Great Depression and the New Deal
of the 1920's & 1930's
The History Beat...
Online Great Depression, FDR
and New Deal Resources
|A short history of the Great Depression |
The Great Depression is the period of history that followed "Black Thursday", the stock market crash of Thursday, October 24, 1929. The events in the United States triggered a world-wide depression, which led to deflation and a great increase in unemployment.
Many economists argue that the Great Depression was both caused and prolonged by government action. Richard Rahn wrote, "After the stock market crash in 1929, government revenues fell because of the drop in economic activity. The Hoover administration and the Congress increased taxes in a futile attempt to balance the budget. The tax increase only caused a further drop in economic activity, which enlarged the deficit even more. 
Although the initial trigger event may not have been the result of government action, many have argued that incorrect economic policies turned the stock market crash from a momentary crisis into a decade long depression. In particular two policies have been singled out by economists.
The first is the tight money policies of the Federal Reserve which restricted the money supply. The second was the recourse to protectionism with measures such as the Hawley-Smoot Tariff Act, which raised tariffs on imports in order to protect local producers who were being hurt by foreign competition. In response, many other countries also raised their tariffs, badly hurting US businesses that exported their goods. This led to a chain reaction of tariff increases which fragmented the world economy.
In the United States, Herbert Hoover was president, and he tried to do something about the situation without much luck. One of the major problems was that with deflation, the currency that you kept in your pocket could buy more goods as the prices went down. The other was that there had been no oversight in the stock market or other investments, and with the collapse, many of the stock and investment schemes were found to be either insolvent, or outright frauds. Unfortunately, many banks had invested in these schemes, and this precipitated a collapse of the banking system in 1932. With the banking system in shambles, and people holding on to whatever currency that they had, there was minimal cash available for any activities that would cause positive change.
In Germany unemployment increased drastically, fuelling widespread disillusionment and anger. Promising to fix the situation, Adolf Hitler took over the government there.
In 1933 the United States elected Franklin Delano Roosevelt to replace Hoover as president. With unemployment near twenty five percent of the workforce, he initiated a number of government programs to increase liquidity and provide jobs, which jointly are called the New Deal. Some believe that these actions helped bring the country out of the depression--though there is considerable controversy over the extent to which this is true--and provided some of the infrastructure, including roads that are still in use today.
Because the US was still in a state of depression when it entered World War II, it is hard to make a serious argument that the New Deal was a success. The reasons, however are open to debate. Some argue that the inherent instability of a market economy caused such a bad depression that even the well-chosen interventions of the New Deal could not correct it quickly. Others argue that because this longest depression in US history was also marked by the greatest degree of government intervention in US history, it is more reasonable to argue that government action worsened, rather than lessened, the severity of the depression.
It is known that Roosevelt's New Deal programs were initially struck down by the Supreme Court, so that his initial interventions in the economy were all halted. During this time the economy was on a slow improving trend. After the Court began to uphold his interventionist legislation, the economy took a sharp downward dip, which has been called a depression within a depression, from which it was only slowly recovering when the US entered WWII. Thus it is claimed that his intervention delayed the economic recovery that had been underway. This argument is supported by the fact that his programs significantly increased business costs and uncertainty about future government interventions, thus inhibiting business investment and hiring.
Many believe that it was government-induced World War II spending that restarted world-wide economic expansion, but this is at best only partly true. Germany and Italy had "recovered" prior to WWII by making massive military and infrastructure investments. The US moved to full employment during WWII through massive military investments, but also by shifting a very large percentage of the potential work force into the military. While this was necessary, it meant the US economy had not returned to natural market conditions, and when the war ended a period of readjustment was necessary when millions of soldiers returned home. One of the purposes of the G.I. Bill was to ease this transition. In countries such as France, England and the Netherlands, of course, the war caused tremendous harm, rather than being a source of economic revival. While war is always profitable to particular businesses, it causes social and economic dislocations that outweigh any stimulus effects it might have.
|To learn more about the Great Depression - |
Use these online Internet resources
Destitute pea pickers
in California. 1936.
- America's Great Depression - An overview of America’s Great Depression along with a timeline, links, books and other information.
- Black Thursday: October 24, 1929 - A compilation of New York Times headlines from before and after the Great Crash.
- The Crash of 1929 - Argues that the Great Depression was caused by the Bank of England, the British government and the City of London.
- The Gold Standard and the Great Depression - An article from the Mackinac Center for Public Policy, arguing that the Gold Standard did not cause the Great Depression.
- The Great Depression - Documenting America - Library of Congress records of the Farm Security Administration and Office of War Information Collection, showing rural life and the negative impact of the Great Depression.
- Great Myths of the Great Depression - A short essay from the "The Freeman" that takes a look at the Great Depression from a hardcore free market perspective.
- Internet Modern History Sourcebook: The Depression - The Sourcebook is a collection of public domain and copy-permitted texts for introductory level classes in modern European and World history.
- Main Causes of the Great Depression - A short paper on the origins of the Great Depression. Discusses economic problems and policies that led to the American economic collapse in the 1930s. Includes bibliography.
- A New Deal for the Arts - The federal program employing artists as part of the New Deal.
- New Deal Network: A Guide to the Great Depression of the 1930s - Educational site focused on the programs of FDR's New Deal. Sponsored by the Franklin and Eleanor Roosevelt Institute and the Institute for Learning Technologies at Teachers College/Columbia University.
- New Deal/WPA Art History - Information and photos of extant WPA/New Deal art, focusing on Illinois, Ohio, and California. Includes biographies, a timeline of the New Deal, and other odd bits of information.
- 1930s Great Depression Gallery, Michigan Historical Museum - Stories of Michigan during the Great Depression: Labor unions and the Flint sit-down strike, Paul Honore's Natural Resources Mural, bungalows, radio, lighthouses and the Great Lakes, President Franklin D. Roosevelt's New Deal programs and the Civilian Conservatin Corps in Michigan.
- Sliding into the Great Depression - A study of the economics of the Great Depression by J. Bradford De Long of University of California at Berkeley.
- The World Depression - Academic article on the cause and effect of the Great Depression worldwide.