The Great Depression was the worst and longest economic collapse in the history of the modern industrial world, lasting from the end of 1929 until the early 1940s. What was once the land of hope and hopefulness had become the land of depression. The American people were questioning all the sayings on which they had based their lives – democracy, capitalism, and individualism. The Great Depression saw rapid declines in the production and sale of goods and a sudden severe rise in unemployment.
According to Robert S. McElvaine author of Great Depression in the United States at the worst point in the depression, more than 15 million Americans–one-quarter of the nations workforce–were unemployed (1). Thirteen million people lost their jobs and could not find work. Banks and businesses failed, leaving the entire county in great need. The depression was caused by a number of serious weaknesses in the economy, income was unevenly distributed, Americans spent more money than they earned, farmers faced low prices and heavy debts, and the lingering effects of World War II.
The depression ended in the united Sates only when massive spending for World War II began. Two things happened during the twenties that triggered the Great Depression one of these events was the crash of the Wall Street stock market in October of 1929. The stock market collapsed after steady declines in production, prices and incomes over three previous months which forced the speculators to revise their expectations. Anxiety soon gave place to panic which led to the crash. However, the depression affected the different industrialized countries in various ways and degrees of intensity.
The collapse of the stock market produced a chain reaction throughout the American economy. Most of the buying power of the country was concentrated in the hands of a minority of rich people. Consumer spending went into a sudden and pronounced decline, beginning especially with luxury items. Because the fact that industry had not shared its profits with labor in the form of increased wages for increased productivity, there was no great reservoir of mass purchasing power to keep goods moving (Goldston 42) Between 1923 and 1929, manufacturing output per person/hour increased by 32 percent, but workers wages grew by only 8 percent (McElvaine 2).
The second event was that in the 1920s income was distributed very unevenly, and the portion going to the wealthiest Americans grew larger as the decade proceeded. Corporate profits shot up by 65 percent in the same period, and the government let the wealthy keep more of those profits. The Revenue Act of 1926 cut the taxes of those making $1 million or more by more than two-thirds (McElvaine 2). Technology had eliminated more industrial jobs than it had created; the supply of goods continued to exceed demand; the world market system was basically unsound.
The high tariffs of the Smoot-Hawley Act exacerbated the downturn. As business failures increased and unemployment soared–and as people with dwindling incomes nonetheless had to pay their creditors–it was apparent that the United States was in the grip of economic breakdown. Most European countries were hit even harder, because they had not yet fully recovered from the ravages of World War I. After World War I the united Sates became the worlds chief creditor as European countries struggled to pay war debts and reparations.
Many American bankers were not ready for this new role. They lent heavily and unwisely to borrowers in Europe, especially Germany, who would have difficulty repaying the loans, particularly if there was a serious economic downturn. These huge debts made the international banking structure extremely unstable by the late 1920s. The deepening depression essentially coincided with the term in office (1929-33) of President Herbert Hoover.
According to the Editors of Time-Life Books authors of Hard Time: The 30s, the stark statistics gave no real picture of the situationof the pitiful men who sold apples on the city street corners; of the long lines of haggard men and women who waited for dry bread or thin soups, meager sustenance dispensed by private and municipal charities; of the bloated bellies of starving children; of the distraught farmers blocking roads to dump milk cans in a desperate effort to force up the price of milk (20) .
From 1930 to 1933 industrial stocks lost 80% of their value. In the four years from 1929 to 1932 approximately 11,000 U. S. banks failed (44% of the 1929 total), and about $2 billion in deposits evaporated. The gross national product (GNP), which for years had grown at an average annual rate of 3. 5%, declined at a rate of over 10% annually, on average, from 1929 to 1932. Agricultural distress was intense: farm prices fell by 53% from 1929 to 1932. President Hoover opposed government intervention to ease the mounting economic distress.
His one major action was the creation of a government bank for banks called the Reconstruction Finance Corporation which gave money to an alleged source of the Depression and not to the people who really needed it. Hoover also rallied Congress to increase public works spending to create jobs building bridges, harbors, and buildings. One of the biggest construction projects undertaken in the 1930s was the building of Hoover Dam on the Colorado River (Nishi 14).
Most of Hoovers attempts to rid the nation of the Depression had fallen short, serving only to earn him a reputation for being insensitive and uncaring. His name undeservedly became synonymous with the blight and worked its way into the language in various negative expressions: Hoover flags were empty pockets turned inside out, Hoover hogs were the jackrabbits farmers caught for food, and Hoovervilles were squalid villages of homeless people.
The Democrats took full advantage of these perceptions in their campaign and were even accused by Hooverites of allowing the Depression to worsen for their own benefit. Although the Republicans nominated Hoover to run for a second term in 1932, a despondent president continued to battle the Depression alone, without the support of either side of Congress (Nishi 17). Hoover lost the election anyway to Franklin D. Roosevelt. The depression brought a deflation not only of incomes but of hope.
In his first inaugural address, President Franklin D. Roosevelt declared that “the only thing we have to fear is fear itself. ” But though his New Deal grappled with economic problems throughout his first two terms, it had no consistent policy. At first Roosevelt tried to stimulate the economy through the National Recovery Administration, charged with establishing minimum wages and codes of fair competition in every industry. It was based on the idea of spreading work and reducing unfair competitive practices by means of cooperation in industry, so as to stabilize production and prevent the price slashing that had begun after 1929.
This approach was abandoned after the Supreme Court declared the NRA unconstitutional in Schecter Poultry Corporation v. United States. Roosevelt’s second administration gave more emphasis to public works and other government expenditures as a means of stimulating the economy, but it did not pursue this approach vigorously enough to achieve full economic recovery. At the end of the 1930s, unemployment was estimated at 17. 2%. Other innovations of the Roosevelt administrations had long-lasting effects, both economically and politically.
In 1933 Roosevelt passed the Glass-Steagall Act, separating commercial banking from investment banking and creating the Federal Deposit Insurance Corporation (FDIC). FDIC insured the savings of depositors up to $5,000 and proved to be one of the New Deals most important programs. No longer would depositors have to fear to fear losing their life savings when banks got in trouble. The government would now insure peoples deposits, providing a sense of security when times were bad (Nishi 19). To aid people who could find no work, the New Deal extended federal relief on a vast scale.
The Civilian Conservation Corps took young men off the streets and sent them out to plant forests and drain swamps. The government refinanced about one-fifth of farm mortgages through the Farm Credit Administration and about one-sixth of home mortgages through the Home Owners Loan Corporation. The Works Progress Administration employed an average of over 2 million people in occupations ranging from laborers to musicians and writers. The Public Works Administration spent about $4 billion on the construction of highways and public buildings in the years 1933-39.
The depression years saw a burst of union organizing, aided by the National Labor Relations Act of 1935. New industrial unions came into existence through the efforts of organizers led by John L. Lewis, Walter Reuther, Philip Murray, and others; in 1937 they won contracts in the steel and auto industries. Total union membership rose from about 3 million in 1932 to over 10 million in 1941. Political and Cultural Effects The expanded role of the federal government came to be accepted by most Americans by the end of the 1930s.