Notes on the History of the United States of America

 

The United States of America was born of a violent revolution against colonial rule in 1776.  It was not, however, a revolution by indigenous peoples against a conquering colonial power.  Instead, the American revolution was carried out by British subjects, the settlers of the colonies, against their nation of origin.  The American colonists rebelled against the domination of their British government, which often adopted economic and political policies that ran against their interests.  The new nation of the United States of America was formally recognized in the Treaty of Paris signed in 1783.

 

The Revolutionary War was a classic insurgency, succeeding only because of strong grassroots support from the colonial subject population.  Farmers, artisans, merchants, and others joined in either direct action or indirect support for the revolutionaries.  The extraordinary need for strategic planning and cooperation between colonial merchants, who supplied needed materiel for the war effort, and the revolutionary army helped to establish the foundation for post-war economic policies.  Many of the merchants who worked with the revolutionary army rose to prominence in the post-war economy of the new nation.  Furthermore, led by the efforts of treasury secretary Alexander Hamilton, the government played an activist role in promoting a pro-growth business climate that favored these entrepreneurs.  Hamilton was also a critical figure in developing the American strategy for industrialization.

 

An important precondition for economic growth in the new nation was to destroy the economic power of the loyalist aristocracy, wealthy landowners who had supported the continuation of British rule, and to redistribute resources to supporters of the new government.  The post-revolutionary state governments, under the encouragement of the Continental Congress, confiscated the properties of loyalists and used revenues raised from the sale of such properties to supplement other sources of state funding. Some of the land confiscated from loyalists was redistributed to former soldiers returning from the war.  This land redistribution, coupled with laws voiding obligations of farmers to pay feudal rents to the loyalist aristocracy, helped in the expansion of family farming in the states.  The expansion of family farming contributed to the growth in the domestic market in the United States, providing the basis for the aforementioned growth in manufacturing.

 

 

Decentralized Federalism

 

The post-war political leadership recognized the contradictions between building a nation founded on principles of democracy and yet also grounded in the maintenance of slavery.  In many ways, the early course of American politics was shaped by this contradiction.  In particular, the United States was epitomized by relatively decentralized governance.  This decentralization provided a solution, albeit a temporary one, to the radically different governance requirements of the states dependent on free labor vis-a-vis those dependent upon slave labor.  It provided systemic flexibility.  Decentralized federalism recognized that slavery, even if considered abhorent by many citizens of the new nation, was a critically important source of value available for investment in the U.S. Economy.  There were, therefore, a number of compromises.  Slavery was not abolished, but the slave trade was abolished by a number of states.  The New England states, New York, and Pennsylvania committed themselves to the gradual abolition of slavery.  The southern states, dependent as they were on slave-based production, went in exactly the opposite direction, reinforcing laws that guaranteed the continuation of slavery and protected the rights of the slave masters over their human chattel.  Only in an environment of political decentralization could such a sharp contradiction be maintained as long as it was in the United States.

 

This tension is reflected quite dramatically in agriculture.  The early republic was a largely agrarian nation.  Most agricultural direct producers were either self-employed farmers or slaves.  This presents a difficult environment for the making of national public policies.  Policies supportive of free labor might interfere with the objectives of slave masters dependent on unfree labor.  Ironically, in his writings Thomas Jefferson would idealize a politically decentralized agrarian democracy populated by self-employed farmers, although he lived his adult life as a slave master and plantation owner in Virginia.  Being a skillful political leader, he managed to merge these contradictory aspects of American society into a political philosophy which has come to be called "Jeffersonian" and which created the foundation for decentralized federalism.  Such arguments had a resonance for the self-employed farmers and artisans throughout the nation.  This was particularly the case because memories of the loyalist aristocracy were still fresh in many minds.  The feudalism of the colonial period had been largely abolished, significantly enhancing the equality of landownership in the Northeast, where rural life most resembled the Jeffersonian ideal.  The size of the land area available for settlement was such that it encouraged the expansion of self-employment and placed severe constraints on the development of capitalist wage labor markets.  If abundant cheap land worked in favor of independent labor in the northeast and west, the presence of slavery in the south worked in the opposite direction.  The availability of a pool of forced labor provided an impetus to technological changes, such as the invention and innovation of the cotton gin, that would further expand unfree labor, particularly in the agricultural sector.

