25/09/2024
Introduction to economics
Besides, the stock market became a major factor and
actor
In 1928, dangerous signs appeared :
•Residential building fell sharply
•Automobile and steel productions dropped
rapidly
• Foreign funds left the country
In October 1929, the NYSE collapsed with stock prices
falling as much as 80%.
Main reason : too much speculation
Consequence : people sold all their stocks in one
day
The recession experienced by the US after the collapse
led to an even more problematic situation : a
depression.
From imperial capitalism to the end of the
Roosevelt
era (1897-1945)
New Deal Revolution and WWII impact
From 1929 to 1932, the US economy suffered from a
disastrous economic recession :
•National income fell dramatically
• 85,000 busincsses failed
• Unemployment grew from 3,2% in 1929 to nearly
33% in 1933
•Consumers stopped spending money
To counterbalance the negative effects of this
depression, President Hoover launched a policy named
Reconstruction Finance Corporation.
➡️ Objective: to grand loans to banks or bof
corporations
President Hoover believed the crises would be
temporary. He refused to intervene
In fact, he believed that government intervention
would be detrimental to the basis of a capitalist
system. That was a terrible mistake. In fact, the
depression caused 15 million Americans to be
unemployed.
Still, President Hoover tried to contain the negative
effects by :
•Adjusting tax
no effect as the depression
intensified
• Developing public infrastructures
His failure led to a political change : the election of
Franklin Delano Roosevelt whose objective was to
restore confidence in the capitalist institutions.
He came up with a program : the New Deal, a
program inspired and based on Keynesian
methods.
What was the New Deal about ?
First, in represened a revolution as :
• It turned the federal state into a supervisor on a long-
term basis (to plan)
• It turned The government into a regulator (to
regulate business)
• The government acted as an entrepriser by setting up
public corporations empowered to buy and sell, lend
and borrow, produce and distribute (to act)
• It gave rise to the Welfare State (to protect)
• It assumed the responsibility for the security and
welfare of Labour (to secure)
➡️to achieve this, the goverment granted loans to
public bodies and private businesses
In other words, the New Deal relied on :
public debt to finance the economy, support
people, transform the State.
the devaluation of the dollar
=> prices increased leading to an inflationary
cycle :
Businesses collapsed
people stored their devalued banknotes
By resorting to public debt, the federal government
was able to bail out banks and private
corporations.
This new monetary decision allowed the federal
government :
to crcate the Securities Exchange Commission,
a body which helped the State regulate the stock
markets.
To become an actor and a regulator both in
terms of fiscal and monetary issues.
Still, the main concern of FDR was to cope with the
problems related to the supply and demand issue.
FDR considered that the only solution was
government intervention
• by limiting production or increasing production
to affect prices.
• by reducing interest rates and giving generous
access to credit
• by inciting businesscs to raise wages and reduce
workday
Businesses were obliged to set up codes of fair
competition which included a definition of working
conditions and establishing minimum salaries
afteragreements between management and labor.
The New Deal also set up the Welfare State as FDR
considered that this was part of the duties of the
federal government to protect its citizens
What were the key aspects of the Welfare State ?
• To bring down the country's unemployment,
Roosevelt set up a vast program of public works :
4 million jobs were created (most of them part-
time) :infrastructure, dams … youth
employment…
• Electric and light power industries were put
under public control
• The federal state was turned into the nation's
biggest employer.
This new concept of Welfare State was harshly
criticized by businessmen because it favored high
employment and equitable distribution of the national
income
To achieve those goals, FDR issued three laws :
• The National Labor Relations Act (1935) : aka
the Wagner Act : guaranteed collective bargaining once
a union is created
• Fair Labor Standards Act (1938) : instituted a 40-
hour week, fixed forty cents an hour as a minimum
wage and made possible the elimination of child labor
• The Social Security Act (1936) : created various
government agencies meant to sponsor social welfare
(benefits or pensions)for the aged, dependent mothers
and children and infirm.
Conclusion
Such unprecedented economic and social reforns (ND)
resulted in an cconornic recovery of a mixed
character. Production increased BUT decreased
rapidly. Unemployment went down too.
Containing recession and boosting the economy had
several consequences :
• Lack of business confidence due to rising wages
• Higher taxation
• Impressive public debt
• Narrow private investment
This resulted in doubts about the efficiency of such an
economic prograrn (government intervention and debt
financing). Though the statistics showed the limit of
such a program (unemployment stagnated at 14%), one
should bear in mind that, for the first time, it provided
Americans with social protection.
In 1941, as the country officially entered the war, it did
not want to reproduce the mistakes of the past =>
inflation (production, labor relations and prices
were closely controlled)
Output in some sectors grew because of the war
effort (mining, construction, manufacturing) => it
reduced unemploment and increased wages especially
low-skilled workers.
Excessive public expenditures and inflation
appeared. The government had no other solution than
to borrow money to make up for the budget (taxes
being not enough).
American economic and social realities after
WWII
the 1950s : an economy full of contrasts
Introduction
Following WWII, many industries went from producing
military goods to producing consumer goods. The
economic period was marked by two key concepts
which bolstered the economy :
• A baby boom
well-paid workers were ready to
spend money
• A spending spree
Besides, many companies experienced consolidation
and growth leading to a large restructuration of the
business network.
The industrial sector benefited a lot from this
environment : manufacturing represented 31% of the
national income during the 1950s
