The Great Depression: Political and Economic causes in the America’s

What Is It?

• The Great Depression of the 1930’s was single handedly the most significant event of the 20^th century. The Stock Market Crash occurred on October 29^th 1929; and this event brought front the previous errors of the American people during the Roaring Twenties. Black Friday precipitated the economic event of that century; however, it also encouraged new forms of leadership in countries of North America.

Historical Context

• When looking at deflation in the four largest economies of the world during this time period, United Kingdom, Germany, United States and France, prices fell 25%, 30%, 30%, and 40% in those respective countries. In both North and American and, deflation caused bankruptcies which in turn led to more bankruptcies. Millions of companies and people suffered severely as they were either directly or indirectly related to all facets of the economy such as banks and companies.

Depressing Facts

• World economic output hit the bottom at 50% of its 1929 level and unemployment hit its peak at 24.9% four years later. Four two more years one in every five people were unemployed. However, when looked at in the context of the 1930’s unemployment was in actuality extremely severe as most households had only one income earner. During the worst years of the Depression, 1933-34, the unemployment rate was 25% with another 25% of the income earners having their wages and or hours cut. In 1934, almost one out of every two American households directly experienced unemployment or underemployment.
• Banks are the most significant facet of a capitalist country as they circulate money, and create new money through loans. Between 1929 and 1933, thousands of banks failed, and with it, the economy’s credit supply. The domino effect was also seen through the bank’s impact on the people as local businesses, which had also called in business loans, were put out of work. All of these factors increasing unemployment and restricting consumption.

The Stock Market Crash of October 28^th 1929

• The events of October 29^th 1929 feature the abrupt collapse, in the space of a few days, of the New York Stock Exchange.  Not only did it wipe out the optimism of the Great Bull Market of 1928 to 1929, it also proved that Republican prosperity was not invincible.
• On Black Thursday, October 24^th, the stock market dropped 34 points equivalent to a 9% drop for the day. On that day, the trading volume was approximately three times the regular daily volume for the first nine months of 1929.
• Prior to Black Thursday, the stock market index hit a high of 386 in September 1929, and by November had dropped to 230 or by 40%. By the end of the crash in 1932, stocks had lost more than 70% of their value.
• There was an enormous amount of activity in stock as overnight success stories and the potential of easy credit encouraged the American people to pour their savings into common stocks. During this time there were also warning signs, cutbacks in private construction and the decline in consumer purchasing, that the industry was not making enough profit to support the soaring stock prices.
• All of these factors culminated in the crash in 1929, and thus resulted in a devastating loss for individuals and nations. The crash brought on the depression of the thirties, and in turn, the depressions extended the period of low stock prices.

A Flawed Economy

• The crash brought to public knowledge the fundamental weaknesses in the American economy for example, the uneven distribution of wealth. Things such as the bottoming out of farm receipts, declining prices and higher expenses represented the economic hardships during the ’20s that were previously overshadowed.
• Unemployment also ran rampant during the time period in which it was believed that all American’s were prospering, as seen through the unemployment that characterized the textile and coal mining industries.
• The slow rising of real wages in the industrial sector was outdistanced by the total net income of those of the upper class. For example, in 1929 the 24 000 richest families had a total income of more than three times as larges as that of 6 million of the poorest families. Forty percent of all families had incomes under $1500 and as a result, the purchasing capabilities of most American’s was unable to keep up with the increase in the commercial advertising and the production potential of the industry.

