Great Depression (1930)

Great Depression, worldwide economic downturn that began in 1929 and lasted until about 1939. It was
the longest and most severe depression ever experienced by the industrialized Western world, sparking
fundamental changes in economic institutions, macroeconomic policy, and economic theory. Although it
originated in the United States, the Great Depression caused drastic declines in output,
severe unemployment, and acute deflation in almost every country of the world.

Causes of Great Depression

War Debts
At the end of World War I, European nations owed over $10 billion to their former ally, the United
States. Their economies had been devastated by war and they had no way of paying the money back. The
U.S. insisted their former allies pay the money. This forced the allies to demand Germany pay the
reparations imposed on her as a result of the Treaty of Versailles. All of this later led to a financial crisis
when Europe could not purchase goods from the U.S. This debt contributed to the Great Depression .

High Tariffs
Another cause of the Great Depression was the trade problems between USA and the rest of the world. In
1923, the government imposed tariffs on foreign imports. Its intention was to protect home industries
from foreign alternatives. The governments in other countries reacted by equally imposing tariffs on
American goods. The results of the trade “standstill” were not desirable. When American markets failed
in 1929, most businesses were unable sell their surplus goods abroad. With barely any customers left
inside USA, many businesses were forced to close down. The situation became even worse when USA
increased tariffs even further. Consequently, Europe was no longer able to buy American goods. “When
that happened in 1929, US exports fell 30% immediately

Overproduction in Industry
The disproportional increase in incomes between 1923 and 1929 “average worker output increased 32%
in manufacturing. During that same period of time, average wages for manufacturing jobs increased only
8%. This meant that purchasing power was decreasing in relation to productivity. As a result, the market
became oversupplied with good that couldn’t be sold. The surplus products could not be sold overseas as
due to high tariffs and lack of money in Europe.

Farm Overproduction
An additional cause of the Great Depression was Farming was in decline since WWI. The government
continuously encouraged farmers to use modern equipment in order to produce a larger turnover of
agricultural goods. This led to an overproduction of food, leaving many farmers with huge surpluses. As a
result, food prices dropped, and farmers began making financial losses. Their reaction was to borrow
money from banks, and use it to produce even more food. The solution only worsened the situation as
food prices dropped even further. As a result, many farmers began defaulting on their loans and were
thrown off their land. This, in turn, led to the collapse of many businesses serving farms, including banks.

Laissez Faire” policies.

Finally, what perhaps made the Depression inevitable were the American government’s “Laissez Faire”
policies. The Republican party in government prior to the Depression believed the economy would
perform best if left untouched. As a result, there were no welfare systems for the poor and unemployed.
Nevertheless, the Republican policies of ‘Rugged Individualism’ were widely popular among the
flourishing businesses of the 1920’s. When the Depression hit USA in 1929, the government was unable
to deal with the sudden amount of hungry, poor, and unemployed. Instead, it assured people “the ship
would right itself” and that “prosperity was just around the corner” By the time Hoover [Republican
President] recognized he had to do something, it was too little or too late

Stock Market Crash 24th Oct 1929

Stock Market Crash lead to selling of 130,000,00 shares in one day because stocks were overpriced due to
speculation, “Credit System” also made the crash inevitable. The Wall Street crashes on October 24 th and
29th, 1929. Although not acting as direct causes of the Depression, they worsened it to a horrible extent.

Dust Bowl Draught From 1930-1936

American farmers struggled with conditions of the Dust Bowl, a drought that affected more than a million
acres of farmland, and the result was mass migrations of people from rural lands to urban areas.

Unequal Distribution of Wealth

Although the nation’s wealth grew by billions throughout the 1920s, it was not distributed evenly. The
top 1% received a 75% increase in their disposable income while the other 99% saw an average
9%increase in their disposable income. 80% of Americans had no savings at all.

Effects of the Great Depression Fact

Unemployment
The primary effect of the Great Depression was that it caused millions of workers to lose their jobs.
Unemployment during the Great Depression rose from 3% in 1929 to 25% by 1933.

People lost their life savings

Because of the Great Depression, more than 9,000 banks closed during the 1930s, causing millions of
people to lose their life savings.

Federal welfare or social programs

At the start of the Great Depression, there was no federal welfare or social programs in place. Out of the
Great Depression and FDRs New Deal, these programs were created: Civilian Conservation Corps
(CCC); Federal Housing Administration (FHA); Public Works Administration (PWA); Social Security
Act (SSA).