 

Capitalism took root in manufacturing, encouraged by the cooperative hand of the national and, in some cases, state governments.  It was the textile manufacturers who saw the greatest early successes, fueled by relatively cheap slave produced cotton.  Another early success story was firearms manufacturing.  The rapid expansion in firearms manufacturing was, to a significant extent, the product of governmental policy and procurement.  It is not difficult to understand how the government of a new nation formed of a violent revolution would find it important to build armaments.  Indeed, the government subsidized early manufacturers, partly by means of “bounties.”  Funds collected from foreign firms via high protective tariffs were gifted to domestic manufacturers of the same goods that had been taxed.  This was part of an overall strategy of import substitution industrialization that would prove critical to the growth of capitalism in the new nation.

 

The import substitution industrialization strategy of the Washington administration (brainchild of Treasury secretary Hamilton) was abandoned under the presidency of Thomas Jefferson.  Jefferson ended the Hamiltonian experiment in activist federal involvement in the economy and elevated the importance of "state's rights."  This is consistent with the ideal of Jeffersonian democracy.  However, the United States was only partly a nation of self-employed farmers and artisans, as envisioned by Jeffersonian democracy.  In reality, "state's rights" meant shifting political power from a federal government that was not controlled by any single elite to states, which in some cases, were very much under the control of such elites.  Indeed, in many ways the core support for the Jeffersonian approach came from Jefferson’s peers, the slave masters of the southern states, who Charles Beard described as an “aristocracy.”  Decentralized federalism was an important concept to the slave masters of the ante-bellum south.  Since slave masters were the governors of their plantations and largely in control of state governments, any increase in the powers of the federal government created a potential rival power center.  Thus, decentralized power was critical to maintaining slave master power.  Nonetheless, the basic tensions between the interventionist (Hamiltonian) approach to economic growth and development, and the Jeffersonian “laissez faire” approach would come to epitomize political struggles throughout the history of the United States of America, extending well beyond the period of the Civil War when slavery ceased to be an important factor in the economy.

 

 

Self-employment and American Culture

 

Throughout the ante-bellum period, agriculture remained the primary source of income for most Americans.  Capitalist industrialism was a relatively less visible part of the American economic landscape, particularly outside of the largest cities.  And even in the largest cities, such as New York City, Philadelphia, Boston, and Baltimore self-employment and small scale merchanting (mom and pop stores) remained prevalent over their larger-scale rivals for many years.  In the southern states, whose political economy was dominated by large-scale slave production, thousands of self-employed farmers and artisans and small-scale merchants played critical roles in the day-to-day economic life of most citizens.  Thus, America was, in its early history, not so much a land of capitalism and slavery, but a land of the industrious, self-employed farmer and artisan.  This became an important force in shaping the American character and much that has been mythologized about American culture.

 

The very expanse of American territory served to promote self-employment, as thousands of American citizens took advantage of the "frontier" to migrate West and to make their living as independent producers, either on the land, in their own workshops, or from small-scale merchanting.  It was, therefore, difficult to develop a capitalist labor market when the potential pool of laborers could so easily pull up their roots, so to speak, and move elsewhere.  The concept of the "frontier" and of the freedom associated with the frontier was another factor shaping the character of the American citizenry in complex ways.

 

The rapid growth of small businesses in the United States and the expansion of free enterprise to the frontier areas was supported by a highly decentralized banking system.  Relatively small and autonomous state banks provided the financing for many family farms, as well as for the slave plantation system of the southern states.  Bigger banks in the urban areas helped to finance industrialization but were relatively less powerful influences on economic activity in the hinterland, where most Americans lived and worked.  Today the banking system in the United States remains among the most decentralized in the world.

 

While family farming remained relatively healthy throughout the United States in the ante-bellum period, expansion in slave-based production displaced many self-employed farmers from the most fertile land in the southern states.  This was more than compensated for, in the nation as a whole, by the rapid growth of family farming during the westward migration of Americans.

