The Great Depression began in August 1929, when the United States economy first went into an economic recession. Although the country spent two months with declining GDP, it was not until the Wall Street Crash in October 1929 that the effects of a declining economy were felt, and a major worldwide economic downturn ensued. The stock market crash marked the beginning of a decade of high unemployment, poverty, low profits, deflation, plunging farm incomes, and lost opportunities for economic growth as well as for personal advancement. Altogether, there was a general loss of confidence in the economic future.
The usual explanations include numerous factors, especially high consumer debt, ill-regulated markets that permitted overoptimistic loans by banks and investors, and the lack of high-growth new industries. These all interacted to create a downward economic spiral of reduced spending, falling confidence and lowered production. Industries that suffered the most included construction, shipping, mining, logging and agriculture (compounded by dust-bowl conditions in the heartland). Also hard hit was the manufacturing of durable goods like automobiles and appliances, whose purchase could be postponed. The economy hit bottom in the winter of 1932–33; then came four years of growth until the Recession of 1937 brought back high levels of unemployment.
The Depression caused major political changes in America. Three years into the depression, President Herbert Hoover, widely shamed for not doing enough to combat the crisis, lost the election of 1932 to Franklin Delano Roosevelt by an embarrassingly wide margin. Roosevelt's economic recovery plan, the New Deal, instituted unprecedented programs for relief, recovery and reform, and brought about a major realignment of American politics.
The Depression also resulted in an increase of emigration for the first time in American history. Some immigrants went back to their native countries, and some native U.S. citizens went to Canada, Australia and South Africa. There were mass migrations of people from badly hit areas in the Great Plains (the Okies) and the South to places such as California and the cities of the North (the Great Migration). Racial tensions also increased during this time. By the 1940s immigration had returned to normal, and emigration declined. A well-known example of an emigrant was Frank McCourt, who went to Ireland, as recounted in his book Angela's Ashes.
The memory of the Depression also shaped modern theories of economics and resulted in many changes in how the government dealt with economic downturns, such as the use of stimulus packages, Keynesian economics, and Social Security. It also shaped modern American literature, resulting in famous novels such as John Steinbeck's The Grapes of Wrath and Of Mice and Men.
Examining the causes of the Great Depression raises multiple issues: what factors set off the first downturn in 1929; what structural weaknesses and specific events turned it into a major depression; how the downturn spread from country to country; and why the economic recovery was so prolonged.
Many banks began to fail in October 1930 when farmers defaulted on loans. There was no federal deposit insurance during that time as bank failures were considered a normal part of economic life. Worried depositors started to withdraw savings, so the money multiplier worked in reverse. Banks were forced to liquidate assets (such as calling in loans rather than creating new loans). This caused the money supply to shrink and the economy to contract (the Great Contraction), resulting in a significant decline in aggregate investment. The decreased money supply further aggravated price deflation, putting more pressure on already struggling businesses.
The U.S. Government's commitment to the gold standard prevented it from engaging in expansionary monetary policy. High interest rates needed to be maintained in order to attract international investors who bought foreign assets with gold. However, the high interest also inhibited domestic business borrowing. The U.S. interest rates were also affected by France's decision to raise their interest rates to attract gold to their vaults. In theory, the U.S. would have two potential responses to that: Allow the exchange rate to adjust, or increase their own interest rates to maintain the gold standard. At the time, the U.S. was pegged to the gold standard. Therefore, Americans converted their dollars into francs to buy more French assets, the demand for the U.S. dollar fell, and the exchange rate increased. One of the only things the U.S. could do to get back into equilibrium was increase interest rates.
Nobel laureate economist Milton Friedman and his fellow monetarist Anna Schwartz argued that the Federal Reserve could have stemmed the severity of the Depression, but failed to exercise its role of managing the monetary system and ameliorating banking panics, resulting in a Great Contraction of the economy from 1929 until the New Deal began in 1933. This view was endorsed by Fed Governor Ben Bernanke who made this statement in a speech honoring Friedman and Schwartz:
Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression, you're right. We did it. We're very sorry. But thanks to you, we won't do it again.
— Ben S. Bernanke
The Wall Street Crash of 1929 is often cited as the beginning of the Great Depression. It began on October 24, 1929, and was the most devastating stock market crash in the history of the United States. Much of the stock market crash can be attributed to exuberance and false expectations. In the years leading up to 1929, the rising stock market prices had created vast sums of wealth for those invested, in turn encouraging borrowing to further buy more stock. However, on October 24 (Black Thursday), share prices began to fall and panic selling caused prices to fall sharply. On October 29 (Black Tuesday), share prices fell by $14 billion in a single day, more than $30 billion in the week. The value that evaporated that week was 10x more than the entire federal budget and more than all of what the U.S. spent on World War I. By 1930 the value of shares had fallen by 90%.
Since many banks had also invested their clients' savings in the stock market, these banks were forced to close when the stock market crashed. After the stock market crash and the bank closures, people were afraid of losing more money. Because of their fears of further economic challenge, individuals from all classes stopped purchasing and consuming. Thousands of individual investors who believed they could get rich by investing on margin lost everything they had. The stock market crash severely impacted the American economy.
A large contribution to the recession was the closure and suspension of thousands of banks across the country. Financial institutions failed for several reasons, including unregulated lending procedures, confidence in the Gold standard, consumer confidence in future economics, and agricultural defaults on outstanding loans. With these compounding issues the banking system struggled to keep up with the public's increasing demand for cash withdrawals. This overall decreased the money supply and forced the banks to result to short sale (real estate) and liquidation of existing loans. In the race to liquidate assets the banking system began to fail on a wide scale. In November 1930 the first major banking crisis began with over 800 banks closing their doors by January 1931. By October 1931 over 2100 banks were suspended with the highest suspension rate recorded in the St. Louis Federal Reserve District, with 2 out of every 5 banks suspended. The economy as a whole experienced a massive reduction in banking footholds across the country amounting to more than nine thousand closed banks by 1933.