Changes in Stock Market

Changes were made to the stock market to prevent rampant peculation and further crashes, the most
notable of which was that people could no longer buy stocks on margin.

Increased Taxes
One of the effects of the Great Depression is that the tax rate changed significantly for the wealthiest
Americans. In 1927, the top tax rate was reduced to 25%, which is a large part of what caused the Great
Depression. In 1932, in an effort to pull out of the Great Depression, the rate was raised to 63%. In 1936,
it was bumped again, to 79%.

Franklin Delano Roosevelt (1932-1945)

Franklin Delano Roosevelt, also referred to as FDR, was the 32nd president of the United States
and the only president elected to the office four times, serving from 1933 until his death in
1945. Roosevelt led the United States through two of the greatest crises of the 20th century:
the Great Depression and World War II. Assuming the Presidency at the depth of the Great
Depression, Franklin D.Roosevelt helped the American people regain faith in themselves.
Franklin D. Roosevelt Personal Qualities
 He was a practical politician who practiced the art of the possible.
 He was a charismatic person who exhibited a warmth and understanding of people.
 He knew how to handle press by focusing attention on Washington.
 He provided dynamic leadership in a time of crisis.
 He was willing to experiment

The New Deal

By the time of Roosevelt’s inauguration on March 4, 1933, most banks had shut down,
industrial production had sharply decreased, farmers were struggling, and at least 13 million
workers were unemployed. In his inaugural address Roosevelt promised prompt, decisive
action, and he conveyed some of his own unshakable self-confidence to millions of Americans
listening on radios throughout the land.
“This great nation will endure as it has endured, will revive
and prosper,” he asserted, adding, “the only thing we have
to fear is fear itself.”

“The Hundred Days”

Roosevelt followed up on his promise of prompt action with “The Hundred Days”—the first
phase of the New Deal, in which his administration presented Congress with a broad array of
measures intended to achieve economic recovery, to provide relief to the millions of poor and
unemployed, and to reform aspects of the economy that Roosevelt believed had caused the
collapse. Roosevelt was candid in admitting that the initial thrust of the New Deal was
experimental. He would see what worked and what did not, abandoning the latter and
persisting with the former until the crisis was overcome.

Purposes of the New Deal

 Relief: to provide jobs for the unemployed and to protect farmers from foreclosure
 Recovery: to get the economy back into high gear
 Reform: To regulate banks, to abolish child labor, and to conserve farm lands

New Deal Initiative

1. Emergency Banking Act/Federal Deposit Insurance Corporation (FDIC)

Description: Right after taking office as President, FDR shut down all of the banks in the nation
and Congress passed the Emergency Banking Act which gave the government the opportunity
to inspect the health of all banks. The Federal Deposit Insurance Corporation (FDIC) was formed
by Congress to insure deposits up to $5000.
Outcome: These measures reestablished American faith in banks. Americans were no longer
scared that they would lose all of their savings in a bank failure. Government inspectors found
that most banks were healthy, and two- thirds were allowed to open soon after. After
reopening, deposits had exceeded withdrawals.

Work Relief Program for the Unemployed.

The Federal Emergency Relief Administration (FERA), which gave grants and loans to states to
operate relief programs; the Civilian Conservation Corps (CCC), which in 9 years employed 3
million young men in manual labor jobs related to conservation and development of natural
resources; the Agricultural Adjustment Administration (AAA), which by 1935 increased the
income generated by farms by 50% by paying farmers subsidies to reduce crop production;
the Public Works Administration (PWA), which spent over $6 billion to built large-scale public
works and drove America’s biggest construction effort up to that date; and the Tennessee
Valley Authority (TVA), which provided power, controlled floods and modernized agriculture in
the Tennessee Valley, a region particularly affected by the depression.

The Social Security System 

The Social Security Act was enacted to provide economic security for the elderly, the poor and
the sick; and the National Labor Relations Act was signed into law to guarantee the basic rights
of private sector employees like organizing into trade unions. During Franklin D. Roosevelt’s
first term unemployment fell dramatically from 25% to 14.3% and by the end of his presidency
it had fell to 1.9% due to World War II. The economy grew 58% from 1932 to 1940 in 8 years of
peacetime, and then grew 56% from 1940 to 1945 in 5 years of wartime.
Outcome: Although the original SSA did not cover farm and domestic workers, it did help
millions of Americans feel more secure.

