods, products, or services primarily for personal, social, family, household and similar needs, who is not directly related to entrepreneurial or business activities. ...
declined, leading to further cutbacks in production.


Recession of 1937 and recovery

The Roosevelt Administration was under assault during Roosevelt's second term, which presided over a new dip in the Great Depression in the fall of 1937 that continued through most of 1938. Production and profits declined sharply. Unemployment jumped from 14.3% in 1937 to 19.0% in 1938. The downturn was perhaps due to nothing more than the usual rhythms of the business cycle, but up until 1937, Roosevelt had claimed responsibility for the US's excellent economic performance. That backfired in the recession and the heated political atmosphere of 1937. Business-oriented conservatives explained the recession by arguing that the New Deal had been very hostile to business expansion in 1935–1937, had threatened massive antitrust legal attacks on big corporations and by the huge strikes caused by the organizing activities of the CIO (
Congress of Industrial Organizations The Congress of Industrial Organizations (CIO) was a federation of Labor unions in the United States, unions that organized workers in industrial unionism, industrial unions in the United States and Canada from 1935 to 1955. Originally created in ...
) and the AFL (
American Federation of Labor The American Federation of Labor (A.F. of L.) was a national federation of labor unions in the United States that continues today as the AFL-CIO. It was founded in Columbus, Ohio, in 1886 by an alliance of craft unions eager to provide mutual ...
). The recovery was explained by the conservatives in terms of the diminishing of those threats sharply after 1938. For example, the antitrust efforts fizzled out without major cases. The CIO and AFL unions started battling each other more than corporations, and tax policy became more favorable to long-term growth. "When
The Gallup Organization Gallup, Inc. is an American multinational analytics and consulting firm, advisory company based in Washington, D.C. Founded by George Gallup in 1935, the company became known for its opinion poll, public opinion polls conducted worldwide. Gall ...
's poll in 1939 asked, 'Do you think the attitude of the Roosevelt administration toward business is delaying business recovery?' the American people responded 'yes' by a margin of more than two-to-one. The business community felt even more strongly so."Reed, Lawrence W
''Great Myths of the Great Depression''
Mackinac Center for Public Policy.
''Fortunes Roper poll found in May 1939 that 39% of Americans thought the administration had been delaying recovery by undermining business confidence, while 37% thought it had not. But it also found that opinions on the issue were highly polarized by economic status and occupation. In addition, AIPO found in the same time that 57% believed that business attitudes toward the administration were delaying recovery, while 26% thought they were not, emphasizing that fairly subtle differences in wording can evoke substantially different polling responses. Keynesian economists stated that the recession of 1937 was a result of a premature effort to curb government spending and balance the budget. Roosevelt had been cautious not to run large deficits. In 1937 he actually achieved a balanced budget. Therefore, he did not fully utilize
deficit spending Within the budgetary process, deficit spending is the amount by which spending exceeds revenue over a particular period of time, also called simply deficit, or budget deficit, the opposite of budget surplus. The term may be applied to the budg ...
. Between 1933 and 1941 the average federal budget deficit was 3% per year.Government Spending Chart: United States 1900–2016 – Federal State Local Data
Usgovernmentdebt.us. Retrieved on 2013-07-14.
In November 1937 Roosevelt decided that big businesses were trying to ruin the New Deal by causing another depression that voters would react against by voting Republican. It was a "
capital strike Capital strike is the practice of businesses withholding any form of new investment in an economy, in order to attain some form of favorable policy. Capital strikes may arise from the determination that return on investment may be low or nonexisten ...
" said Roosevelt, and he ordered the
Federal Bureau of Investigation The Federal Bureau of Investigation (FBI) is the domestic Intelligence agency, intelligence and Security agency, security service of the United States and Federal law enforcement in the United States, its principal federal law enforcement ag ...
to look for a criminal conspiracy (they found none). Roosevelt moved left and unleashed a rhetorical campaign against monopoly power, which was cast as the cause of the new crisis.
United States Secretary of the Interior The United States secretary of the interior is the head of the United States Department of the Interior. The secretary and the Department of the Interior are responsible for the management and conservation of most federal land along with natura ...
Harold L. Ickes attacked automaker
Henry Ford Henry Ford (July 30, 1863 – April 7, 1947) was an American Technological and industrial history of the United States, industrialist and business magnate. As the founder of the Ford Motor Company, he is credited as a pioneer in making automob ...
, steelmaker Tom Girdler, and the super rich " Sixty Families" who supposedly comprised "the living center of the modern industrial
oligarchy Oligarchy (; ) is a form of government in which power rests with a small number of people. Members of this group, called oligarchs, generally hold usually hard, but sometimes soft power through nobility, fame, wealth, or education; or t ...
which dominates the United States".Kennedy p. 352 Left unchecked, Ickes warned, they would create "big-business Fascist America—an enslaved America". The President appointed Robert Jackson as the aggressive new director of the antitrust division of the
Justice Department A justice ministry, ministry of justice, or department of justice, is a ministry or other government agency in charge of the administration of justice. The ministry or department is often headed by a minister of justice (minister for justice in a ...
, but this effort lost its effectiveness once World War II began and big business was urgently needed to produce war supplies. But the Administration's other response to the 1937 dip that stalled recovery from the Great Depression had more tangible results. Ignoring the requests of the Treasury Department and responding to the urgings of the converts to Keynesian economics and others in his Administration, Roosevelt embarked on an antidote to the depression, reluctantly abandoning his efforts to balance the budget and launching a $5 billion spending program in the spring of 1938, an effort to increase mass purchasing power. Roosevelt explained his program in a fireside chat in which he told the American people that it was up to the government to "create an economic upturn" by making "additions to the purchasing power of the nation".


