What suffered most in the Great Depression, John Nye says, was trust — impersonal social trust:
The idea of impersonal social trust was the most dramatic accomplishment of industrial civilization’s rise from the 18th to the early 20th century. The greatest achievement of early modern economic growth was not the Industrial Revolution itself, but the way in which the leading Western economies began to move away from highly parochial, narrow networks of personal exchange and came to rest instead on increasingly complex national and international commercial networks of impersonal exchange. The networks were mediated by competition, but also by an Adam Smithian understanding that strangers’ seeking their own gain amongst each other could lead to universal benefit. Praxis and theory reinforced each other.
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In some ways, FDR did not so much break from normalcy as return to it. It helps to recall that large-scale systems based on anonymous exchange were a recent phenomenon. The system of orderly, global trade developed in the 19th century under the financial and political leadership of the United Kingdom, and backed by the gold standard, produced growth and prosperity. But it also produced plenty of social disruption and downward as well as upward mobility. It certainly never inspired the kind of devotion that nationalist and communal ideology more readily induce, as suggested by the rise of fascism during the interwar period. The world’s experience with democracy and market capitalism was limited. The more common experience by far consisted of political systems that allowed limited access to property rights and trade, reserving the most exalted benefits for elites who treated control of the political economy as their reward for preserving peace.This older, more organic order, which even today represents the default for most nations, has the advantage of being both stable and intuitively natural. So thoroughly has the West taken for granted the triumph of the more abstract liberal nation-state that its denizens must remind themselves how fragile its origins were and how little emotional loyalty it has commanded. Indeed, the evidence suggests that few people trust large-scale systems of commerce. It is much easier to focus on political economy as a system of extended associations in which successes or failures can be attributed to individuals or groups for whom we feel either loyalty or loathing. Despite the prevalence of market behavior throughout history, it has rarely trumped communal corporate identity, especially in hard or frightening times. Abstractions do not generally prevail over concrete social relations because personal trust is more readily attained and maintained than impersonal trust.
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Seen as a reversion to older habits, the odd mix of regulation, make-work, intervention, protectionism, nationalism and (as in Germany and elsewhere) anti-Semitism that characterized the Western policy response to the Depression suddenly seems less like an incoherent flaying in all directions and more like elements of a uniform retrenchment in social relations. What all these habits had in common, in all the countries in which they loomed large, was their role in spurning the system of abstract, anonymous and international exchange for more parochial, inward-looking responses to danger. So afraid of the new were they that some national elites followed this path of retrenchment to the point of utter self-destruction. Indeed, the severity with which people rose to tear up or overturn that still new system, despite the unprecedented prosperity it had wrought, seems indisputable testimony to how paper thin support for liberal trading regimes truly was.
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In a sense, Western markets are like Western medicine: Just as an outbreak of incurable plague would lead to both a renewed search for sound cures and an atavistic appeal to folk remedies, so the Depression stimulated both productive thinking about the sources of business instability as well as destructive appeals to extreme nationalism, protectionism and military aggression.
As Arnold Kling adds, it is more natural to live in a world of Mafia Godfathers than one with fair, open, competitive markets.