With The  Great Gatsby in the theater, I thought I’d post an essay I wrote a while back summarizing Frank Stricker’s view of the economic policies of the 1920s and what they might have meant for Reaganomics of the 1980s. This is a fact back essay highlighting Stricker’s point of view only, and not necessarily my own. Nonetheless, it provides good fodder for the economic think tanks.  

Frank Stricker in his article Causes of the Great Depression chronicles how the unabashed celebration of big business in the “Roaring Twenties” set a collision course for economic disaster which culminated in the stock market crash of October 1929 ushering in the worst economic depression America has ever known.  Stricker contends that the prosperity of the 1920s was more smoke and mirrors rather than solid economic growth.  According to Stricker, this era which overlooked workers’ rights and allowed a de-regulated business model to run unchecked created a greater gulf between the ‘haves’ and the ‘have-nots’.  In Stricker’s view, this great gulf between the standard of living of the capitalistic upper class and that of the working class exposes a flaw in the capitalistic system which is truly to blame for the Great Depression.

Stricker contends that the capitalism of the 1920s had the veneer of prosperity but for the most part was a house of cards ready to collapse.  The rich benefited greatly from the government’s laissez-faire policy towards business while the workers suffered by a labor movement which had become a very weak advocate for the working person.  This enabled the country’s capital to be so concentrated in a small percentage of the population that the rich no longer had viable investment opportunities.  The consumer market that was needed to drive production and investment had become soft, but worker productivity soared due to new manufacturing processes and the push to further divide labor into smaller parts.  For example, car production in the 1920s had become so efficient that by the end of the decade it had out-paced the number of people who could afford to purchase one.  The dearth of domestic and foreign markets put the brakes on an industry which was still not at capacity.   Sticker contends that the weak manufacturing prospects of the late 1920s were in direct correlation with the labor movement being all but snuffed out.  While industry was booming and the glut of consumer products was at an all time high, wages for the workers were not increasing.  The great bulk of the population could not afford the plethora of items being produced.  In Stricker’s view this put the burden of economic growth onto the shoulder’s of the rich, but even they and their lavish lifestyles could not sustain the economy for long.

The upper class of the 1920s saw a large increase in their savings because there were not enough investment opportunities.  Stricker contends that in order to ward off economic collapse and depression, large investments of private capital were required, but the rich saw little of value in which to invest. The pro-business government had even lowered the capital gains tax rates which did little except increase the savings accounts of the rich even further.  Even with tax cuts, the government ran a budgetary surplus for the 1920s but did not put the money to work and did not invest it in the nation.  For Stricker this is further proof that the capitalistic system was not working for the working class.

The market was overproducing for a consumer population that was underpaid. The very people the rich needed to purchase goods, to keep the factories churning, and to keep the supply chains moving were the very ones financially incapable of doing so because employers didn’t adequately compensate them for their labor.  This for Stricker is the ironic Catch 22 of capitalism – the desire for cheap labor yet the need for consumers who have money.  Stricker contends that this tension leads to inevitable economic downturn.

Finally, Stricker writes this article about the causes of the Great Depression as a cautionary tale to the Reaganomics gurus of the early 1980s who espoused de-regulation and pro-business stances on economic issues which somewhat paralleled the business climate of the 1920s.  He wrote it as a reminder that the recipe for economic disaster starts with the workers and middle class being pinched too severely while the rich continue to prosper.

Works Cited

Stricker, Frank. “Causes of the Great Depression, or What Reagan Doesn’t Know About the

1920s.” Economic Forum XIV (1983): 41-58.