Rhetorical response

The Roosevelt Administration reacted by launching a rhetorical campaign against monopoly power, which was cast as the cause of the depression, and appointing
Thurman Arnold Thurman Wesley Arnold (June 2, 1891 – November 7, 1969) was an American lawyer best known for his trust-busting campaign as Assistant Attorney General in charge of the Antitrust Division in President Franklin D. Roosevelt's Department of Justi ...
in the antitrust division of the
U.S. Department of Justice The United States Department of Justice (DOJ), also known as the Justice Department, is a federal executive department of the U.S. government that oversees the domestic enforcement of federal laws and the administration of justice. It is equi ...
to act, but Arnold was not effective. In February 1938, Congress passed a new AAA bill, the
Agricultural Adjustment Act of 1938 :''This is an article about the "Agricultural Adjustment Act of 1938". For the act by the same name in 1933, see Agricultural Adjustment Act.'' The Agricultural Adjustment Act of 1938 () was legislation in the United States that was enacted as ...
, which authorized crop loans, crop insurance against natural disasters, and large subsidies to farmers who cut back production. On April 2, Roosevelt sent a new large-scale spending program to Congress and received $3.75 billion, which was split among
Public Works Administration The Public Works Administration (PWA), part of the New Deal of 1933, was a large-scale public works construction agency in the United States headed by United States Secretary of the Interior, Secretary of the Interior Harold L. Ickes. It was ...
(PWA),
Works Progress Administration The Works Progress Administration (WPA; from 1935 to 1939, then known as the Work Projects Administration from 1939 to 1943) was an American New Deal agency that employed millions of jobseekers (mostly men who were not formally educated) to car ...
(WPA), and various relief agencies. Other appropriations raised the total to $5 billion in the spring of 1938, after which the economy recovered.


Recovery

Although the American economy began to recover in mid-1938, employment did not regain the early 1937 level until the United States entered
World War II World War II or the Second World War (1 September 1939 – 2 September 1945) was a World war, global conflict between two coalitions: the Allies of World War II, Allies and the Axis powers. World War II by country, Nearly all of the wo ...
in late 1941. Personal income in 1939 was almost at 1919 levels in aggregate, but not per capita. The farm population had fallen 5%, but farm output was up 19% in 1939. Employment in private sector factories regained the levels reached in early 1929 and early 1937, but did not exceed them until the onset of World War II. Productivity steadily increased, and output in 1942 was well above the levels of both 1929 and 1937.


