- Historic Sites
10 Moments That Made American Business
How a debt-ridden banana republic became the greatest economic engine the world has ever known
February/March 2007 | Volume 58, Issue 1
Roosevelt’s great inaugural speech proved the turning point of the Great Depression. Prosperity would not return until World War II, but all the economic indicators, which had been declining for three and a half years, turned around one by one. The year 1933 turned out to be one of the best years, in percentage terms, in Wall Street history, the Dow Jones rising 60 percent. The gross domestic product in 1934 was 17 percent higher than in 1933.
History, of course, abounds with what-ifs, and there is a very large one here. On February 15, the day after Michigan had closed all the state banks, President-elect Franklin Roosevelt came within inches of being assassinated (the bullets meant for him fatally struck instead the mayor of Chicago, with whom he was talking). One can only wonder what would have happened to the American economy and thus to the Republic itself had his Vice President, the fiscally conservative, pay-as-you-go, and uninspiring John Nance Garner, given the inaugural address on March 4, 1933.
The Erie Canal was the most successful government-funded capital project of the early nineteenth century, with incalculable economic and social effects, almost all of them for the good. The GI Bill may well be the most successful government-funded capital project of the mid-twentieth. The capital, of course, was not invested in ditches and locks, it was invested in people. By doing so, it created the much larger middle class of educated people with financial assets that has powered the American economy ever since.
All these good results were entirely unforeseen. Perhaps never has there been a greater or happier example of the law of unintended consequences.
As the end of World War II approached, economists and business leaders alike were nearly unanimous in predicting renewed depression. Since Pearl Harbor the American economy had almost doubled as civilian needs were met, while a vast war machine poured out matériel for the Allied cause. But with victory in sight, it was feared that declining government spending (the federal budget would in fact drop by nearly two-thirds over the next three years) and 12 million soldiers and sailors pouring back into the job market would drive down wages and send unemployment (virtually nonexistent during the war) soaring.
To meet that anticipated crisis, on June 22, 1944, President Roosevelt signed into law the Serviceman’s Readjustment Act, which had passed both houses of Congress unanimously. Ostensibly it was intended to reward servicemen and women for their bravery and sacrifice, but its unstated purpose was to slow down their return to the job market.
To do that, it provided generous benefits for veterans who chose to pursue more education, and 8 million of them attended college and technical schools. In 1950 nearly half a million college degrees were awarded, twice the number of a decade earlier. Between 1945 and 1952, the federal government spent $14 billion (not that far from $100 billion in today’s money) on GI Bill educational benefits, hugely increasing the country’s “intellectual capital,” just as the information age was dawning. And because historically each generation has tended to have about two more years of formal education than its parents, this investment has paid off ever since.
The GI Bill also revolutionized home ownership. The bill provided for Veterans Administration mortgages, up to $2,000 at first but soon as much as $25,000 or 60 percent of the loan, whichever was less. Protected from default, many banks were willing to make housing loans with no money down. Millions of young families, happily creating the baby boom, were thus able to have something their parents had not: substantial financial assets. Instead of paying rent, they were building equity.
People such as William Levitt adapted Henry Ford’s idea of the assembly line to building houses. (The houses remained still, of course, while crews swarmed from one to the next, performing the same task over and over.) As GI Bill families poured into these new housing developments that grew up around every American city, the suburbs quickly became the pivot of American politics.
Thanks in surprisingly large measure to the GI Bill, in a generation the country was transformed from a nation of haves and have-nots to one of haves and have-mores, with consequences for American business that are still playing out.
The first digital computers appeared immediately after the end of World War II. ENIAC (an acronym for Electronic Numerical Integrator and Computer), which came online in 1946, was the size of a bus and used 18,000 vacuum tubes and miles of wiring. The programming was done by physically switching the wires on a switchboard-like grid. All those tubes and the necessary cooling system used as much electricity as a small town. By modern standards it was glacially slow.
Computers quickly shrank in size and grew in power, especially after the invention of the transistor by Western Electric in 1947. The transistor does exactly what the vacuum tube does but is much smaller, cheaper to manufacture, and far more durable.