Historiography

• Conservative historians firmly believe in the ideal of laissez-faire when handling the American economy. Therefore, to them, the depression was simply a necessary evil. This belief is evident through Herbert Hoover’s efforts to handle the depression from 1929 to 1933. To Hoover, small governments were essential as he thought that too much government intervention would restrict individual liberty.  To historians like Hoover who were avid critics of the new deal, FDR’s policy represented the beginnings of an irresponsible, over regulatory, and highly interventional solution. Jim Powell, the writer of Bully Boy: the Truth about Theodore’s Roosevelt’s Legacy, argues the conservative standpoint in his article in 2002, Did the New Deal actually prolong the Great Depression?
• Liberal Historians the Depression signifies the failure of laissez-faire when handling the American economy, however; it does not show the ineffectiveness of capitalism. On that thought, liberals value capitalism and democracy and assert that democratic governments should be attuned and responsive to the needs of the people. Also, a critic of the New Deal, many liberals held that FDR’s policy would lead to the empowerment of the previously powerless and repressed groups, specifically the lower class. A classic example of a liberal politician who holds this belief is the Secretary of the Interior in 1938, Harold Ickes. Similarly, historian Albert U Romasco, proves in his book The Hoover Presidency in 1973.
• To leftists, the Depression represented to total failure of market capitalism when safeguarding the interests of the majority. In their perspective, rather than empowering the masses, the New Deal represents the resilience and effectiveness of capitalism and its continued power. Overall, the New Deal was the replacement of laissez-faire capitalism with corporate statism; a partnership between big businesses and the government. This ideal can be seen through, the Professor and Dean of History; Robert F. Himmelberg’s book The Great Depression and the New Deal.

A Flawed Government

• During the time of economic hardship the federal government failed to improve circumstances for all. Tax policies for example, favored the rich adding to the unequal distribution of income.
• The crisis abroad also drastically worsened the situation in the US. European nations needed goods and credit from America to restore their own diminishing economies and to stabilize their currency.
• However, American tariffs such as the Hawley-Smoot Tariff on June 17^th 1930 raised tariffs by up to 50% on many goods, thus restricting exports and limiting Europe’s buying capacity. As a result, American manufacturers were unable to sell abroad, thus increasing unemployment, and the linked European and American economies spread the Depression outside the western hemisphere. By March 1933, international trade dropped to 33% of its 1929 level and this had a ripple effect similar to the bank failures.

Nature and efficacy of solutions in the United States: Hoover; Franklin D Roosevelt and the New Deal; critics of the New Deal

Herbert Hoover 1929

• Hoover came into office on March 4^th 1929, and seven months later was challenged by the Great Depression. Hoover tried to handle the poor economical situation through volunteer efforts and government action, none of which was able to produce a substantial amount of economic recovery during his term.

Agricultural Marketing Act

• Passed in June of 1929, the AMA was aimed to help the farmers help themselves, through the assistance of the Federal Farm Board which had funding of half a billion dollars. In 1930, the board created the Grain and Cotton Stabilization Corporation to improve decreasing prices by purchasing, selling, and storing surpluses or by lending money to farm organizations.
• The act was ineffective as inflation was more pounced than the value of money, thus causing the losses of the farmers to increase.

Hawley-Smoot Tariff

• The Tariff act of 1930 raised tariffs by 60%, the highest in US history, and dropped exports by 50%. This act triggered the outrage of foreigner as it reversed the previous agreement of reasonable tariffs and it restricted trade. This was because foreigners could sell less in the US and earn less US money to buy US goods or make payments on debts owed to the US.
• Hoover enforced this policy as he believed that it was good for the economy and also because the great depression caused the administration to become very nationalistic and isolationist.

Hoover Describes the Role of the Government

• “The American system is grounded upon the conception that only through ordered liberty, freedom and equal opportunity to the individual will his initiative and enterprise spur on the march of progress”
• “The Republican party restored the government to its position as an umpire instead of a player in the economic game”
• “For these reasons, the American people have gone forward in progress while the rest of the world halted”

Franklin D. Roosevelt New Deal 1933

• FDR wanted to improve the life of the poor and firmly believed that all classes including the underprivileged also had a right to experience the improvements made by the federal government.
• FDR experimented with currency inflation and heavy government spending.  Their primary initiatives were to fix banks, stabilize businesses and agriculture, reduce unemployment and finally provide assistance for the victims of the Depression.

