New Deal Labor Policy and the American Industrial Economy

By Stanley Vittoz | Go to book overview
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Lean Years

Many of the chief causes as well as the unusual length and severity of the Great Depression in the United States can be linked to gross sectoral imbalances that plagued the domestic economy practically from the beginning of the decade that ended with the historic financial crash of 1929. At the root of it all, several analysts have argued, lay a highy disproportionate increase in the accrual of profits to business engaged in the oligopolistic production of capital equipment and a steadily growing assortment of other goods typically classified as luxury consumer durables. That imbalance, combined with an increasingly unequal distribution of income in favor of the wealthier classes of society generally after World War I, had the effect of promoting an unusually rapid increase in both individual and corporate savings relative to consumption expenditures. The expanded flow of capital funds into the securities market, a natural result of increased private saving, was not matched by a corresponding growth in the level of productive investment, except perhaps in that particularly dynamic—but not yet dominant—sector of the manufacturing economy occupied by relatively new lines of enterprise such as the automotive, electrical equipment, aircraft, and petrochemical industries. Rather, the tremendous proliferation of purely speculative or otherwise fundamentally unsound outlets during the second half of the 1920s, both at home and abroad, tended to restrict the rate of capital formation relative to what might have occurred had a significantly larger proportion of accumulated wealth been disbursed domestically for consumptive purposes. 1

Since at least the mid-nineteenth century, the overall growth of the American labor force had been a necessary, if not entirely sufficient, condition for a high rate of internal capital formation and sustained industrial expansion. The failure of the labor supply to grow in complete conformity with increased demand during every phase of the developmental process had the complementary effect of encouraging a progressively greater capital-output ratio and the relative displacement of labor by machinery. The massive immigration of European workers, which accelerated enormously during the thirty or so years divided by the turn of the century, stimulated both capital formation and


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New Deal Labor Policy and the American Industrial Economy


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