The closures resulted in a massive withdrawal of deposits by millions of Americans estimated at near $6.8 billion (equivalent to around $60 billion in today's dollars). During this time the Federal Deposit Insurance Corporation (FDIC) was not in place resulting in a loss of roughly $1.36 billion (or 20%) of the total $6.8 billion accounted for within the failed banks. These losses came directly from everyday individuals' savings, investments and bank accounts. As a result, GDP fell from the high seven-hundreds in 1929 to the low to mid six-hundreds in 1933 before seeing any recovery for the first time in nearly 4 years. Federal leadership intervention is highly debated on its effectiveness and overall participation. The Federal Reserve Act could not effectively tackle the banking crisis as state bank and trust companies were not compelled to be a member, paper eligible discount member banks heavily restricted access to the Federal Reserve, power between the twelve Federal Reserve banks was decentralized and federal level leadership was ineffective, inexperienced, and weak.
Throughout the early 1900s banking regulations were extremely lax if not non-existent. The Currency Act of 1900 lowered the required capital of investors from 50,000 to 25,000 to create a national bank. As a result of this change nearly two thirds of the banks formed over the next ten years were quite small, averaging just above the 25,000 in required capital. The number of banks would nearly double (number of banks divided by Real GDP) from 1890 to 1920 due to the lack of oversight and qualification when banking charters were being issued in the first two decades of the 1900s.
The unregulated growth of small rural banking institutions can be partially attributed to the rising cost of agriculture especially in the Corn Belt and Cotton Belt. Throughout the corn and cotton belts real estate increases drove the demand for more local funding to continue to supply rising agricultural economics. The rural banking structures would supply the needed capital to meet the farm commodity market, however, this came with a price of reliability and low risk lending. Economic growth was promising from 1887 to 1920 with an average of 6 percent growth in [GDP]. In particular the participation in World War I drove a booming agricultural market that drove optimism at the consumer and lending level which, in turn, resulted in a more lax approach in the lending process. Overbanked conditions existed which pressured struggling banks to increase their services (specifically to the agricultural customers) without any additional regulatory oversight or qualifications. This dilemma introduced several high risk and marginal business returns to the banking market. Banking growth would continue through the first two decades well outside of previous trends disregarding the current economic and population standards. Banking profitability and loan standards begin to deteriorate as early as 1900 as a result.
Crop failures beginning in 1921 began to impact this poorly regulated system, the expansion areas of corn and cotton suffered the largest due to the dust bowl era resulting in real estate value reductions. In addition, the year 1921 was the peak for banking expansion with roughly 31,000 banks in activity, however, with the failures at the agricultural level 505 banks would close between 1921 -1930 marking the largest banking system failure on record. Regulatory questions began to hit the debating table around banking qualifications as a result; discussions would continue into the [Great Depression] as not only were banks failing but some would disappear altogether with no rhyme or reason. The panic of financial crisis would increase in the Great Depression due to the lack of confidence in the regulatory and recovery displayed during the 1920s, this ultimately drove a nation of doubts, uneasiness, and lack of consumer confidence in the banking system.
With a lack of consumer confidence in the economic direction given by the federal government panic started to spread across the country shortly after the Wall Street Crash of 1929. President Hoover retained the Gold Standard as the country's currency gauge throughout the following years. As a result, the American shareholders with the majority of the gold reserves began to grow wary of the value of gold in the near future. Europe's decision to move away from the Gold Standard caused individuals to start to withdraw gold shares and move the investments out of the country or began to horde gold for future investment. The market continued to suffer due to these reactions, and in result caused several of the everyday individuals to speculate on the economy in the coming months. Rumors of market stability and banking conditions began to spread, consumer confidence continued to drop and panic began to set in. Contagion spread like wild fire pushing Americans all over the country to withdraw their deposits en masse. This idea would continue from 1929-1933 causing the greatest financial crisis ever seen at the banking level pushing the economic recovery efforts further from resolution. An increase in the currency-deposit ratio and a money stock determinant forced money stock to fall and income to decline. This panic-induced banking failure took a mild recession to a major recession.
Whether this caused the Great Depression is still heavily debated due to many other attributing factors. However, it is evident that the banking system suffered massive reductions across the country due to the lack of consumer confidence. As withdraw requests would exceed cash availability banks began conducting steed discount sales such as fire sales and short sales. Due to the inability to immediately determine current value worth these fire sales and short sales would result in massive losses when recuperating any possible revenue for outstanding and defaulted loans. This would allow healthy banks to take advantage of the struggling units forcing additional losses resulting in banks not being able to deliver on depositor demands and creating a failing cycle that would become wide spread. Investment would continue to stay low through the next half decade as the private sector would horde savings due to uncertainty of the future. The federal government would run additional policy changes such as the Check tax, monetary restrictions (including reduction of money supply by burning), High Wage Policy, and The New Deal through the Hoover and Roosevelt administration.
One visible effect of the depression was the advent of Hoovervilles, which were ramshackle assemblages on vacant lots of cardboard boxes, tents, and small rickety wooden sheds built by homeless people. Residents lived in the shacks and begged for food or went to soup kitchens. The term was coined by Charles Michelson, publicity chief of the Democratic National Committee, to refer sardonically to President Herbert Hoover whose policies Michelson blamed for the depression.