Banking Reform

• One of the most negative developments of the Depression was the plunge of the nation’s banks toward bankruptcy. As a result, within a day or two of Roosevelt’s inauguration, Roosevelt established reform policies to improve the banking system.
• After taking office on March 4^th of 1933 FDR closed most of the American banks and by March 6^th all banking operations and transactions of gold were suspended. Three days later the Emergency Banking Act, which sanctioned the presidents and established future procedures for getting sound banks back into operation, was passed by Congress. Before the end of March, most of the secure banks had been reopened and the unsound ones were being permanently closed. A month later, more than 12 000 banks, holding 90% of the country’s deposits, were now functioning effectively.
• FDR’s told the American people that the New Deal would improve the old order not change it, which appeased Conservatives, and would keep the basic structure of American capitalism intact. However, to accomplish this, the federal government would play a major and unprecedented role.
• One of the strongest bank reform measures was the Glass Steagall Act of June 1933 which established the Federal; Deposit Insurance Corporation. The FDIC regulated bank deposits to a maximum of 5000$ per depositor. This act prevented national banks from using depositor’s money to speculate in the stock market and it also helped in the separation of commercial from investment banking. Also established by the Glass Steagall Act was the Banking Act of 1935 that increased the authority of the federal government over the banking system. This was done by granting the Federal Reserve Board the power to regulate interest rates.
• The Securities Act of 1933 enabled the American people to attain a greater awareness of the Stock Market through stock promotions. Followed by this measure was the Securities Exchange Commission. The SEC was established to ensure that all facets of the stock market were effectively registered and forced them to adhere to the Federal Reserve Board.

The National Recovery Administration

• FDR also aimed to experiment with currency measures as he believed that under specific conditions in which the monetary value was favorable, the prices in the American market would rise.
• To enable this, the National Industrial Recovery Act was passed in June 1933, and to FDR it represented “the most important and far-reaching legislation ever enacted by the American Congress”. The NIRA was essential as it helped to ration the nation’s economy and monetary spending amongst the thriving corporations. As a result of this measure anti-trust laws were suspended and corporations had to draw up codes of fair competition that forced them to abide by price agreements, establish unwavering production quota’s and encourage wage increases that would improve conditions for the lower-paid workers. Through the National Recovery Administration, the government was also able to accept, reject codes or enforce codes upon companies that failed to agree.
• The NRA’s success can be seen through the creation of maximum hours and minimum wages on a national basis, the reduction of child labor, and the enforcement of collective bargaining as a national policy.

The Agricultural Adjustment Act

• As a result of the depression, it was essential that FDR act quickly to increase the prices of agricultural products to a level that would raise the purchasing capabilities of farmers. The improvements for the agricultural industry were incorporated within the Agricultural Adjustment Act of May 1933 that created the Agricultural Adjustment Administration. The AAA aimed to raise farm prices, target production towards domestic needs rather than internationally and sharing the domestic market amongst all farmers. Overall, they wanted to raise farm prices back to the level they were during the pre-war years of 1909 to 1914.
• To encourage cooperation of the farmers, the AAA granted government subsidies for the amount of acreage that was targeted towards achieving the objectives of the administration. The act provided reductions for many products including, cotton, wheat, corn, hogs, rice, tobacco and milk.
• The Resettlement Administration of 1935 followed in the steps of the AAA and used the 9 million acres of wasteland that was not used for farming and moved the families living in these unsuitable areas to other places in the US. The RA also extended loans to farmers who were unable to obtain credit and it allowed farmers to establish groups in which they could coordinate agricultural efforts.
• The Farm Tenancy Act of 1937 provided loans to sharecroppers, tenant farmers and farm laborers in exchange for the purchase of land, livestock, supplies and equipment. By June of 1944 over 800 000 rural families had been aided by the act.

The Tennessee Valley Authority

• On May 18^th 1933, the Tennessee Valley Authority was able to buy, build and operate dams in the valley. The organization would generate and then sell electricity, plan reforestation efforts and encourage flood control. As an independent public corporation, the TVA was responsible for 40 000 square miles of land in seven states in which 16 new dams were built and five others were brought under their control. Specifically, over 40 000 people were directly or indirectly helped by the TVA. For example, many of the farmers who previously had no access to electricity were given permanent access because of the low rates.

