War & Business
As long as it does not happen in the immediate vicinity, war is a boon for business.
War unleashes and accelerates speculative investing to new levels. ~ American economist Jack Rasmus
In artificially boosting demand and manufacture, wars cut economic contractions short. The panic of 1857 ended with the onset of the Civil War. The 1898 Spanish American War ended the depression of 1893–1898. World Wars 1 and 2 worked similarly on the economic maladies of the day.
Conversely, the end of war invariably spells a decline in production, and so dampens economic activity – except for the losers: those countries that must rebuild. The World Wars also illustrate this effect.
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The US Treasury’s inept ad hoc response to financial events in 1907 led to the creation of the Federal Reserve in 1913. Most critically, the Fed was designed to bail out the banking system when it buckled under speculative overload, by providing liquidity to the creators of the collapse.
The Federal Reserve was the 3rd central banking system in US history. The 1st (1791–1811) and 2nd (1817–1836) each had expired after their initial 20-year charters, purely for political reasons.
Politicians were long suspicious of a central bank. This reflected the (correct) belief across the country that wealthy families and large corporations ran the nation.
Struggling with economic stagnation, President Woodrow Wilson managed to get a central bank act passed only by persistence over determined opposition, and considerable compromise on how the system would work.
The Fed faced its first real test in less than a decade of existence. It failed.
Adjusting from wartime production after the Great War shocked the US economy as factories shut down or retooled their production. (Though America did not directly participate in the 1st World War, it provided supplies which fed the conflict.)
The recession that occurred in 1918 was short-lived, followed by a growth spurt. Inflation shot up.
The Fed responded by jerking interest rates up. This caused a sharp but short, deep depression that began in January 1920 and lasted until July 1921.
Once the Fed relaxed its monetary policy, the economy bounced back and birthed the Roaring Twenties, abetted by rolling back income taxes on the wealthy that had been raised during the War.
The entirety of the 1920s was not rip-roaring. There were mild recessions in 1923–1924 and 1926–1927.