Unemployment reached 25 percent in the worst days of 1932-33, but it was unevenly distributed. Job losses were less severe among women, workers in nondurable industries (such as food and clothing), services and sales workers, and those employed by the government. Unskilled inner city men had much higher unemployment rates. Age also played a factor. Young people had a hard time getting their first job. Men over the age of 45, if they lost their job, would rarely find another one because employers had their choice of younger men. Millions were hired in the Great Depression, but men with weaker credentials were not, and they fell into a long-term unemployment trap. The migration in the 1920s that brought millions of farmers and townspeople to the bigger cities suddenly reversed itself. Unemployment made the cities unattractive, and the network of kinfolk and more ample food supplies made it wise for many to go back. City governments in 1930-31 tried to meet the depression by expanding public works projects, as President Herbert Hoover strongly encouraged. However, tax revenues were plunging, and the cities as well as private relief agencies were totally overwhelmed by 1931; no one was able to provide significant additional relief. People fell back on the cheapest possible relief, including soup kitchens providing free meals to anyone who showed up. After 1933, new sales taxes and infusions of federal money helped relieve the fiscal distress of the cities, but the budgets did not fully recover until 1941.
The federal programs launched by Hoover and greatly expanded by President Roosevelt's New Deal used massive construction projects to try to jump start the economy and solve the unemployment crisis. The alphabet agencies ERA, CCC, FERA, WPA and PWA built and repaired the public infrastructure in dramatic fashion, but did little to foster the recovery of the private sector. FERA, CCC and especially WPA focused on providing unskilled jobs for long-term unemployed men.
The Democrats won easy landslide victories in 1932 and 1934, and an even bigger one in 1936; the hapless Republican Party seemed doomed. The Democrats capitalized on the magnetic appeal of Roosevelt to urban America. The key groups were low skilled ethnics, especially Catholic, Jewish, and black people. The Democrats promised and delivered in terms of political recognition, labor union membership, and relief jobs. The cities' political machines were stronger than ever, for they mobilized their precinct workers to help families who needed help the most navigate the bureaucracy and get on relief. FDR won the vote of practically every demographic in 1936, including taxpayers, small business and the middle class. However, the Protestant middle class voters turned sharply against him after the recession of 1937-38 undermined repeated promises that recovery was at hand. Historically, local political machines were primarily interested in controlling their wards and citywide elections; the smaller the turnout on election day, the easier it was to control the system. However, for Roosevelt to win the presidency in 1936 and 1940, he needed to carry the electoral college and that meant he needed the largest possible majorities in the cities to overwhelm rural voters. The machines came through for him. The 3.5 million voters on relief payrolls during the 1936 election cast 82% percent of their ballots for Roosevelt. The rapidly growing, energetic labor unions, chiefly based in the cities, turned out 80% for FDR, as did Irish, Italian and Jewish communities. In all, the nation's 106 cities over 100,000 population voted 70% for FDR in 1936, compared to his 59% elsewhere. Roosevelt worked very well with the big city machines, with the one exception of his old nemesis, Tammany Hall in Manhattan. There he supported the complicated coalition built around the nominal Republican Fiorello La Guardia, and based on Jewish and Italian voters mobilized by labor unions.
In 1938, the Republicans made an unexpected comeback, and Roosevelt's efforts to purge the Democratic Party of his political opponents backfired badly. The conservative coalition of Northern Republicans and Southern Democrats took control of Congress, outvoted the urban liberals, and halted the expansion of New Deal ideas. Roosevelt survived in 1940 thanks to his margin in the Solid South and in the cities. In the North the cities over 100,000 gave Roosevelt 60% of their votes, while the rest of the North favored Willkie 52%-48%.
With the start of full-scale war mobilization in the summer of 1940, the economies of the cities rebounded. Even before Pearl Harbor, Washington pumped massive investments into new factories and funded round-the-clock munitions production, guaranteeing a job to anyone who showed up at the factory gate. The war brought a restoration of prosperity and hopeful expectations for the future across the nation. It had the greatest impact on the cities of the West Coast, especially Los Angeles, San Diego, San Francisco, Portland and Seattle.
Economic historians led by Price Fishback have examined the impact of New Deal spending on improving health conditions in the 114 largest cities, 1929-1937. They estimated that every additional $153,000 in relief spending (in 1935 dollars, or $1.95 million in year 2000 dollars) was associated with a reduction of one infant death, one suicide, and 2.4 deaths from infectious disease.
The Great Depression began in the United States of America and quickly spread worldwide. It had severe effects in countries both rich and poor. Personal income, consumption, industrial output, tax revenue, profits and prices dropped, while international trade plunged by more than 50%. Unemployment in the U.S. rose to 25%, and in some countries rose as high as 33%.
Cities all around the world were hit hard, especially those dependent on heavy industry. Construction was virtually halted in many countries. Farming and rural areas suffered as crop prices fell by approximately 60%. Facing plummeting demand with few alternate sources of jobs, areas dependent on primary sector industries such as grain farming, mining and logging, as well as construction, suffered the most.
Most economies started to recover by 1933–34. However, in the U.S. and some others the negative economic impact often lasted until the beginning of World War II, when war industries stimulated recovery.
There is little agreement on what caused the Great Depression, and the topic has become highly politicized. At the time the great majority of economists around the world recommended the "orthodox" solution of cutting government spending and raising taxes. However, British economist John Maynard Keynes advocated large-scale government deficit spending to make up for the failure of private investment. No major nation adopted his policies in the 1930s.