 

 

Export-led Growth

 

The relatively rapid growth in population and the positive income effects of a decentralized economy were among the many positive factors driving development of the domestic market for agricultural and industrial goods.  Another important factor in generating growth in income and domestic demand for goods and services was the export sector.  Export-led growth created business opportunities and generated more revenues for existing businesses.  Export-led growth was coupled with the import substitution industrialization strategy to generate rapid, even if uneven, growth in both manufacturing and agriculture during ante-bellum period. 

 

The slave plantations, in particular, focused on the production of exportable cash crops, such as cotton and tobacco.  The invention and innovation of the cotton gin was a key technological catalyst for the growth in low-cost, slave-based cotton production that allowed U.S. planters to dramatically expand their markets, both domestic and foreign.  Indeed, when one considers intra-regional export, in addition to export to foreign markets, it seems likely that most of the crops generated from the slave plantations was destined for markets outside of the region of origin.  This generated sizable cash flow for the slave masters, but tended not to have quite as dramatic an impact on income growth in the region because of the sharp income inequality associated with slave-based production.  On the other hand, rapid growth in exports from family farms, whether international exports or production for the growing urban areas, generated income growth that was more egalitarian and had a more dramatic immediate impact in creating domestic demand for manufactured consumer goods.

 

 

Creative Destruction in Ante-bellum America

 

The ante-bellum period of unparalleled U.S. economic growth was broken temporarily by several small recessions and a devastating period of deep recession, perhaps more accurately called a depression in the years from 1839-1843.  This period of economic decline, preceded by the bursting of a speculative bubble in land prices in 1837, represented one in a series of such negative waves to hit the U.S. economy.  Joseph Schumpeter described the economic devastation (bankruptcies, ruined businessmen, lost jobs) caused by recessionary periods "creative destruction" and such periods as essential to the advance of capitalism.  The causes of the economic decline are complex and many, but one of the factors was certainly a fall in export prices brought on by overinvestment and overproduction during the boom period.  Agriculture and industry were on a growth trajectory that turned out to be unsustainable.  There is no way to know that a growth path is unsustainable until excess supplies force a sharp revaluation in prices, as was the case at the end of the 1830s.  The deflationary crisis resulted in bankruptcies and worsening credit conditions.  Banks responded by cutting back on loans.  The credit crunch tended to hurt even profitable firms and result in a drop in investment.  Generally, smaller firms were more vulnerable.  Thus, crisis periods tended to result in greater centralization of market power.  However, large scale firms were not immune and many large enterprises also ceased to operate.  This was also the case in slave-based production in the south where some large-scale slave plantations were  hit by the crisis because of their reliance on export crops.  Unprofitable plantations responded by selling assets, including slaves, to more prosperous plantations.

 

The economic depression of 1839-1843 acted as a catalyst for economic and political reform in the United States.  Banking reforms, reforms in state financing of infrastructure, and a new focus by enterprises, both industrial and agricultural, on efficiency and diversification helped to make the post-depression era an important period of economic transformation.  In addition, in the immediate aftermath of the economic depression, the federal government turned to imperialism to forge a new nationalistic spirit among the diverse citizenry.  In the period from 1845-1853, the United States annexed territory from Mexico, acquired the Oregon territory from Britain, and initialed the Gadsen Purchase.  The new "frontier" provided further space for migratory movements, as well as rich sources of raw materials, and new land for self-employed farmers.

 

 

Expansion of the American Infrastructure and Uneven Regional Development 

 

In an effort to integrate the growing American territory, the railroads and telegraph were expanded, ports were improved, and other infrastructure projects were carried out.  Government intervention, suppressed demand, a renewal in export growth, and other such factors generated economic growth rates after the 1839-1843 depression that were phenomenal and a new sense of prosperity and optimism spread throughout the young nation. 

 

Among the activist measures taken by the U.S. government was the 1850 passage of the Land Grant Act.  The Act provided a grant of land to any corporation that agreed to lay track in the Westward extension of the U.S. railroad system.  The government gave away nearly 4 million acres of land to private corporations during this period, achieving the expected result.  The railroad system was dramatically expanded which helped to create a more cohesive domestic market, to open up new territory in the West for migration, agriculture and animal husbandry, and allowing for the sale of goods produced in the factories of the East.

