Book Notes: the Depression, the NRA, and Obama

I continue to be amazed at the number of parallels between the FDR administration and the Obama administration.  There were two important ones from this weeks reading that I wanted to spend time covering.

Causes of the Great Depression

During the 1930’s and into today capitalism is often pointed out as the reason for the Great Depression.  FDR campaigned saying that the rich were getting richer, companies were experiencing larger profits than ever before, and the poor were getting poorer.  It was said that while companies were making record profits, the average worker couldn’t afford the products they were making.

However, Mr. Folsom points to three reasons that were actual contributors to the great depression:

  1. Lack of loan repayment from our World War One partners.
  2. The Smoot-Hawley Tariff Act, which launched an escalating tariff war and drove up the prices of imports AND items manufactured in the United States.
  3. The actions (or in-actions) of the Federal Reserve Bank.

Each of these contributed to the Great Depression.  Mr. Folsom does a good job of laying out each of these items.  They are well covered in Chapter Three, and would take too much space to cover here.  Mr. Folsom also explains how the “failed capitalism” line of thinking doesn’t work.  He points out that:

There was no upsurge of corporate profits during the decade.  However, the wages going to employees were capturing a larger share of corporate dollars during the 1920s than before.  Third, the percentage of GNP that went to consumption expenses did not fall, but actually rose from 68 percent in 1920 to 75 percent in 1927, 1928, and 1929.

This seems to show that capitalism was working fine during the 1920s.


The National Industrial Recovery Act (NIRA then later NRA) became law in 1933.  This act, “…allowed American industrialists to collaborate to set the prices of their products, and even the wages and hours that went into making them.”  This gave the largest firms in industry the ability to write the rules everyone else had to play by.  If all of the automakers have to pay the same wages as the largest automakers, then the small firms can’t stay in business.

Worse still, the NRA was not a voluntary thing.  Non-partisipation could get a firm or individual fined or jailed.  Carl Pharis of Phairs Tire and Rubber Company described it as, “The Government deliberately raised our prices up towards the prices at which the big companies wanted to sell, at which they could make a profit,…where more easily, with much less loss, they could come down and ‘get us’ and where, bound by N. R. A. decrees, we could not use lower prices, although we could have lowered them and still made a decent profit.”  The Government got in the business of letting the biggest firms pick who would win and who would loose.

The Obama Administration

Which brings us to today.  The current administration continues to blame greedy capitalist and the free market system for our current problems.  It is using it’s own laws to circumvent the rule of law and the capitalist system.  Like FDR, President Obama believes that only the government can solve our problems.

For Next Week: I plan on covering Chapters 5 and 6.  Happy Easter, and have a great week.