The stock market crash in the 1929 not only affected the business community and the public's economic confidence, but also it led to the banking system soon after the turmoil. The boom of the US economy in the 1920s was based on high indebtedness, and the rupture of the debt chain caused by the collapse of the bank had produced widespread and far-reaching adverse effects. It is precisely because of the shaky banking system, the United States was using monetary policy to save the economy that had been severely constrained. The American economist Kindleberger of long-term studying of the Great Depression pointed out that in the 1929, before and after the collapse of the stock market, the Fed lowered interest rates, tried to expand the money supply and eased the financial market tensions for several times, however they were not successful, the fundamental reason was that the relationship between various credit institutions and the community was in a drastic adjustment process, the normal supply channels for money supply were blocked. Later, some economists argued that the Fed should do a large-scale opening market business at that time, but the essence of the statement was that the US government should be quick to implement measures to expand fiscal spending and fiscal deficits, whereas, the essence of this argument was that the US government should be promptly implemented to expand the fiscal spending and the fiscal deficits measures.
Between the 1920s and 1930s, The United States began to try the tight money policy to promote economic growth. In terms of the fiscal policy, the US government failed to reach a consensus on the fiscal issue. President Hoover began to expand federal spending, he set up a governmental financial revitalization company to provide emergency assistance to banks and financial institutions that were on the verge of bankruptcy. Hoover's fiscal policy had accelerated the recession. In December 1929, as means of showing government confidence of the economy, Hoover reduced all income tax rates by 1% of 1929 due to the continuing budget surplus. By 1930, the surplus turned into a fast-growing deficit of economic contraction. In 1931, the US federal fiscal revenue and expenditure changed from the financial surplus to deficit for the first time (the deficit was less than 2.8% of GDP). By the end of 1931, Hoover had decided to recommend a large increase in taxes to balance the budget; in addition, Congress approved the tax increase in 1932, a substantial reduction in personal immunity to increase the number of taxpayers, and the interest rates had risen sharply, the lowest marginal rate rose from 25% on taxable income in excess of $100,000 to 63% on taxable income in excess of $1 million as the rates were made much more progressive. Hoover changed his approach to fighting the Depression. He justified his call for more federal assistance by noting that "We used such emergency powers to win the war; we can use them to fight the Depression, the misery, and suffering from which are equally great." This new approach embraced a number of initiatives. Unfortunately for the President, none proved especially effective. Just as important, with the presidential election approaching, the political heat generated by the Great Depression and the failure of Hoover's policies grew only more withering.
In terms of the financial reform, since the recession, Hoover had been trying to repair the economy. He founded government agencies to encourage labor harmony and support local public works aid which promoted cooperation of government and business, stabilize prices, and strive to balance the budget. His work focused on indirect relief from individual countries and the private sector, which was reflected in the letter emphasizing "more effective supporting for each national committee" and volunteer service -" appealing for funding" from outside the government. The commitment to maintain the gold standard system prevented the Federal Reserve expanded its money supply operations in 1930 and 1931, and it promoted Hoover's destructive balancing budgetary action to avoid the gold standard system overwhelming the dollar. As the Great Depression became worse, the call raised for increasing in federal intervention and spending. But Hoover refused to allow the federal government to force fixed prices, control the value of the business or manipulate the currency, in contrast, he started to control the dollar price. For official dollar prices, he expanded the credit base through free market operations in federal reserve system to ensure the domestic value of the dollar. He also tended to provide indirect aid to banks or local public works projects, refused to use federal funds to give aid to citizens directly, which will reduce public morale. Instead, he focused on volunteering to raise money. Even though Hoover was a philanthropist before becoming president, his opponents regarded him as not responsible for the citizens. During the administration of Hoover, the US economic policies had moved to activism and interventionism. In his re-election campaign, Hoover tried to persuade the Americans to claim that the measures they requested seemed to be helpful in the short term, but it would be devastating in the long run. Eventually, he was defeated by Franklin Roosevelt in 1932.
In 1929, the Great Depression began, the asset bubble burst, and the unemployment rate rose. The following year, though most people thought that there was nothing worth worrying about, Hoover took decisive action on issues such as employment, construction, public construction, and agriculture, which helped restore public confidence. The unemployed population rose, although it remained less than 9%.
In 1931, "the tragic year", politicians and economists were convinced that the economy would recover in 1931, but a serious economic crisis and depression happened this year. In a somewhat critical atmosphere, at the Congress meeting in 1932, Hoover prepared to take more vigorous measures in the government work report which he submitted to the Congress. Primarily, Hoover affirmed his own achievements over the past two years. Owing to Hoover's policy having led to financial spending increases and financial difficulties, he decided to increase taxes.
At the beginning of 1933, the last few weeks of Hoover's term, the American financial system was paralyzed. The Great Depression was extended by the interventionist policy for four years. Bank crisis caused the serious deflationary pressures. For this phenomenon, Hoover still wanted to stop it. In fact, the worst period of 1932 – the Great Depression had passed, but the recovery was slow and weak. During the financial crisis of 1933 that culminated in the banking holiday in March 1933, a lot of gold flowed out from the Fed, some of them flow out to individuals and companies in the United States. This domestic loss occurred because individuals and businesses like to deposit metal gold into bank deposits or banknotes, some gold flows to foreign countries, and this external loss occurred because foreign investors were worried about the depreciation of the dollar. Roosevelt understands that the traditional political and financial policy cannot save the United States from the "disaster years", he pursued the "New Deal" to attempt to make up for the United States by administrative means. In the spring and summer of 1933, the Roosevelt government suspended the gold standard. The Emergency Banking Act gave the President the power to control international and domestic gold sports. It also gave the treasury secretary the power to surrender of gold coins and certificates. On April 20, President Roosevelt issued a formal announcement of the moratorium on the gold standard. The announcement prohibited gold exports, and prohibited financial institutions from converting money and deposits into gold coins and ingots. The action prevented the gold outflow. Soon, the Roosevelt government weakened the connection with gold once again. Thomas amendment to the Agricultural Relief Act to the gave to the President power to reduce the dollar's gold content by as much as 50%. The President Roosevelt also used the silver standard instead of gold to exchange dollars, it determined by the price of the bank. In April 1933, Roosevelt decided to abolish the gold standard through the New Deal. He abandoned this traditional monetary policy is mainly due to the big crisis to the original monetary policy failure. And the purpose of his action is to prohibit all exports of gold except for foreign countries, so that the United States can maintain an equal monetary base with the vast majority of countries. The Hoover government stubbornly insisted on using the "sound money" policy who against deficit spending and state relief that only make the economic crisis worsen. Because of this situation Roosevelt forced the implementation of inflation, and used the federal deficit spending to promote employment to enforce relief. The abandon of the gold standard made the Wall Street stock prices quickly increased, Wall Street's stock trading was exceptionally active, with a total of 5 million shares delivered on a day, which is the most active day in the past six months.
