After the failure to undertake necessary reforms of the financial system revealed by the Panic of 1893 and the Great Depression of 1893-1898, the country went through a period of relative prosperity. There were a few negative voices raised, such as Judge Peter S. Grosscup’s concerns, expressed in a series of articles before World War I, but, by and large, most people focused on how to tinker with the system already in place — after all, events since the Civil War half a century before suggested that things would always return to normal.
The problem was that far too many people missed the warning signs that something was seriously wrong with the economy in the United States, and had been since 1863 and the institution of the National Bank system. This became evident in 1893 when Frederick Jackson Turner declared that the end of “free” land under the Homestead Act meant the end of democracy — and the end of the uniquely American character. Americans would now tend to become increasingly European in their outlook, with the United States ultimately becoming a European style aristocratic republic.
True, the rapid expansion of capital ownership following the 1862 Homestead Act brought the U.S. out of the Great Depression of 1873-1878. Crop failures in Europe and bumper crops in the U.S. brought the U.S. out of the Great Depression of 1893-1898. World War II brought the U.S. out of the Great Depression of 1930-1939.
Perhaps not surprisingly, however, there was a declining effectiveness of each of these remedies. The Homestead Act resulted in increasing production and thus consumption income at just the right time to support the rapid expansion of industrial and commercial capital. The effect first had to build up following the Civil War, however (hence the temporary over-capacity in transportation facilities that triggered the Panic of 1873 in the United States — having caught the disease from Europe — and the ensuing depression), and then petered out as available land was taken, thereby providing the basis of the Panic of 1893 and that ensuing depression.
The period following the Great Depression of 1873-1878 was characterized by nearly full employment and rapid economic growth, but the opportunities for small ownership were disappearing. As Judge Grosscup noted, the period following the Great Depression of 1893-1898 was characterized by accelerating loss of small ownership itself, not just the loss of opportunity noted by Frederick Jackson Turner. The resulting concentration of financial and economic power brought on the Panic of 1907.
Where the recoveries in the 19th century were "natural," i.e., done without government manipulation of the currency or job creation, and succeeded, that of the 1930s was exclusively based on government manipulation of the currency and job creation — and failed. World War II brought the country out of the Great Depression of the 1930s, not Keynes or Roosevelt. The good credit of the United States financed the war — a credit that is now seriously threatened by the growing deficits that the Keynesians insist are not only good, they are essential to economic growth!
The Keynesian reliance on government deficits and control of the economy, of course, fails to explain why the U.S. went through its most rapid economic expansion at a time when the national debt was negligible, and capital ownership was widespread, giving many people control over their own lives. The outstanding debt was maintained only to back the National Bank Note currency of 1863-1913 and the Treasury Notes of 1890. The Keynesian claim that economic growth in an advanced economy cannot take place without concentrated ownership also fails to explain how concentrated capital ownership appears to inhibit economic growth.
Today we are still trying to force the failed solution of the 1930s (government manipulation of the currency and job creation) to work, when we should be implementing the only solution that really worked: the Homestead Act, only updated to include commercial and industrial capital as well as land.