Evolution of the Economy

The Sherman Anti-Trust Act (SATA) was a piece of legislation that had been introduced in the United States in 1890 to prevent collusion and monopolies between competing companies in an industry. It was to prevent anti-competitive behavior among companies.The Act prevented a business entity from owning two or more competing companies, for example, competing oil companies could not be owned by the same parent company.
Taft attempted to continue in Roosevelt’s actions in breaking up trusts -- large business conglomerates that exerted monopolies. President Taft and the US Supreme Court used the SATA to force the Standard Oil Company to break-up into 34 smaller independent companies. Even though the Oil Company used the liberties of classical liberalism to grow to such state of dominance, its position eventually caused it to undermine the basis of classical liberalism, such as competition. The SATA also lead to the weakening of unions which was not originally intended.

The stock prices of successful companies rose. Many people borrowed money to invest in stocks believing the stocks would continue to rise. The investments further inflated stocks. When the New York Stock Exchange finally stopped rising, in Oct 29, people quickly sold their stocks to get the profit before they began to drop. But in result the profit-taking began to to drop further and this fear fuelled the drop to even greater lengths. By November 30, the Dow Jones Industrial Average dropped 48%.

In 1925, the publication of John Dos Passos’ Manhattan Transfer, a highly acclaimed novel filled with character studies of ordinary people who inhabited the new American of the 1920’s arose. In one passage, that reflected the impact of liberalism in America, two French navy men talk about America as their ship approaches New York. In their dialogue, they talk about how Americans at that time more widely focused on economic prosperity to avoid the political chaos in other parts of the world. One of the French men talk about how America doesn’t invest in a military because “it’s the coin they’re after.” This perception included an ideal of equality, but it was more for opportunity than circumstance meaning everyone would have an equal opportunity to to attain prosperity but only if they deserved it.

After the Stock Market Crash of 1929, people who had spent money investing ended up with worthless investments and a ton of debt. Many people, especially those who had bought big and expensive things (automobiles for example) with credit ended up creating a high level of debt which lead them to become bankrupt. The bankruptcy lead to more government involvement, which lead to the US introducing new tariffs in order o encourage domestic consumption of American goods. In retaliation, other countries did the same thing. This lead to slow international trade which hurt countries all over the world, most specifically those in North America. Many businesses failed in the 1930s and by 1933, the unemployment rate in the US was at 25%, while annual incomes were at 54% less than what they were in 1929 (before the stock market crash). The Depression affected people with low incomes the most. Frustration caused more Americans and Canadians to support collectivist ideologies. The Depression caused many North Americans to question the current classical liberal economic system as many of them believed that the government should take on a greater role in the economy to prevent such extreme fluctuations and provide citizens with more economic stability. This signalled a significant shift away from classical liberal thinking and toward a mixed economy and a more modern understanding of liberalism.

In the 1930s, Canada was in the Depression. Unemployment and poverty led to a social unrest. Initially the government did not intervene in the economy as Roosevelt did in the United States. In 1930, when Conservative prime minister Bennet was elected, he promised make-work projects to provide relief for the unemployed. After the government established relief camps, they soon cut government spending as they believed that laissez-faire policies would eventually lead the economy out of the Depression. In 1935, Bennet tried to introduce programs similar to the New Deal, as the economy was not recovering, but most of his proposals were denied by the courts. Bennet then lost to the 1935 election to Mackenzie King. Under King’s administration, the government became more involved in the Canadian economy and created social programs and public institutions. The economy was becoming a mixed economy. C.D. Howe was one of the most important individuals during this period of government as he served as the Minister of many things. He also achieved many things like using unemployed workers to build airstrips across the country; establishing Trans-Canada Airlines as a Crown Corporation in 1937; reforming the Canadian National Railway, which was in debt; and helping to create the Canadian Broadcasting Corporation in 1936. The governments established Crown corporations during Howe’s government helped contribute to the allied success during the war as production was exported to other allied countries.