The Hoover Administration attempted to correct the economic situation quickly, but was unsuccessful. Throughout Hoover's presidency, businesses were encouraged to keep wage rates high. President Hoover and many academics believed that high wage rates would maintain a steady level of purchasing power, keeping the economy turning. In December 1929, after the beginning phases of the depression had begun, President Hoover continued to promote high wages. It wasn't until 1931 that business owners began reducing wages in order to stay afloat. Later that year, The Hoover Administration created the Check Tax to generate extra government funding. The tax added a two cent tax to the purchase of all bank checks, directly affecting the common person. This additional cost pushed people away from using checks, so instead the majority of the population increased their usage of cash. Banks had already closed due to cash shortage, but this reaction to the Check Tax rapidly increased the pace.
In the "First New Deal" of 1933–34, a wide variety of programs were targeted toward the depression and agriculture in rural areas, in the banking industry, and for the economy as a whole. Relief programs were set up for the long-term unemployed who are routinely passed over whenever new jobs did open up. The most popular program was the Civilian Conservation Corps the put young men to work in construction jobs, especially in rural areas. Prohibition was repealed, fulfilling a campaign pledge and generating new tax revenues for local and state government. A series of relief programs were designed to provide jobs, in cooperation with local governments.
The National Recovery Administration (NRA) sought to stimulate demand and provide work and relief through increased government spending. To end deflation the gold standard was suspended and a series of panels comprising business leaders in each industry set regulations which ended what was called "cut-throat competition," believed to be responsible for forcing down prices and profits nationwide. Several Hoover agencies were continued, most notably the Reconstruction Finance Corporation, which provided large-scale financial aid to banks, railroads, and other agencies. Reforms that had never been enacted in the 1920s now took center stage, such as the Tennessee Valley Authority (TVA) designed to electrify and modernize a very poor, mountainous region in Appalachia.
In 1934–36 came the much more controversial "Second New Deal." It featured social security; the Works Progress Administration (WPA), a very large relief agency for the unemployed run by the federal government; and the National Labor Relations Board, which operated as a strong stimulus to the growth of labor unions. Unemployment fell by ⅔ in Roosevelt's first term (from 25% to 9%, 1933–1937). The second set of reforms launched by the Roosevelt Administration during the same period, which is a responsibility for social welfare with the main legislation —— Social Security Act in 1935. Insurance and poor relief (“public assistance” or “welfare”)are constituent parts of the legislation that provided pensions to the aged, benefit payments to dependent mothers, crippled children and blind people, and unemployment insurance. The Social Security Act still plays a significant role of the American health and human service system so far. Much of the economy had recovered by 1936, but persistent, long-term unemployment lasted until rearmament began for World War II in 1940.
The New Deal was, and still is, sharply debated. The business community, with considerable support from such conservative Democrats as Al Smith, launched a crusade against the New Deal, warning that a dangerous man had seized control of the economy and threatened America's conservative traditions. Scholars remain divided as well. When asked whether "as a whole, government policies of the New Deal served to lengthen and deepen the Great Depression," 74% of American university professors specializing in economic history disagreed, 21% agreed with provisos, and 6% fully agreed. Among respondents who taught or studied economic theory, 51% disagreed, 22% agreed with provisos, and 22% fully agreed.
By 1936, all the main economic indicators had regained the levels of the late 1920s, except for unemployment, which remained high. In 1937, the American economy unexpectedly fell, lasting through most of 1938. Production declined sharply, as did profits and employment. Unemployment jumped from 14.3% in 1937 to 19.0% in 1938. A contributing factor to the Recession of 1937 was a tightening of monetary policy by the Federal Reserve. The Federal Reserve doubled reserve requirements between August 1936 and May 1937 leading to a contraction in the money supply.
The Roosevelt Administration reacted by launching a rhetorical campaign against monopoly power, which was cast as the cause of the depression, and appointing Thurman Arnold to break up large trusts; Arnold was not effective, and the campaign ended once World War II began and corporate energies had to be directed to winning the war. By 1939, the effects of the 1937 recession had disappeared. Employment in the private sector recovered to the level of the 1936 and continued to increase until the war came and manufacturing employment leaped from 11 million in 1940 to 18 million in 1943.
Another response to the 1937 deepening of the Great Depression had more tangible results. Ignoring the pleas of the Treasury Department, Roosevelt embarked on an antidote to the depression, reluctantly abandoning his efforts to balance the budget and launching a $5 billion spending program in the spring of 1938 in an effort to increase mass purchasing power.
Business-oriented observers explained the recession and recovery in very different terms from the Keynesian economists. They argued the New Deal had been very hostile to business expansion in 1935–37. They said it had encouraged massive strikes which had a negative impact on major industries and had threatened anti-trust attacks on big corporations. But all those threats diminished sharply after 1938. For example, the antitrust efforts fizzled out without major cases. The CIO and AFL unions started battling each other more than corporations, and tax policy became more favorable to long-term growth.
