The end of World War I marked the beginning of a period defined by American optimism. A trio of Republican presidents from Harding to Hoover (1921-1933) re-established free market capitalism and brought endless waves of prosperity. Unemployment rate reached 3%, and Americans believed dreams would never end. However, the Great Depression in the 1930’s crushed these dreams, driving unemployment to a high 25%. But, Americans found hope in the election of Franklin D. Roosevelt. He introduced the New Deal, providing social welfare but also policies crippling corporations. Government expanded under Roosevelt, but conventional wisdom is American participation in World War II ended the depression. During …show more content…
The normal measures of macroeconomic performance (GDP, the price levels, and the rate of unemployment) indicate the Keynesian idea of enormous deficit spending spurred civilian economy. However, these measures are statistically and conceptually incomparable to the period before and after because of war-time distortions. In 1943, gross government investment had soared to $39.1 billion, including a net national defense investment of $32.9 billion. In contrast, gross private domestic investment fell from $13.6 billion to $6.1 billion. (US Bureau of Economic Analysis). This tremendous “socialization of investment” distorts macroeconomic data because all standard macro models presume the existence of competitive equilibrium, or normally functioning markets. Furthermore, the data doesn’t presume that commodity markets were extensively subject to price controls and rationing due to limitations or quotas (Rockoff). But despite the distortions because of the command system economy, further analysis reveals more …show more content…
In 1936, the Democrats held majorities in both the Senate and House, with 76 seats and 331 seats respectively. However, in 1946, Republicans gained 55 House and 12 Senate seats to give them the majority in both branches (Busch). Support for business threatening policies dropped, and many New Dealers like Harold Ickles resigned. Furthermore, the death of Roosevelt and consequently, parts of his New Deal improved the confidence that investors had for the security of their property rights. Though a New Dealer himself, Truman posed much reduced threat to investors in comparison to the Roosevelt. In fact, in 1945, an AIPO poll of business executives showed 60% believed Truman would be favorable to business, 25% less favorable or the same. Even 55% believed he would be less favorable to labor unions, while 25% expected less or about the same (Higgs). Thus, the polls, change in power, and the Truman presidency showed an inflated business confidence that would start an investment boom, ending the Great