Unemployment

• When FDR took office in 1933 13 million workers were unemployed and including families that number tripled to an astounding 50 million persons many on the brink of starvation.

The Civilian Conservation Corps

• The Civilian Conservation Corps recruited 500 000 young men from cities to live in camps in which they worked on reforestation, construction and other simple tasks. These men earned 30 dollars a month in which 73% of it was sent to their families. By the end of 1941 over 2.5 million youths had spent some part of their lives in CCC camps.

The Federal Emergency Relief Administration

• The Federal Emergency Relief Administration of May 1933, had a cap of 500 000$ to use for direct emergency relief. In addition to cash payments those receiving relief were also put to work thus enabling them to maintain some semblance of pride and to provide for their families without the continuous aid of the government.

The Public Works Administration

• The Emergency Relief Act of 1935 targeted the initiatives of the federal government to employable only (those who needed relief) and left the fare for the unemployables (who could have found work even during times of prosperity) to the states and municipalities. Under this act was the Public Works Administration which planned the construction of bridges, dams, hospitals and other public projects as well as the CCC. All other relief initiatives were brought under the control of the Works Progress Administration.
• At the end of the operation in July 1941 the WPA had spent 11.3 billion dollars and at its peak in November 1938, about 3.3 million persons were benefiting from their efforts. Overall 8 million people benefited from the work of the WPA. Amongst its more than 250 0000 initiatives included hospitals, bridges, regional power plants, post offices, and schools. Furthermore, its efforts in the fine arts, music and the theater provided employment for painters, writers, actors, singers and musicians.

The Social Security Act

• The SSA was a reform measure enacted in 1935 in which the federal government would provide pensions for the aged, inform, insurance for the unemployed, and benefits for single mothers and children. Specifically, pensions up to 15$ a month were granted to the poor over the age of 65 as well as retirement funds from 10$ to 85$ a month were given to retired workers of the age of 65. As a result of this act, a worker who had lost their job could collect from5$ to 15$ a week for about 15 weeks until another job could be obtained. By 1950 about 50 million Americans were protected by the SSA and in some cities, money payments increased, and the period for receiving insurance payment extended.

Critics of the New Deal

• The target for most of the critics of FDR’s policy was towards his relief program as they required large amounts of funding that was not readily available as a result of the depression. Critics also argued that musicians, writers and artists had as much claim towards the community and the efforts of the government as workers in other fields. Some held that the New Deal was not as effective as it was thought to be. Specifically, only once, in 1937, did the number of unemployed fall below 8 million. In 1940, it was five times as high as it was in 1929, and this failure revealed a flaw in the New Deals’ ideals about the soundness of the economic system that they aimed to restore.
• Senator Huey Long was an avid critic of the New Deal and maintained that his policy of Share Our Wealth would handle the depression effectively. His policy emphasized confiscatory taxes on the wealthy thus providing every family with an income of 2500, a homestead and an automobile.
• Another critic of the New Deal was Frances Townsend, who in January 1935, announced the Townsend Plan. His plan entailed the granting of 200$ a month to all citizens over the age of 60 on the restriction that the pension is spent within a month. From this, consumer purchasing would increase and the business would book thus making it easy for the rest of the nation to bear the cost.

FDR Supports Active Government

• “I shall ask the Congress for the one remaining instrument to meet the crisis — broad Executive power to wage a war against the enemy — as great as the power that would be given me if we were in act invaded by a foreign foe.”
• “The country needs and demands bold experimentation. It is common sense to take a method and try it. If it fails admit it firmly and try another. But above all try something”
• “Let me assert my firm belief that the only thing we have to fear is fear itself — nameless, unreasoning, unjustified terror…”

William Anderson (Schoolworkhelper Editorial Team)

William completed his Bachelor of Science and Master of Arts in 2013. He current serves as a lecturer, tutor and freelance writer. In his spare time, he enjoys reading, walking his dog and parasailing. Article last reviewed: 2022 | St. Rosemary Institution © 2010-2024 | Creative Commons 4.0

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