Interpretations

The recession was caused by both monetary and fiscal contractionary policies which worked to reduce
aggregate demand In economics, aggregate demand (AD) or domestic final demand (DFD) is the total demand for final goods and services in an economy at a given time. It is often called effective demand, though at other times this term is distinguished. This is the ...
. Cuts in federal spending and increases in taxes at the insistence of the
US Treasury The Department of the Treasury (USDT) is the national treasury and finance department of the federal government of the United States. It is one of 15 current U.S. government departments. The department oversees the Bureau of Engraving and ...
caused many Americans to lose their jobs, with knock-on effects on the broader economy. Historian Robert C. Goldston also noted that two vital New Deal job programs, the
Public Works Administration The Public Works Administration (PWA), part of the New Deal of 1933, was a large-scale public works construction agency in the United States headed by United States Secretary of the Interior, Secretary of the Interior Harold L. Ickes. It was ...
and
Works Progress Administration The Works Progress Administration (WPA; from 1935 to 1939, then known as the Work Projects Administration from 1939 to 1943) was an American New Deal agency that employed millions of jobseekers (mostly men who were not formally educated) to car ...
, experienced drastic cuts in the budget which Roosevelt signed into law for the 1937–1938 fiscal year. In addition, the Federal Reserve's tightening of the money supply in 1936 and 1937 caused an increase in interest rates, which discouraged investment in business.The Great Depression: an international disaster of perverse
Pages 148–149 Mainstream economists differ in the relative importance they assign to each of these factors:
Monetarists Monetarism is a school of thought in monetary economics that emphasizes the role of policy-makers in controlling the amount of money in circulation. It gained prominence in the 1970s, but was mostly abandoned as a direct guidance to monetar ...
and their successors have tended to emphasize monetary factors and the downsides of regulating the economy via
fiscal policy In economics and political science, fiscal policy is the use of government revenue collection ( taxes or tax cuts) and expenditure to influence a country's economy. The use of government revenue expenditures to influence macroeconomic variab ...
, while
Keynesian Keynesian economics ( ; sometimes Keynesianism, named after British economist John Maynard Keynes) are the various macroeconomic theories and models of how aggregate demand (total spending in the economy) strongly influences economic output an ...
economists assign similar weight to both
monetary Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The primary functions which distinguish money are: med ...
and fiscal considerations.
New Keynesian New Keynesian economics is a school of macroeconomics that strives to provide microeconomic foundations for Keynesian economics. It developed partly as a response to criticisms of Keynesian macroeconomics by adherents of new classical macroe ...
models tend to emphasize situations (such as the zero lower bound) where monetary policy arguably loses its effectiveness.


See also

*
Great Depression The Great Depression was a severe global economic downturn from 1929 to 1939. The period was characterized by high rates of unemployment and poverty, drastic reductions in industrial production and international trade, and widespread bank and ...


Notes


Further reading

* Alan Brinkley. ''The End Of Reform: New Deal Liberalism in Recession and War''. (1995) * Irwin, D. (2012). " Gold sterilization and the recession of 1937–1938." Financial History Review, 19(3), 249–267. *John J. Coleman. "State Formation and the Decline of Political Parties: American Parties in the Fiscal State" ''Studies in American Political Development'' 1994 8(2): 195–230. ISSN 0898-588X * * Walter Galenson. ''The CIO Challenge to the AFL: A History of the American Labor Movement, 1935-1941'' Harvard University Press, 1960 * Robert Goldston. ''The Great Depression: The United States in the Thirties'', Fawcett Publications, 1968 * D. A. Hayes, "Business Confidence and Business Activity: A Case Study of the Recession of 1937," ''Michigan Business Studies'' v 10 #5 (1951) * * Patrick D. Reagan. ''Designing a New America: The Origins of New Deal Planning, 1890-1943''
University of Massachusetts Press The University of Massachusetts Press is a university press that is part of the University of Massachusetts Amherst. The press was founded in 1963, publishing scholarly books and non-fiction. The press imprint is overseen by an interdisciplinar ...
, 2000 * Kenneth D. Roose. "The Recession of 1937-38" ''Journal of Political Economy'', Vol. 56, No. 3 (June, 1948), pp. 239–248 * Kenneth D. Roose. ''The Economics of Recession and Revival; an Interpretation of 1937–1938'' (1954) * Richard Ruggles. ''An Introduction to National Income and Income Analysis'' 1949. * Sumner H. Slichter. "The Downturn of 1937" ''Review of Economic Statistics'' 20 (1938) 97–110 * Velde, François R. "The recession of 1937—A cautionary tale." ''Economic Perspectives'' 33, no. 4 (2009): 16–37. {{DEFAULTSORT:Recession Of 1937 Great Depression in the United States 1937 in the United States 1938 in the United States 1937 in economic history 1938 in economic history Stock market crashes Recessions in the United States