Considering All the Domestic Cocerns and the Corporate World and the Recent Mergers Between Middle East and Western Countries

THE GROWTH OF THE FEDERAL GOVERNMENT IN THE 1920S

Randall G. Holcombe

The federal government has grown substantially in the 20th century. In 1913, just prior to World War I, federal government expenditures were 2.5 percent of gross national product and by 1990 they had risen to 22.5 percent of GNP. The relatively small size of the federal government before World War I shows that it exhibited minimal growth in the 19th century, in stark contrast with its tremendous growth in the 20th century. [1] Figure 1 shows real per capita federal expenditures from 1800 to 1990, and illustrates the difference between government growth in the 20th century and the 19th. A close look at Figure 1 shows a large percentage increase in federal expenditures during the Civil War, followed by a higher level of expenditures after the war, but minimal growth. Real per capita federal expenditures were $79.76 (all figures in 1990 dollars unless otherwise noted) in 1870, and were $79.56 in 1895. Growth in federal expenditures began in the later half of the 1890s, and Figure 1 clearly shows the wartime peaks of World War I and II. But the most notable characteristic of this graph of government growth is not the peaks that are associated with wars, but the steady growth throughout the 20th century, in stark contrast to the absence of growth in the 19th century. The goal of this paper is to contribute toward an understanding of government growth in the 20th century by examining a subset of that century--the 1920s. [2]

Figure 1:

Real Per Capita Expendatures: 1800-1990

(In Constant 1990 Dollars)

The decade of the 1920s is an interesting subject of study for two reasons. First, as Figure 1 shows, government growth in the 1920s was less than in any subsequent decade, so any light shed on growth of government in the 1920s can help illuminate the entire process of government growth. Second, the 1920s fall between two well-known eras of government growth: the Progressive era prior to World War I, and the New Deal of the 1930s. One is tempted to view the 1920s as an era of government retrenchment that, perhaps, would have produced a repeat of the 19th century had it not been for the Great