Canadian historian Francois Furstenberg reminds us of the economic depression that America had to struggle through in the 19th century:
Much like our time, the Gilded Age was an era of economic booms and busts. None was greater than the financial crisis that began in September 1873 with the collapse of Jay Cooke & Co., the nation’s premier investment bank. Like many other firms, Cooke & Co. overextended itself by offering risky loans based on overvalued real estate.
Cooke’s collapse launched the first economic crisis of the Industrial Age. For 65 straight months, the U.S. economy shrank — the longest such stretch in U.S. history. America’s industrial base ground to a near halt: By 1876, half of the nation’s railroads had declared bankruptcy, almost half of the country’s iron furnaces were shut and coal production collapsed. Until the 1930s, it would be known as the Great Depression.
In the face of economic calamity and skyrocketing unemployment, the government did, well, nothing. No federal unemployment insurance eased families’ suffering and kept a floor on demand. No central bank existed to fight deflation. Large-scale government stimulus was a thing of the distant future.
As demand collapsed, businesses slashed payrolls and reduced wages, and a ruinous period of deflation began. By 1879, wholesale prices had declined 30 percent. The consequences were catastrophic for the nation’s many debtors and set off a vicious economic cycle. When economic growth eventually began, progress was slow, with periodic crises plaguing the economy through the end of the century.
Neither political party offered genuine solutions. As historian Richard Hofstadter put it, political parties during the Gilded Age “divided over spoils, not issues,” and neither Democrats nor Republicans were inclined to challenge their corporate masters. . . .
With laissez-faire ideas dominant and the political system in stasis, economic decline persisted. The collapse in tax revenue only strengthened calls for fiscal retrenchment. Government at all levels cut spending. Congress returned the country to the gold standard for the first time since the Civil War: “hard money” policies that favored Eastern financiers over indebted farmers and workers.
With neither major party responding to the crisis, new insurgent movements arose: antimonopoly coalitions, reform parties and labor candidates all began to attract support.
Prof. Furstenberg goes on to cite the violent strikes of the growing labor movement and the prospect of social unrest–similar to what was happening in Europe that would spark the Marxist revolutions–that, according to him, encouraged even capitalists by the time of FDR to support social reforms and a welfare state, so as to promote social stability. He then warns us about cutting the social safety net as we try to deal with today’s economic problems.
Since among my readers are experts in just about everything, I ask you, is Prof. Furstenberg’s account correct, or is it a leftist reading of a history that is open to other interpretations? Are there things we can learn from what happened in the Gilded Age?
HT: Frank Sonnek