A return to Normalcy: A study of the laissez-faire policy of the Harding administration during the 1920-1921 depression

This thesis has conducted an analysis of economic policy by the Harding administration during the 1920-1921 depression. Free market economists have pointed to this episode in American history as proof of the beneficial effects of laissez-faire fiscal and monetary policy during economic crises. This thesis has examined whether federal fiscal and monetary policy was in fact laissez-faire and what impact this had on economic recovery. First of all, trade policy was protectionist, though the Emergency Tariff was found to be too insignificant to impact the conclusions of this study. Taxation policy was decidedly laissez-faire as there were significant reductions in income-tax rates, the end of the Excess Profits tax and multiple smaller regressive taxes were lowered or scrapped. This thesis has found that taxation measures positively impacted economic recovery indirectly through the phenomenon of ‘regime certainty’. Furthermore, federal government spending was reduced substantially...Show moreThis thesis has conducted an analysis of economic policy by the Harding administration during the 1920-1921 depression. Free market economists have pointed to this episode in American history as proof of the beneficial effects of laissez-faire fiscal and monetary policy during economic crises. This thesis has examined whether federal fiscal and monetary policy was in fact laissez-faire and what impact this had on economic recovery. First of all, trade policy was protectionist, though the Emergency Tariff was found to be too insignificant to impact the conclusions of this study. Taxation policy was decidedly laissez-faire as there were significant reductions in income-tax rates, the end of the Excess Profits tax and multiple smaller regressive taxes were lowered or scrapped. This thesis has found that taxation measures positively impacted economic recovery indirectly through the phenomenon of ‘regime certainty’. Furthermore, federal government spending was reduced substantially without negatively impacting economic growth. Government policy on wages, prices and unemployment was decidedly non-interventionist, resulting in substantially lower wages and prices. Finally, the Federal Reserve refrained from implementing any significant monetary stimulus, both through discount rate lowering or open market operations and the money supply decreased strongly throughout the crisis and economic recovery.Show less

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A return to Normalcy: A study of the laissez-faire policy of the Harding administration during the 1920-1921 depression