 

The government further guaranteed the success of the new railroads by contracting with them to carry federal cargo, including mail deliveries and gold shipments.  This guaranteed market for freight helped to lower the risk of investing in the railroads, making it easier to raise capital, and pushing projects into development that might otherwise have languished.

 

The expansion of the nation's transportation backbone provided the basis for a dramatic upward surge in agricultural production and income, as family farms were able to find markets for their output, often markets that were quite a distance from the family farm.  The increased agricultural incomes were critical to expanding the domestic market in the United States, which created demand for industrial goods.  The increased demand for the output from factories and the increased quantity and lower cost of agricultural raw materials, especially slave produced cotton, and food helped to spur the boom in manufacturing.  As manufacturing expanded, this also had a positive income effect, creating further demand for both agricultural and industrial output.

 

Uneven regional development was reinforced during this period of economic growth.  The northern states led the way in manufacturing, while the southern states were locked into a slave plantation-based economy.  The short-term income gains to the plantations from a rise in export sales and in sales of cotton to the textile mills of the northeast created the illusion of prosperity.  In the long-term the southern states would significantly lag behind the northern states in income producing potential and in the development of the southern infrastructure.  The existence of slavery essentially retarded the industrialization of the South, hampered the building of critical infrastructure, and cost the southern states precious developmental time.  The transformation of the southern economic base would have to wait until after the Civil War and, even then, move forward at a much slower pace than development in the north and west as the the plantation system, forced to replace slavery with a form of feudalism, remained in place.

 

 

Post-bellum Hamiltonianism and the Ascendency of Capitalism

 

After the Civil War, the federal government continued to play an activist role in shaping the American economy.  The federal government supported the expansion of self-employed farmers and ranchers with the Homestead Act of 1862, continued to subsidize the railroads and other large business enterprises with the  Timber Culture Act in 1873, the Desert Land Act in 1877, and the Timber Stone Act of 1878. 

 

Government spending, both during and after the Civil War, stimulated growth in manufacturing industries such as coal, iron, and steel, gradually shifting the U.S. economy from an agrarian-base to a more industrial one.  The steel industry was particularly important during this period.  Steel was a key input in both the construction of the railroads and other infrastructure, and in the development of the machine-goods industry.  The innovation of new steel-making techniques helped to lower the tonnage cost of steel and had knock-on effects throughout the manufacturing economy.

 

The U.S. economy was not only being transformed from an agrarian one but was also shifting away from self-employment and small scale enterprises towards capitalism.  Government spending and subsidies aided the rapid growth in the railroads and in manufacturing, which were organized as capitalist corporations.  The corporate form of business organization, which limits the liability of owners, provided an important mechanism for raising extraordinary amounts of capital investment.  The capitalist organization of work meant that it was possible to employ thousands of wage laborers within a single corporation.  The legal benefits of the corporate form and the productive efficiency that came with wage labor-based production combined with the already mentioned government subsidies, lower cost inputs, and expanded markets generated huge revenues for American corporations.  As corporate revenues grew it became easier to raise such funds for furhter business expansion.  A handful of financial and industrial empires were built around this growth, led by legendary business leaders, such as Gould, Fisk, Drew, Vanderbilt, and Rockefeller, who were able to marshall capital investment for their own businesses and often used aggressive strategies for eliminating potential competitors. These early capitalist leaders have been called the robber barons because of their tactics and perceived ruthlessness.

 

Capitalism brought a transformation in the types of jobs available to Americans.  A new "middle-class" of "white collar workers" grew up around the bureaucratic work required in large-scale corporations.  The large wage labor forces employed in manufacturing enterprises resulted in the creation of new management jobs.  The growing demand for wage labor to work in the sweat shops of New York and slaughterhouses of Chicago attracted rural people, many of whom had been self-employed, to migrate to the cities for these new jobs.  This rural-urban migration created urban metropolises where laborers and their families lived in tenement residences.  These residences were often delapidated and unhealthy places to live.  In this case, decentralized policy making meant that the rules that determined "safe" were highly localized and greatly variable.  Ghettos developed in the urban cities where laborers came for jobs and affordable shelter.

