US Economic History 6 — Progressivism & the New Deal
In the Progressive and New Deal eras, government intervened heavily in the economy. Video created with the Bill of Rights Institute to help students ace their exams.
This is the sixth video in a series of nine with Professor Brian Domitrovic, which aim to be a resource for students studying for US History exams, and to provide a survey of different (and sometimes opposing) viewpoints on key episodes in U.S. economic history.
- The Progressive War: Woodrow Wilson and the US Entry into WWI (blog post): Professor David Smith argues that Woodrow Wilson’s decision to enter WWI went against the goals of the Progressive Era.
- Should We End the Fed? (video): Professor Lawrence White explains what the Federal Reserve does and makes a case for closing the Fed.
- The Progressive-Era Origins of Authoritarian Policing in the US (FEE article): Trey Goff explains how the regulatory state came about in the Progressive Era.
In the words of historian, Richard Hofstadter, a long age of reform ensued from the 1890s to the 1930s. The Progressive and The New Deal reformers over these decades had different priorities given their respective historical challenges, but both believed that the government had to increase its intervention in and regulation of the economy in order to make the economy more efficient and equitable. First came The Progressives. In the latter part of the 19th and the early part of the 20th century, their efforts mainly fell in the area of the regulation of big business. Notable Progressive laws included the Interstate Commerce Act of 1887, this standardized railroad freight rates preventing large shippers from striking deals with railroads to pay lower rates than their smaller competitors. The Sherman Antitrust Act of 1890 was another example. It issued a blanket ban on big corporate mergers, but it was only vaguely worded and selectively enforced.
Other Progressive regulatory laws included the Hepburn Act of 1906, which gave the government the option of setting reasonable prices different from those set independently by the supply and demand of the market, as well as the Clayton Antitrust Act of 1914. This act specified illegal activities left vague by The Sherman Act of 1890 and created more federal regulation of business with the Federal Trade Commission.
Each of the Presidents of the Progressive era took advantage of the new regulatory powers of the federal government. Theodore Roosevelt strove to distinguish between good and bad trusts and supported the regulation of the private market. William Howard Taft, who was a lawyer, dutifully sought to enforce every regulation that Congress passed. Woodrow Wilson worked to breaking up all the trusts in corporate combinations in the name of preserving competition in the American economy. This all resulted in heavier regulation of businesses.
The other major governmental institution created in the thick of The Progressive era was The Federal Reserve, also known as The Fed, which was authorized by Congress in 1913 and was highly active and mistake-prone years later during the Great Depression. The Fed did not represent a new form of regulation in the strict sense in that private banks did not have to use or join it. The Fed was started to provide an option beyond private central reserve banks as the place where the banking system could store a minimum percentage of its deposit base and turn to during times of runs, panics, and other equity crises.
Very quickly, most banks felt the need to join The Fed system, and it became overwhelmed. Over the first seven years of The Fed's existence, from 1913 to 1920, inflation rose. Then, as The Fed dealt with the blows of the Great Depression 10 years after that, over 10,000 banks failed, a great many of their depositors left unwhole, and businesses faced minimal to no access to lines of credit that could keep their operations going. The history of banking panics prior to 1913 seem tame in comparison as the first 20 years of The Federal Reserve was quite rough.
The Supreme Court had a mixed reaction to all the new regulatory legislation in The Progressive era. In 1895, the court ruled that The Sugar Trust controlling 90% of the market could not be regulated by the Interstate Commerce Act since it was engaged in manufacturing. In 1911, the court did break up John D. Rockefeller's standard oil for violating The Sherman Act, but added that the sheer size of the company had no bearing on whether it was an illegal trust.
In The New Deal era of the 1930s, during the Great Depression, the Supreme Court struck down the centerpiece of President Franklin D. Roosevelt's New Deal, National Industrial Recovery Act or NIRA. The NIRA allowed companies to partner with government in writing codes for whole industries and in fixing prices, but nobody liked it. Big businesses resented government's intrusion, and small businesses saw the act as a means for limiting its own growth and influence. The court's argument in the Schechter Case of 1935 that struck down the NIRA was that the NIRA was unconstitutional because it sought to regulate commerce that did not cross state lines, but was contained within one state and because it called for the executive branch as opposed to Congress to regulate commerce.
During the first decades of the 20th century, the Congress and the Presidents added significant government regulation of the private economy in hopes of making the economy more efficient and more fair, but in fact, the greatest period of economic growth in those decades was not during The Progressive era or the years of The New Deal, but in between them in the 1920s when the government cut back on regulation and taxes.