The Fair Labor Standards Act

The Fair Labor Standards Act of 1938 which introduced the forty-hour work week, established
a national minimum wage, guaranteed 1.5 times the hourly rate for overtime in certain jobs
and prohibited most employment of minors in oppressive child labor.

The Housing Act 
The Housing Act of 1937 which provided subsidies to local public housing agencies to improve
living conditions for low-income families

The Indian Reorganization Act of 1934

Franklin D. Roosevelt was a hero to major minority groups, especially African Americans,
Catholics, and Jews. The Indian Reorganization Act of 1934 was passed to provide ways for
Native Americans to re-establish sovereignty and self-government; and to achieve economic
self-sufficiency

First Federal Action to Prohibit Employment Discrimination

On June 25, 1941, Executive Order 8802 was signed by Roosevelt creating the Fair Employment
Practice Committee (FEPC) to prohibit racial and religious discrimination in the national defense
industry. This was the first national program directed against employment discrimination. Also
New Deal institutions like WPA and CCC provided an economic alternative to agriculture and
domestic service for the entire black community.
Tennessee Valley Authority (TVA) (May 1993)
Description: The TVA helped farmers and created jobs in one of Americas least modernized
areas.
Outcome: Reactivating a hydroelectric power plant provided cheap electric power, flood
control, and recreational opportunities to the entire Tennessee River valley.

Federal Securities Act of May 1933/ Securities and Exchange

Commission (SEC)
Description: This act required full disclosure of information on stocks being sold. The SEC
regulated the stock market. Congress also gave the Federal Reserve Board the power to
regulate the purchase of stock on margin.
Outcome: Critical for long-term success for businesses

Effects/ Achievements

RE-DEFINED THE ROLE OF CENTRE GOVT:

Though the New Deal did not fully negate the effects of the Great Depression, the New Deal
resulted in major changes in the way Americans perceived the role and responsibilities of the
government. One of the primary legacies of the New Deal was a change in the relationship
between the government and the nation. The New Deal was built around the assumption that
the government–both federal and state–not only could but should intervene in and regulate
the economy and directly supports those in need. While the idea emerged in Europe already in
the 19th century and gained some traction in the United States during the Progressive Era, it
was Roosevelt and his New Deal that applied it on such a massive scale.
SOCIAL ASSISTANCE
A number of social assistance programs that exist in the United States today trace their legacy
to the New Deal era, including old age pensions, unemployment insurance, farm subsidies,
subsidized public housing, and support for the disabled, or support for children in the poorest
families. They are designed to subsidize the needs of the general population with various
eligibility requirements. The Social Security system remains the largest and most prominent
social aid program originally established by New Deal legislation. Similarly, measures protecting
labor that are today a taken-for-granted aspect of American life are a result of the New Deal.
While such developments as a ban on child labor, maximum working hours, and minimum
wages had been discussed or even introduced to a limited extent on a state level during the
Progressive Era, it was the New Deal legislation that included them in federal legislation.

PRESIDENT GAINING SIGNIFICANT POWER

In the process of establishing the New Deal legislation, the balance of power between the
president and Congress shifted with the president gaining significant power. Historians agree
that the New Deal resulted in critical changes in the U.S. political landscape. Roosevelt’s
presidency redefined the role of the executive branch, giving much more substantial power to
the president and the federal government. Through a large number of federal agencies and
programs, the government regulated the economy, including for example, labor relations in
some industries, and thus, multiple groups of citizens received legal protection and support.
These ideas inspired the next generations of American reformers and paved the way for
reform-minded presidents and their ideas, particularly those of President Lyndon B. Johnson
and his Great Society agenda
Conclusion
New Deal relief programs are generally regarded as a mixed success in ending the nation’s
economic problems on a macroeconomic level. Although fundamental economic indicators may
have remained depressed, the programs were very popular among ordinary Americans. They
improved the life of many citizens through providing jobs for the unemployed, legal protection
for labor unions and some non-unionized industrial workers, modern utilities for rural America
(e.g., electricity), living wages for the working poor, and price stability for farmers. However,
the same programs disproportionately benefited white Americans and particularly white males.
Economic progress for minorities, especially African Americans and many working class women,
was hindered by discrimination, which the Roosevelt administration rarely battled and often
endorsed.