 

Industrialized wage labor was increasingly specialized to the extent that a worker might never see the final product of his labor but only a small part of it.  This meant that workers who had worked for themselves, or otherwise participated in the entire production process, lost their skills over time.  The resulting dissatifaction that came with this new situation and unsatisfactory work conditions, which were often deadly in the iron and steel industries and rarely sufficient to support families, led to a push for unionization among many though not all workers.  The union movement, therefore, arose out of and is an important aspect of capitalism.  U.S. capitalism, in its early history, was epitomized both by strong efforts to unionize and by severe resistance from corporate boards and managers to such efforts, including enlisting the support of the government in the suppression of unionization campaigns and strikes.  In some cases, state governments sent national guard troops to assist corporate management in putting down strikes or other work actions, sometimes resulting in bloodshed.

 

The so-called "Gilded Age" from 1873 to 1897 was an ambivalent time economically, beset by recessions and depressions.  It was a period of corporate takeovers and the rise of firms with monopolistic and oligopolistic market power.  It was a particularly difficult time for smaller firms, self-employed farmers, and others who neither weilded much market power or had much influence within the halls of government. The development of these massive industrial empires had a significant impact on the character of American society.  A new industrial and financial aristocracy came to prominence and celebrities, of a sort, in American society.  These aristocrats also adopted the same political philosophy, the Jeffersonian ideal of decentralized federalism, as their political creed, although many of them continued to benefit from government policies and subsidies, including tax breaks targeted specifically at large scale corporate enterprises and not available to smaller businesses or individuals.

 

 

 

The backlash against the growth of big corporate capitalist firms with extraordinary market power came in the form of government antitrust legislation, including the Sherman Act, which declared monopolistic behavior illegal.  The passage of the Interstate Commerce Act of 1887 formed the first regulatory agency in the federal government, the Interstate Commerce Commission, which was charged with the responsibility of regulating railroad rates.

 

A steady growth in the demand for cheap labor followed the advance of capitalism.  Technological advances in transportation made it easier for immigrants to come to America and the new corporate aristocracy supported relatively liberal immigration laws.  Immigrant workers contributed to not only the quantity of labor for the growing economy but also to the creativity that went into the production of new industrial machines and new methods of organization and also into the culture of American society.

 

The severe decline in influence of the southern aristocracy after the Civil War left the capitalist aristocracy without any powerful rivals in setting national economic policy.  Small businesses, with the possible exception of self-employed farmers, generally had little influence on national policies.  Consequently, capitalism grew quickly during the years from the close of the Civil War to World War I.  It was, in many ways, a turning point for American society, in economic, political, and cultural terms.  Capitalism was dominant and would continue to be dominant, setting the course of economic life in post-Civil War U.S. society.

 

 

The New Deal

 

Following World War I, the United States had unprecedented economic power in the world.  Government was pro-business, technological changes had lessened the domestic workload in many households, and increasing productivity meant more lax work schedules for those outside of the house.  Furthermore, scientific advances led to better health and a higher average life expectancy and children were going to school and staying for more years than they had ever been able to before, relieved from the some of the pressure to join the labor force as soon as possible and help support the family.  For all of these reasons and others, there was a considerable amount of optimism about the economy.  Nevertheless, in agriculture, where a significant fraction of the population still earned their living, economic conditions for the self-employed farmer continued to deteriorate.  Many self-employed farmers lost their farms, unable to compete in a period of falling farm prices and mechanization of agriculture.  Some of these formerly independent farmers became migrant laborers, further reflecting the continual drift away from self-employment and towards capitalism. 

