The economic depression that befell the United States and other countries in the 1930s was unique in its strength and its consequences. At the depth of the depression, in 1933, one American worker in every four was out of a job. In other countries, unemployment ranged between 15 percent and 25 percent of the labour force.
The great industrial slump continued throughout the 1930s, shaking the foundations of Western capitalism and the society based upon it. Aspects of the economy President Calvin Coolidge had mentioned during the long prosperity of the 1920s. He said, “The business of America is business.” Despite the seeming business prosperity of the 1920s, however, there were serious economic weak spots, a major one being a depression in the agricultural sector. Others facing depression and problems were such industries as coal mining, railroads, and textiles.
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Throughout the 1920s, U. S. banks had failed–an average of 600 per year–as had thousands of other business firms. By 1928 the construction boom was over. The spectacular rise in prices on the Stock Market from 1924 to 1929 shared little relation to actual economic conditions. In fact, the boom in the stock market and in real estate, along with the expansion in credit (created, in part, by low-paid workers buying on credit) and high profits for a few industries, concealed basic problems.
Thus the U. S. stock market crash that occurred in October 1929, with huge losses, was not the actual cause of the Great Depression, although the crash began the most traumatic economic period of modern times. By 1930, the depression was most apparent, but few people expected it to continue. Previous financial panics and depressions had reversed in a year or two and thus most people thought that this was just part of the ups and downs of the business cycle. The usual forces of economic expansion had vanished, however.
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 (1930) 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. The deepening depression essentially happened within the term in office (1929-33) of President Herbert Hoover.
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 simply disappeared. 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. (Hoover believed in laissez-faire economics, in which the government would not intervene in business) His one major action, which happened in 1932, was the creation of the Reconstruction Finance Corporation to lend money to ailing corporations, which was ineffective. As a result, Hoover lost the 1932 election to Franklin D. Roosevelt.
The depression brought a deflation not only of incomes but also of hope. In his first inaugural address (March 1933), President Franklin D. Roosevelt declared that “the only thing we have to fear is fear itself.” But though his New Deal fought 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, which was 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.
This approach was abandoned after the Supreme Court declared the NRA unconstitutional in Schecter Poultry Corporation v. The United States (1935). 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. 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. (They were also known as Roosevelt’s “Tree Army”) 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 two million people in occupations ranging from labourers 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. The expanded role of the federal government came to be accepted by most Americans by the end of the 1930s. Even Republicans who had bitterly opposed the New Deal shifted their stance.
The depression caused much questioning of inherited economic and political ideas. Sen. Huey P. Long of Louisiana found a national following for his “Share the Wealth” program. The socialist writer Upton Sinclair was nearly elected governor of California in 1934 with a similar program for redistributing the state’s wealth. Many writers and other intellectuals swung even further left, concluding that capitalism was on its way out; they were drawn to the Communist party by what they supposed to be the accomplishments of the USSR.
In other countries, the depression had even more profound effects. As world trade fell off, countries turned to nationalist economic policies that only exacerbated their difficulties. In politics the depression strengthened the extremes of right and left, helping Adolf HITLER to power in Germany and swelling left-wing movements in other European countries. The depression was thus a time of massive insecurity among peoples and governments, contributing to the tensions that produced World War II. Ironically, however, the massive military expenditures for that war provided the economic stimulus that finally ended the depression in the United States and elsewhere.
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