Lee Ohanian and Harold Cole have been for the last 5 to 6 years on a crusade to debunk the rosy myth of the glorious New Deal. Monetary factors can easily explain why there was a decline between 1929 and 1932, however it cannot account for the long lenght of the recovery. Ohanian and Cole have found that the culprit was the New Deal, mostly the National Industrial Recovery Act and the National Recovery Administration (NRA).
But one of my professors, Albrecht Ritschl and his colleague Monique Ebell goes at it through a different set of lenses. He looks at the lead-up to the depression. His view is pretty simple : you had the juxtaposition of two monopolies.
Imagine that the economy is only about butter and cannons (really old and plain example don't you think?). If you end up with collective bargaining in those two industries, it will tend to mimic the effects of individual bargaining on output and employement if there is a high level of competition. However, as you move towards a more monopolized economy in the economy, output falls if you have collective bargaining and employement soars at the same time. So, you end up vindicating Karl Marx when he said that "only hired workers are served by unions" and that unions "were the worst ennemies of the socialist cause".
Before even the crash of the stock market in 1929, you had a lead up to the juxtaposition of two such monopolies. After World War I, labour regulations favourable to unions were repelled after a Supreme Court Judgment. However, during this period Secretary of Commerce Herbert Hoover was highly favorable to "cartelization" and the Sherman Act of 1896 against trusts was not pursued very thorougly. Now we consider this word to be bad nowadays and even people on the left favour the mission of such institutions like the Bureau de la Concurrence to promote competition, but at the time competition was not seen as such a panacea. It was actually perceived as bad for "efficiency" and industrial concentration allowed for economies of scale.
Combined with the policy of reducing income taxes by Secretary of the Treasury Andrew Mellon who did not agree with Hoover's approach and often criticized Hoover in front of President Coolidge, this policy allowed strong industrial concentration and monopolization. By 1929, before the crash of the stock market, the Hoover administration(Hoover finally became president in 1928) which was recently sworn in, was attempting to find ways to bring back collective bargaining policies to increase wages of industrial workers. After the crash, Hoover pursued that goal and lobbyed industries agressively so that they would not cut wages, which increased unemployement. But the new labour regulations only came about after the democratic Franklin Delano Roosevelt took power in 1933. At the same time, he also pursued
I believe that the story Ritschl and Ebell tells us is very compelling and plausible. The reason for this statement is that I add the Hawley-Smoot Act that passed early into Hoover's mandate. This very protectionnist act allowed industries in the United States to face even less competition (this time from abroad) which would have reinforced the cartelization process put forward by Hoover under Coolidge and continued during his presidency.
I think that his story proposes an ambitious research agenda about economic performance between 1920 and 1950. If we were to look at other markets and countries at the same and analyze them within this theoretical framework, much historical information could be gathered about policy history in that time which could change considerably our reading of past policies and how they affected the economy at the time.
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Burton Fulsom. The Myth of the Robber Barons : 5th edition.
Douglass Irwin. The Smoot-Hawley Tariff: A Quantitative Assessment - The Review of Statistics and Economics.
Albrecht Ritschl and Monique Ebell. Real Origins of the Great Depression: Monopoly Power, Unions and the American Business Cycle in the 1920s. Centre for Economic Performance at the London School of Economics