 

The optimism that had followed the end of World War I was shattered by the sharp decline in the stock market in 1929 marking the end of a speculative bubble in equity prices.  The stock market decline was followed by a decline in the output and employment in the "real economy."  In this new economic landscape, the correct plan of behavior was not at all clear.  Previously, the large scale industrial and financial corporations had encouraged the government to play a limited role in the economy.  Hoover maintained this policy in the mistaken belief that the economy would fix itself, but economic recession turned into a deep economic depression.  Millions were unemployed.  Without a social safety net high levels of unemployment quickly turned into homelessness and starvation for many Americans.  The nation was in crisis and Hoover's unwavering faith in the markets did nothing to alleviate the growing despair.  Franklin Delano Roosevelt (FDR), promising a more activist approach to solving the economic woes of America and with strong support from labor unions, was elected in an landslide in 1932.

 

The Roosevelt administration inaugurated a new chapter in American culture.  Activist government came to be associated, perhaps for the first time, with policies designed to benefit capitalist wage laborers.  In the past, the Hamiltonian brand of activism had been designed to foster the growth of capitalist industrial and financial firms.  Roosevelt's policies were called the New Deal.  FDR's New Deal began with legislation establishing federal institutions to regulate the banks, the stock exchange, and utilities.  The hope was that such legislation would restore confidence in America's financial institutions.  The New Deal continued with the passage of the National Industrial Recovery Act which stipulated a federal minimum wage, banned most child labor, and gave the federal government tools for combatting the unemployment problem.  The Wagner act of 1935 was designed to protect the rights of capitalist wage laborers to unionize.  Social security was passed, despite strong opposition from the Republican Party.  It would be a mistake to assume that New Deal legislation was simply a pro-labor set of policies.  The New Deal had its Hamiltonian overtones, as well.  There was, for example, legislation to grant businesses the right to set prices for their industries.  The New Deal also included the Tennessee Valley Authority (TVA) to develop a system that could provide cheap electricity to the nation's rural landscape and under the Agricultural Adjustment Act, the New Deal paid farmers to control prices of their crops by limiting productions and initially destroying "excess" crops and livestock, driving up prices and helping both small and large farmers to generate higher revenues.

 

None of these policies were sufficient to pull the U.S. economy of its most serious economic decline.  As long as the directors and top managers of capitalist firms did not expect revenues and profits to grow, they were unwilling to approve new investment.  The pessimism of these top leaders in the business was only exacerbated by the perception of the Roosevelt administration as leaning too far in favor of labor unions, which were seen as promoting higher cost wage labor.  In the early years of his administration, FDR made matters worse by following Hoover's example and trying to balance the federal budget in a time of declining tax revenues.

 

The FDR administration did eventually see the light and raise government spending in an effort to boost aggregate demand, but it was still not enough to restore business confidence.  It was, in fact, World War II that would push government spending to the point that the depression was ended.  Unemployment fell, business revenues rose, and confidence was restored during the war. 

 

 

Post-World War II Boom

 

The United States came out of World War II even more powerful than it had been after World War I.  The result was another long period of optimism.  War-time rationing had suppressed consumer spending for several years and with the growth in optimism and a booming economy, consumer spending compensated for the fall in military spending.  Furthermore, the new Truman government would use federal funding for infrastructure improvement and spending on education, health care, and welfare including medicare, medicaid, and the GI bill, which provided loans to veterans to start their own businesses or continue their education.  Soon, even the military was increasing their spending again.  Thus, government became an increasingly important, and relatively predictable, component of aggregate demand, which reduced the degree of business uncertainty about future revenues.

 

The United States position as superpower was reinforced by such programs as the Marshall Plan, in which the U.S. led the way in financing the rebuilding of the war-torn economies of Europe and Japan and, in turn, opening up these recovering markets to the goods produced by American firms.  It was a time in which the large American firms became increasingly transnational in their operations and American foreign policy followed suit by becoming more consistently extroverted than at any time in the history of the nation.

 

The 1950s was an important period of transformation in American society.  The McCarthy period served as a sort of cultural revolution against the radical politics that had grown during the Roosevelt years.  Americans associated with the Communist Party of the U.S.A. were, in particular, targeted.  In Hollywood, many writers, directors, and other screen artists were blacklisted, meaning they could not find work with the studios or financing for independent projects.  The Korean War represented a hot version of the growing Cold War between the United States and its allies and the Soviet Union, China and their respective allies.  These conflicts only reinforced the effects of the McCarthy Period, even after McCarthy was discredited.  America was also being physically transformed.  Urbanization continued but the Eisenhower administration also funded, through the Interstate Highway Act of 1956, a dramatic increase in the highway system connecting cities and towns.  The building of the highways spawned the suburbanization of the nation and helped to boost revenues for the automobile companies as car sales boomed. 

