Santa Clara University

The Depression's Other Face

How Innovation Surged During an Economic Crisis

The images of the Great Depression are familiar to most Americans: Soup kitchens, the Dust Bowl, people waiting in long lines for a handful of available jobs. It’s a panorama of human misery reflecting an unemployment rate that rose from 3 percent before the 1929 stock market crash to 25 percent by the time Franklin D. Roosevelt took office in 1933.


The 1930s were the most technologically progressive decade in the last century.


At the same time another, more hopeful development, largely overlooked by historians, was taking place. Dramatic advances in technology — such as the invention of nylon and television — were occurring in a wide range of industries. Coupled with improvements in public infrastructure, as well as business organization and management, these advances increased America’s potential output, helping us win a world war and establishing foundations for post-war prosperity.

Alex Field Economics Professor LSB

Alexander J. Field, the Michel and Mary Orradre Professor of Economics at the School of Business, analyzes this paradox in his book, A Great Leap Forward: 1930s Depression and U.S. Economic Growth, published in 2011 by Yale University Press. “If you look at the last century of U.S. economic history,” Field says, “the 1930s were the most technologically progressive decade.”

More than the 1990s, with the internet and advances in computer technology? “There’s no denying that computers and the internet have changed our lives,” Field says, “but the locus of change has been substantially narrower. Computers and information technology experienced dramatic improvement, but cars, planes, houses, and appliances didn’t really change that much. In the 1930s, there wasn’t just one set of innovations, but a broad range of them in many areas of the economy.”

Among the examples Field cites:

  • Development of major hydroelectric projects that powered the nation’s industrial capacity.
  • Significant advances in aircraft design, including Donald Douglas’s development of the DC-3, perhaps the most successful plane ever.
  • Major improvements in automobiles, including streamlined body design, heaters, radios and automatic transmissions.
  • The creation of television, which made its debut at the 1939-40 World’s Fair in New York.
  • Dramatic changes in appliances and their everyday use in American households. For example, the number of families with mechanical refrigerators (not iceboxes) rose from 3 percent in 1929 to 44 percent in 1941, as technology improved and prices became more affordable. The consumption pattern reflects another little-known reality of the Depression years: For most Americans who were working, real hourly wages went up.

Field, who is also the past Executive Director of the Economic History Association, says he became particularly interested in the economic complexities of the Depression years about a decade ago when he began to wonder why productivity advanced steadily during such rough economic times. As he looked into it, he concluded that three factors in particular contributed to a dramatic growth in potential output:

  • Private-sector spending on research and development. Despite the Depression, the number of scientists and engineers employed in this area rose from just under 6,300 in 1929 to nearly 28,000 in 1940.
  • Government spending on infrastructure. The original U.S. Highway system (not the Interstates; think U.S. 101 or Route 66) was completed in the 1930s as work continued on roads, bridges and tunnels. This helped the transportation sector — in particular trucking and railroads — to move goods more efficiently and improve wholesale and retail distribution.
  • Reorganization of the railroad system. Facing financial adversity, and unable to solve problems by throwing money at them, America’s railroads hammered out a set of agreements enabling the different companies to use each others’ track and facilities in a more efficient way.

All these factors helped to increase potential output. That capacity wasn’t used to its fullest during the Depression years, but after the U.S. entered World War II at the end of 1941, the government’s military needs created a demand that quickly absorbed all the available capacity.

That spending closed the output gap, the difference between actual and potential, and in that sense the conventional wisdom that the war ended the Depression is correct, says Field. His book, recipient of a Choice 2011 Outstanding Academic Title in the Economics Area, the Alpha Sigma Nu National Book Award, and the Alice Hanson Jones Biennial Book Prize for 2012, focuses, however, not just on the unemployment and output gap that defined the Depression but also on the growth in potential that enabled the country to put 12 million people in uniform, produce tens of thousands of tanks, ships and planes, and, by some measures, increase consumption during the war. That pre-1942 expansion in economic capacity set the stage for the golden age of improvement in the U.S. living standard between 1948 and 1973.

On the cover of Field’s book is a photograph of people at the General Motors Futurama exhibit during the 1939-40 World’s Fair in New York. They’re leaning forward and looking at the design of a future city in rapt wonder. Field says that’s because they’d seen striking advances in the past decade and could easily imagine and anticipate an exciting and progressive future. The technological boom in the midst of economic hardship was, Field suggests, a testament of sorts to the human spirit. “When exciting technological paradigms are ripe for exploitation,” he says, “the people on the cutting edge are going to push forward, depression or no depression.”

 
 

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Fall 2011 Contents

It's Not Just the Return
Meir Statman’s new investment book looks at the ways in which investors’ emotions and prejudices affect their finances and how they can come to terms with that.

The Truth's about Leadership
Barry Posner and colleague Jim Kouzes have spent a quarter century looking at the values and character traits behind effective leadership.

Technology and Retail
Stephen Smith and Narendra Agrawal have edited abook about the ways in which computer technology helps retailers with assortment,inventory,sales and pricing.

More Than Technology
Terri Griffith uses the Skwish, a flexible geometric toy, to illustrate how changes in one aspect of an organization or operation affect others, a key argument in her book The Plugged-In Manager.

 
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