On the other hand, according to economist Robert Higgs, when looking only at the supply of consumer goods, significant GDP growth only resumed in 1946. (Higgs does not estimate the value to consumers of collective goods like victory in war) To Keynesians, the war economy showed just how large the fiscal stimulus required to end the downturn of the Depression was, and it led, at the time, to fears that as soon as America demobilized, it would return to Depression conditions and industrial output would fall to its pre-war levels. The incorrect prediction by Alvin Hansen and other Keynesians that a new depression would start after the war failed to take account of pent-up consumer demand as a result of the Depression and World War.
The government began heavy military spending in 1940, and started drafting millions of young men that year. By 1945, 17 million had entered service to their country, but that was not enough to absorb all the unemployed. During the war, the government subsidized wages through cost-plus contracts. Government contractors were paid in full for their costs, plus a certain percentage profit margin. That meant the more wages a person was paid the higher the company profits since the government would cover them plus a percentage.
Using these cost-plus contracts in 1941–1943, factories hired hundreds of thousands of unskilled workers and trained them, at government expense. The military's own training programs concentrated on teaching technical skills involving machinery, engines, electronics and radio, preparing soldiers and sailors for the post-war economy.
Structural walls were lowered dramatically during the war, especially informal policies against hiring women, minorities, and workers over 45 or under 18. (See FEPC) Strikes (except in coal mining) were sharply reduced as unions pushed their members to work harder. Tens of thousands of new factories and shipyards were built, with new bus services and nursery care for children making them more accessible. Wages soared for workers, making it quite expensive to sit at home. Employers retooled so that unskilled new workers could handle jobs that previously required skills that were now in short supply. The combination of all these factors drove unemployment below 2% in 1943.
Roosevelt's declining popularity in 1938 was evident throughout the US in the business community, the press, and the Senate and House. Many were labeling the recession the "Roosevelt Recession". In late December 1938, Roosevelt looked to gain popularity with the American people, and try to regain the nation's confidence in the economy. His decision that December to name Harry Hopkins as Secretary of Commerce was an attempt to achieve the confidence he so badly needed. The appointment came as a surprise to most because of Hopkins' lack of business experience, but proved to be vastly important in shaping the years following the recession.
Hopkins made it his mission to strengthen ties between the Roosevelt administration and the business community. While Roosevelt believed in complete reform (The New Deal), Hopkins took a more administrative position; he felt that recovery was imperative and that The New Deal would continue to hinder recovery. With support from Secretary of Agriculture Henry Wallace and Treasury Secretary Henry Morgenthau, Jr, popular support for recovery, rather than reform, swept the nation. By the end of 1938 reform had been struck down, as no new reform laws were passed.
The economy in America was now beginning to show signs of recovery and the unemployment rate was lowering following the abysmal year of 1938. The biggest shift towards recovery, however, came with the decision of Germany to invade France at the beginning of WWII. After France had been defeated, the U.S. economy would skyrocket in the months following. France's defeat meant that Britain and other allies would look to the U.S. for large supplies of materials for the war.
The need for these war materials created a huge spurt in production, thus leading to promising amount of employment in America. Moreover, Britain chose to pay for their materials in gold. This stimulated the gold inflow and raised the monetary base, which in turn, stimulated the American economy to its highest point since the summer of 1929 when the depression began.
By the end of 1941, before American entry into the war, defense spending and military mobilization had started one of the greatest booms in American history thus ending the last traces of unemployment.
Effects of depression in the U.S.:
The Bonus Army were the 43,000 marchers—17,000 U.S. World War I veterans, their families, and affiliated groups—who gathered in Washington, D.C. in the summer of 1932 to demand cash-payment redemption of their service certificates. Organizers called the demonstrators the "Bonus Expeditionary Force", to echo the name of World War I's American Expeditionary Forces, while the media referred to them as the "Bonus Army" or "Bonus Marchers". The contingent was led by Walter W. Waters, a former sergeant.
Many of the war veterans had been out of work since the beginning of the Great Depression. The World War Adjusted Compensation Act of 1924 had awarded them bonuses in the form of certificates they could not redeem until 1945. Each certificate, issued to a qualified veteran soldier, bore a face value equal to the soldier's promised payment compound interest. The principal demand of the Bonus Army was the immediate cash payment of their certificates.
On July 28, U.S. Attorney General William D. Mitchell ordered the veterans removed from all government property. Washington police met with resistance, shots were fired and two veterans were wounded and later died. President Herbert Hoover then ordered the Army to clear the marchers' campsite. Army Chief of Staff General Douglas MacArthur commanded the infantry and cavalry supported by six tanks. The Bonus Army marchers with their wives and children were driven out, and their shelters and belongings burned.
A second, smaller Bonus March in 1933 at the start of the Roosevelt administration was defused in May with an offer of jobs with the Civilian Conservation Corps at Fort Hunt, Virginia, which most of the group accepted. Those who chose not to work for the CCC by the May 22 deadline were given transportation home. In 1936, Congress overrode President Roosevelt's veto and paid the veterans their bonus nine years early.Civil Works Administration
The Civil Works Administration (CWA) was a short-lived job creation program established by the New Deal during the Great Depression in the United States to rapidly create manual-labor jobs for millions of unemployed workers. The jobs were merely temporary, for the duration of the hard winter of 1933–34. President Franklin D. Roosevelt unveiled the CWA on November 8, 1933, and put Harry L. Hopkins in charge of the short-term agency.