 

The Kennedy and Johnson administrations continued the post-war transformation of America both in terms of activist foreign policy and innovative domestic policies.  The Cold War heated up again with the U.S. military intervention in the Vietnamese Civil War.   The Johnson administration adopted the supply-side tax cuts that Kennedy had drafted and attempted, under a barage of criticism, to pass in order to increase consumption and stimulate the economy.  Johnson's government became even more involved in the economy by passing legislation such as the Economic Opportunity Act of 1964 which included the Job Corps and the Head Start Program for children and increased government spending by almost ten billion dollars.  These programs helped decrease the income gap in the United States and specifically decrease the number of Americans living in poverty.  The Johnson administration was probably the most activist government since the Roosevelt administration, and continued in the Roosevelt tradition of using this activism to support both pro-labor and pro-business objectives.

 

 

The Rise of Inflation

 

One unfortunate result of the extended boom in the economy experienced after World War II was a rise in price inflation throughout the 1950s, 1960s, and 1970s, peaking in the early 1980s.  Perhaps the most difficult period occurred in the 1970s when the nation experienced stagflation, an economic slowdown and rise in the general level of prices caused, in part, by a sudden rise in oil prices.  The Vietnam war effort is also considered to be responsible for some of the economic problems of this period.

 

Inflation was a serious concern throughout the Eisenhower, Kennedy, and Johnson administrations but not a major political issue until Nixon's presidency.  Nixon attempted to stall inflation by implementing a series of price controls on goods, wages, and rents.  The subsequent inflation surge when controls were lifted discredited price controls as a tool for the federal government.  During the Ford administration and every administration since, inflation has become the province of the American central bank, the Federal Reserve.  The Fed used monetary policies to battle inflation, a less aggressive and often more successful tool than price controls. 

 

Nevertheless, the Fed had only limited success.  Inflation fell somewhat but the most dramatic effect was on unemployment.  The problems of trying to moderate inflation without throwing the economy into recession became a major problem for the Fed and a key political issue.  This became even more problematic with the growing power of OPEC and the Arab oil boycott of the USA.  The Carter administration faced stagflation and later a crisis in Iran after the fall of the American supported regime of the Shah. 

 

A Superpower Rises Again

 

The Iran Hostage Crisis had a transformative effect on American politics, helping to elect Ronald Reagan to the presidency in 1980.  The Reagan presidency was marked by aggressive foreign policy actions and rhetoric.  In many ways, the Reagan presidency represented a return to the "big stick" policies that have epitomized American foreign policy since the earliest days.  The unprovoked invasion of the tiny island of Grenada, although not significant in military terms, demonstrated that the United States had emerged from the malaise that had followed the lost war in Vietnam.  The Grenada invasion, interventions in Central America, and a general perception that the Reagan administration was willing to use force in order to achieve its objectives played a key symbolic role in the resurrection of American superpower clout.  The administrations of George Bush, William Clinton, and George W. Bush continued this approach, employing U.S. troops in Panama, the Persian Gulf, Kosovo, and other venues.  George W. Bush took this a step beyond what his predecessors had done when he used U.S. troops to conquer the strategically important Persian Gulf nation of Iraq in 2003.  The invasion of Iraq is similar to the Reagan-era invasion of Grenada only in being unprovoked.  Otherwise, there is little comparison.  The Iraq invasion was strongly opposed by many nations and, most significantly, by other permanent members of the U.N. Security Council.  Thus, the Iraq invasion marked a clear move away from multilateralism in a conflict beyond the Western Hemisphere.  In many ways, the G. W. Bush approach represented a return to a more 19th century American foreign policy of unilaterally using the U.S. military for imperial purposes, such as was the case, for example, in the annexation of territory from Mexico, the occupation of Haiti, and the seizing of territories from Spain.

Copyright © 2003, Satyananda J. Gabriel, Mount Holyoke College.