According to the business cycle, economic activity is in a cycle that is both necessary and inevitable. The business cycle consists of expansion which is defined by increased output, employment, and profit, followed by contraction which includes decreased input, growing unemployment, and profit losses (Sherman, 2014). It is commonly accepted that this cycle contributes to the progression of a capitalist economy. Another key characteristic of the cycle is the belief that in a free market economy the government should limit its intervention and just let the cycle play out naturally. However, the Great Depression was a severe and unprecedented contraction period that lasted longer than expected, and the absence of the natural forces that led toward recovery called for government intervention in the form of expansionary fiscal policies (May, 2004).
The Great Depression started in 1929 for the United States, leaving devastating effects around the globe lasting throughout the 1930’s. When Franklin D. Roosevelt became president in 1933 he immediately took action implementing the New Deal, which involved several federal programs that stimulated financial reforms and regulations. Although the New Deal’s purpose was to ignite the economy, many of the programs and reforms proposed never came to fruition due to the conflicting views in Congress. Those conflicting views were a commonality during the Great Depression and often were expressed through political cartoons.
On March 18, 1937, John Knott’s Speaking of Raising Taxes was published in the Dallas Morning News; during that time the United States was still consumed with the Great Depression and its ramifications. Depicted in the cartoon, Marriner S. Eccles was appointed as the head of the Federal Reserve Board, under Franklin D. Roosevelt’s administration. The supplemental editorial Eccles Explains, provided context for the cartoon. It stated that Eccles intended to balance the budget through an increase in taxes (“Eccles Explains”, 1937). This new tax proposal was part of a contractionary policy that would make it possible to balance the budget, which was at a deficit of 26.4 billion dollars (“1937 United States Budget”), at the cost of allowing the recession to continue. An alternative to this proposal was an expansionary policy that called for deficit spending and tax cuts in order to boost the economy onto a path towards recovery from the recession.
Speaking of Raising Taxes, depicted Eccles saying, “This is no money at all. Uncle.” in addition to holding a paper in his hand that reads “higher taxes to balance budget”. Sitting in front of him is Uncle Sam who’s saying, “Why not cut expenses and stop borrowing?” while clutching one of the many stacks of money lying around him labeled “record income tax returns.” Knott’s cartoon illustrates Eccles, the chairman of the federal reserve board, in a quandary with the Uncle Sam in trying to figure out the best means for restructuring the country in recovery from the Great Depression.
Before being appointed as chairman of the Fed, Eccles was assistant to Treasury Secretary Henry Morgenthau Jr. Prior to going into politics, Eccles made his own conclusions as to what caused the Great Depression. His suggestions revolved around the concept that to keep a sound economy there must be constant movement of money. By this, he meant that instead of having money just sitting under large corporations and the rich, that money should be distributed among the lower income groups. This concept was similar to the idea of famous economist John Maynard Keynes and what is now known as Keynesian Economics. Keynesian Economics calls for expansionary policy in times of recession. (May, 2004) Keynesianism generally recommends countercyclical policies. For example, in order to suppress inflation, the government can increase taxes or reduce outlays.
Within the cartoon, Knott illustrates opposing views through a discussion between Eccles and Uncle Sam. In this case, Uncle Sam represents both the national government and the American people. Eccles stating, “This is no money at all. Uncle ” justified his proposal of higher taxes. The stacks of money lying around Uncle Sam labeled, “record income tax returns” represented what the outcome of what Uncle Sam said. With taxes being cut from such high rates the returns would be massive, revealing why Uncle Sam is clutching a stack of money. Taxpayers would then be able to spend their new disposable income and boost growth in the economy. The recurrence of the dilemma on whether to choose an expansionary policy or contractionary policy is inevitable as the economy is constantly changing.
“1937 United States Budget.” Rate Limited, federal-budget.insidegov.com/l/39/1937.
Amadeo, Kimberly. “Deficit Spending Is Out of Control. Here’s Why.” The Balance, 2 May 2017, www.thebalance.com/deficit-spending-causes-why-it-s-out-of-control-3306289.
“Eccles Explains.” The Dallas Morning News, 18 March 1937.
MAY, DEAN L. “Keynesian Economics.” Encyclopedia of the Great Depression, edited by Robert S. McElvaine, vol. 1, Macmillan Reference USA, 2004, pp. 539-541. Gale Virtual Reference Library, go.galegroup.com/ps/i.do?p=GVRL&sw=w&u=txshracd2598&v=2.1&it=r&id=GALE%7CCX3404500304&asid=55eeb9551783fd782464aa2fc29212f7. Accessed 8 Nov. 2017.
“Marriner Stoddard Eccles.” Encyclopedia of World Biography, 2nd ed., vol. 22, Gale, 2004, pp. 160-162. Gale Virtual Reference Library, go.galegroup.com/ps/i.do?p=GVRL&sw=w&u=txshracd2598&v=2.1&it=r&id=GALE%7CCX3404708008&asid=2c560e98f0e4272451e86080b7aa4db2. Accessed 8 Nov. 2017.
Sherman, Howard J. The Business Cycle. Growth and Crisis under Capitalism. Princeton: Princeton University Press, 2014. Web. Retrieved 9 Nov. 2017, from https://www.degruyter.com/view/product/452516