The CWA was a project created under the Federal Emergency Relief Administration (FERA). The CWA created construction jobs, mainly improving or constructing buildings and bridges. It ended on March 31, 1934, after spending $200 million a month and giving jobs to four million people.Dust pneumonia
Dust pneumonia describes disorders caused by excessive exposure to dust storms, particularly during the Dust Bowl in the United States. A form of pneumonia, dust pneumonia results when the lungs are filled with dust, inflaming the alveoli.
Symptoms of dust pneumonia include high fever, chest pain, difficulty in breathing, and coughing. With dust pneumonia, dust settles all the way into the alveoli of the lungs, stopping the cilia from moving and preventing the lungs from ever clearing themselves.
People who had dust pneumonia often died. There are no official death rates published for the Great Plains in the 1930s. In 1935, dozens of people died in Kansas from dust pneumonia. Red Cross volunteers made and distributed thousands of dust masks, although some farmers and other people in the affected areas refused to wear them.Fair trade law
A fair trade law was a statute in any of various states of the United States that permitted manufacturers the right to specify the minimum retail price of a commodity, a practice known as "price maintenance". Such laws first appeared in 1931 during the Great Depression in the state of California. They were ostensibly intended to protect small businesses to some degree from competition from very large chain stores during a time when small businesses were suffering. Many people objected to this on the grounds that if the manufacturers could set the price, consumers would have to pay more even at large discount stores. The complexity of the market also made the enforcement of these laws almost impractical. As the chain stores became more popular, and bargain prices more common, there was a widespread repeal of the laws in many jurisdictions. By 1975, the laws had been repealed completelyFederal Farm Board
The Federal Farm Board was actually created in 1929, before the stock market crash on Black Tuesday (October 29, 1929), but its powers were later enlarged to meet the economic crisis farmers faced during the Great Depression. It was established by the Agricultural Marketing Act of 1929 from the Federal Farm Loan Board established by the Federal Farm Loan Act of 1916, with a revolving fund of half a billion dollars to stabilize prices and to promote the sale of agricultural products. The board would help farmers stabilize prices by holding surplus grain and cotton in storage. The Farm Board was part of Herbert Hoover's response to the Great Depression.
Executive Order 6084 of March 26, 1933, effective May 27, 1933, changed its name to the Farm Credit Administration, abolished the functions vested in Federal Farm Board by section 9 of Agricultural Marketing Act, abolished the functions of Secretary of Agriculture and Secretary of Treasury as members of Board, and abolished the offices of appointed members of Federal Farm Board, except that of Chairman, which title was changed to Governor of Farm Credit Administration.Florence Owens Thompson
Florence Owens Thompson (born Florence Leona Christie; September 1, 1903 – September 16, 1983) was the subject of Dorothea Lange's famous photo Migrant Mother (1936), an iconic image of the Great Depression. The Library of Congress titled the image: "Destitute pea pickers in California. Mother of seven children. Age thirty-two. Nipomo, California."Franksgiving
Franksgiving is a portmanteau of "Franklin" and "Thanksgiving", coined by Atlantic City mayor Thomas D. Taggart, Jr. to describe the American Thanksgiving holiday from 1939 to 1941.
In 1939, President Franklin D. Roosevelt moved Thanksgiving one week earlier than normal, believing that doing so would help bolster retail sales during one of the final years of the Great Depression. This led to much upheaval and protest, causing some to deride the holiday as Franksgiving. Thanksgiving (after 1941) takes place on the fourth Thursday of November.Great Contraction
The Great Contraction is economist Milton Friedman's term for the recessionary period from 1929 until 1933, i.e., the early years of the Great Depression. The phrase was the title of a chapter in the landmark 1963 book A Monetary History of the United States by Friedman and his fellow monetarist Anna Schwartz. The chapter was later published as a stand-alone book titled The Great Contraction, 1929–1933 in 1965. Both books are still in print from Princeton University Press, and some editions include as an appendix a speech honoring Nobel laureate Friedman in which Fed Governor Ben Bernanke made this statement:
Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression, you're right. We did it. We're very sorry. But thanks to you, we won't do it again.
— Ben S. Bernanke
Friedman and Schwartz argued that the Federal Reserve could have lessened the severity of the Depression, but failed to exercise its role of managing the monetary system and ameliorating banking panics under Fed chairmen Roy Young and Eugene Meyer.
The Great Contraction is not to be confused with the Great Compression, which refers to a period beginning around 1940 when (according to some economists such as Paul Krugman) economic inequality declined due to progressive taxation and other policies of the FDR administration.Hobo stove
A hobo stove is a style of improvised heat-producing and cooking device used in survival situations, by backpackers, hobos, tramps and homeless people. Hobo stoves can be functional to boil water for purification purposes during a power outage and in other survival situations, and can be used for outdoor cooking.Hoover Moratorium
The Hoover Moratorium was a public statement issued by US President Herbert Hoover on June 20, 1931, who hoped to ease the coming international economic crisis and provide time for recovery. Hoover's proposition was to put a one-year moratorium on payments of World War I and other war debt which would postpone the repayment of both capital and interest. Many were outraged by this idea.
The statement was met with disapproval from France and many US citizens but went on to gain support from 15 nations by July 6. It was approved by the US Congress in December.
However, it did not do much to slow the economic downturn in Europe. Germany was caught in a major banking crisis, Britain left the gold standard (the US would follow suit in 1933 as part of President Franklin Roosevelt's New Deal), and France would make sure to address the issue again once this year suspension ended.