In the 1930s, Canada was in the Depression. Unemployment and poverty led to a social unrest. Initially the government did not intervene in the economy as Roosevelt did in the United States. In 1930, when Conservative prime minister Bennet was elected, he promised make-work projects to provide relief for the unemployed. After the government established relief camps, they soon cut government spending as they believed that laissez-faire policies would eventually lead the economy out of the Depression. In 1935, Bennet tried to introduce programs similar to the New Deal, as the economy was not recovering, but most of his proposals were denied by the courts. Bennet then lost to the 1935 election to Mackenzie King. Under King’s administration, the government became more involved in the Canadian economy and created social programs and public institutions. The economy was becoming a mixed economy. C.D. Howe was one of the most important individuals during this period of government as he served as the Minister of many things. He also achieved many things like using unemployed workers to build airstrips across the country; establishing Trans-Canada Airlines as a Crown Corporation in 1937; reforming the Canadian National Railway, which was in debt; and helping to create the Canadian Broadcasting Corporation in 1936. The governments established Crown corporations during Howe’s government helped contribute to the allied success during the war as production was exported to other allied countries.

Franklin D. Roosevelt became president in March 1933. He offered the New Deal for Americans. His theories were partly influenced by John Maynard Keynes’ ideas/ideas of Keynesian economics. The New Deal was a series of programs that focussed on relief to the unemployed, reform to the economy, and recovery from the Depression. The New Deal also stabilized the banking system and redistributed power among businesses, consumers, farmers and workers while also encouraging unions. The Agricultural Adjustment Act (1933) reduced farm crop and livestock outputs, and thus effectively raised farm prices. Works Progress Administration projects paid people in the arts to act, paint, sculpt, write, and more. The Social Security system was set up to provide financial assistance to people who were elderly and disabled. Roosevelt’s New Deal was a bold response to a crisis.

In 1942, Sir William Beveridge presented a report to the British Parliament entitled “Social Insurance and Allied Services.” In his report, Beveridge recommended that the role of the state be expanded to provide members of society with more security. In 1948, the Labour Party government adopted several of Beveridge’s recommendations and created the National Insurance Act, the National Assistance Act and the National Health Service Act. This period in the British politics, from the end of the First World War until the end of the 1970s, became known as the postwar consensus because despite political differences, successive governments of the collectivist Labour Party and the Individualist Conservative Party maintained the programs that made up the new British welfare state. A general growth of the principles of liberalism occurred internationally through contacts related to trade, international cooperation, foreign aid, and other programs. The ebb and flow of the economic liberalism was in evidence around the world.

Monetarism began in the 1970s and carried onto the 2000's. It reflected a return to the principles of liberalism. Around this time, there was a shift toward classical liberalism. Laissez-faire economics was in the form of monetarism. Monetarist theory states that control of a country’s money supply is the best means to encourage economic growth and limit unemployment and inflation. Friedman believed that Central Banks that control money are primarily the cause of inflation because of the excess supply was increased, meaning that consumer spending would increase, thus demand would increase, and inflation would increase (ex. Germany in the 1920s). Hayek also believes that in order for a collective society to function, the government needs high control over them, but also felt that excessive control of economic aspects would lead to governments interfering in people’s social lives. Hayek argued that it would be impossible for a centrally planned economy to get information about demand to make decisions. Friedman and Hayek agreed with Adam Smith that the price system or the free market was the only way to balance supply and demand while maintaining individual liberty.

The 1970s were a difficult time for governments in several liberal democracies. In 1971, the US withdrew from the Bretton Woods Agreements, which had used the gold standard to set the exchange rate for the currencies of most of the world’s industrialised countries since 1945. Most other countries followed the US’ example, and with the different world currencies floating freely on world markets, a period of inflation began which slowed activity in the economy.
In 1973, Egypt and Syria attacked Israel. This triggered the fourth Arab-Israeli war. The oil monopoly knows as OPEC (Organization of the Petroleum Exporting Countries) imposed a five-month oil embargo on the US and the Netherlands (among other countries). OPEC also reduced production of oil which caused gas shortages in the United States as well as making goods more expensive, therefore causing the rate of inflation to increase, causing te economy to slow down. This is known as stagflation- a period when high inflation and recession occur at the same time.
Stagflation also affected the British economy. The economic situation in Britain was so serious that even Prime Minister James Callaghan, whose Labour Party had been responsible for many of the innovations that led to the British welfare state, no longer supported using government spending to help the economy. The British government was forced to borrow $3.9 Billion USD from the International Monetary Fund in 1976. Because of the stagflation phenomenon, governments in many Western countries found that the economic slowdown meant that the governments collected less tax revenue. This lead to a shift in economic thinking in many countries in the 1970s and 1980s.