A few of the former Allies continued to make payments to the United States after the moratorium expired. However, only Finland was able and willing to meet all obligations. Following the Lausanne Conference of 1932, Germany was relieved of its reparation payments. Although the US Congress voted against the proposition to relieve France and the United Kingdom of their debt, they never started paying their debt again as the German payment had been used for it before.Hooverville
A "Hooverville" was a shanty town built during the Great Depression by the homeless in the United States of America. They were named after Herbert Hoover, who was President of the United States of America during the onset of the Depression and was widely blamed for it. The term was coined by Charles Michelson, publicity chief of the Democratic National Committee. There were hundreds of Hoovervilles across the country during the 1930s and hundreds of thousands of people lived in these slums.Layaway
Layaway (lay-by in Australia, New Zealand, and South Africa) is an agreement in which the seller reserves an item for a consumer until the consumer completes all the payments necessary to pay for that item.Penny auction (foreclosure)
A penny auction is a collective effort by a farmer’s neighbors to help the farmer keep the farm after it has been foreclosed. It was practiced during the Great Depression in the United States. The neighbors would gather in large numbers at the auction of the farm and bid very low prices on the farm and its contents while intimidating other bidders. In the end, the bank that owned the farm would get whatever was bid and the neighbors would return the farm and its contents to the farmer.Recession of 1937–38
The recession of 1937–1938 was an economic downturn that occurred during the Great Depression in the United States.
By the spring of 1937, production, profits, and wages had regained their early 1929 levels. Unemployment remained high, but it was slightly lower than the 25% rate seen in 1933. The American economy took a sharp downturn in mid-1937, lasting for 13 months through most of 1938. Industrial production declined almost 30 percent, and production of durable goods fell even faster.
Unemployment jumped from 14.3% in May 1937 to 19.0% in June 1938. Manufacturing output fell by 37% from the 1937 peak and was back to 1934 levels.
Producers reduced their expenditures on durable goods, and inventories declined, but personal income was only 15% lower than it had been at the peak in 1937. In most sectors, hourly earnings continued to rise throughout the recession, partly compensating for the reduction in the number of hours worked. As unemployment rose, consumer expenditures declined, leading to further cutbacks in production.Succotash
Succotash (from Narragansett sohquttahhash, "broken corn kernels") is a culinary dish consisting primarily of sweet corn with lima beans or other shell beans. Other ingredients may be added including tomatoes, green or sweet red peppers, and okra. Combining a grain with a legume provides a dish that is high in all essential amino acids. Because of the relatively inexpensive and more readily available ingredients, the dish was popular during the Great Depression in the United States. It was sometimes cooked in a casserole form, often with a light pie crust on top as in a traditional pot pie. Succotash is a traditional dish of many Thanksgiving celebrations in New England as well as in Pennsylvania and other states. In some parts of the American South, any mixture of vegetables prepared with lima beans and topped with lard or butter is called succotash. Corn (maize), American beans, tomatoes, and peppers are New World foods.Wall Street Crash of 1929
The Wall Street Crash of 1929, also known as the Stock Market Crash of 1929 or the Great Crash, is the stock market crash that occurred in late October, 1929. It started on October 24 ("Black Thursday") and continued until October 29, 1929 ("Black Tuesday"), when share prices on the New York Stock Exchange collapsed.
It was the most devastating stock market crash in the history of the United States, when taking into consideration the full extent and duration of its after effects. The crash, which followed the London Stock Exchange's crash of September, signaled the beginning of the 12-year Great Depression that affected all Western industrialized countries.Wooden nickel
In the United States, a wooden nickel is a wooden token coin, usually issued by a merchant or bank as a promotion, sometimes redeemable for a specific item such as a drink.Workers Film and Photo League (USA)
The Workers Film and Photo League was an organization of filmmakers, photographers, writers and projectionists in the 1930s, dedicated to using film and photography for social change.Works Progress Administration
The Works Progress Administration (WPA; renamed in 1939 as the Work Projects Administration) was the largest and most ambitious American New Deal agency, employing millions of people (mostly unskilled men) to carry out public works projects, including the construction of public buildings and roads. In a much smaller project, Federal Project Number One, the WPA employed musicians, artists, writers, actors and directors in large arts, drama, media, and literacy projects.Almost every community in the United States had a new park, bridge, or school that was constructed by the agency. The WPA's initial appropriation in 1935 was for $4.9 billion (about 6.7 percent of the 1935 GDP).Headed by Harry Hopkins, the WPA provided jobs and income to the unemployed during the Great Depression in the United States, while developing infrastructure to support the current and future society. At its peak in 1938, it provided paid jobs for three million unemployed men and women, as well as youth in a separate division, the National Youth Administration. Between 1935 and 1943, when the agency was disbanded, the WPA employed 8.5 million people. Most people who needed a job were eligible for employment in some capacity. Hourly wages were typically set to the prevailing wages in each area. Full employment, which was reached in 1942 and emerged as a long-term national goal around 1944, was not the goal of the WPA; rather, it tried to provide one paid job for all families in which the breadwinner suffered long-term unemployment."The stated goal of public building programs was to end the depression or, at least, alleviate its worst effects," sociologist Robert D. Leighninger asserted. "Millions of people needed subsistence incomes. Work relief was preferred over public assistance (the dole) because it maintained self-respect, reinforced the work ethic, and kept skills sharp."The WPA was a national program that operated its own projects in cooperation with state and local governments, which provided 10–30% of the costs. Usually the local sponsor provided land and often trucks and supplies, with the WPA responsible for wages (and for the salaries of supervisors, who were not on relief). WPA sometimes took over state and local relief programs that had originated in the Reconstruction Finance Corporation (RFC) or Federal Emergency Relief Administration programs (FERA).It was liquidated on June 30, 1943, as a result of low unemployment due to the worker shortage of World War II. The WPA had provided millions of Americans with jobs for eight years.