The economic depression that beset the United States and other countries in the 1930s
was unique in its magnitude 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 labor force. The great industrial slump continued
throughout the 1930s, shaking the foundations of Western capitalism and the society based
upon it. Economic Aspects President Calvin COOLIDGE had said during the long prosperity of
the 1920s that "The business of America is business." Despite the seeming
business prosperity of the 1920s, however, there were serious economic weak spots, a chief
one being a depression in the agricultural sector. Also depressed were such industries as
coal mining, railroads, and textiles.
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 bore 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 fundamental cause of the
Great Depression, although the crash sparked, and certainly marked the beginning of, the
most traumatic economic period of modern times. By 1930, the slump was apparent, but few
people expected it to continue; previous financial PANICS and depressions had reversed in
a year or two. 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 coincided
with the term in office (1929-33) of President Herbert HOOVER. The stark statistics
scarcely convey the distress of the millions of people who lost jobs, savings, and homes.
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, creation (1932) of the Reconstruction Finance
Corporation to lend money to ailing corporations, was seen as inadequate. Hoover lost the
1932 election to Franklin D. ROOSEVELT.
The depression brought a deflation not only of incomes but 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 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 (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.
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. Even Republicans who had bitterly opposed the New Deal shifted their
stance.
Wendell WILLKIE, the Republican presidential nominee in 1940, declared that he could
not oppose reforms such as the regulation of the securities markets and the utility
holding companies, the legal recognition of unions, or Social Security and unemployment
allowances. What bothered him and other opponents of the New Deal, however, was the
extension of the federal bureaucracy. The depression caused much questioning of inherited
economic and political ideas. Sen. Huey P. Long (see LONG family) 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.
Bibliography:
Bernstein, Irving, A Caring Society: The New Deal, the Worker and the Great Depression
(1985); Boardman, Fon W., Jr., The Thirties: America and the Great Depression (1967);
Davis, Joseph S., The World Between the Wars, 1919-39: An Economist's View (1974);
Galbraith, John K., The Great Crash, 3d ed. (1972; repr. 1980);
Garraty, John A., The Great Depression (1986); Kindleberger, Charles P., The World in
Depression, 1929-1939 (1975; repr. 1983);
Markowitz, Gerald, and Rosner, David, eds., Slaves of the Depression (1987); Mitchell,
Broadus, Depression Decade, 1931-1941 (1977);
Rothbard, Murray N., America's Great Depression (1975; repr. 1983); Schlesinger, Arthur
M., Jr., The Age of Roosevelt, 2 vols. (1959);
Swados, Harvey, ed., The American Writer and the Great Depression (1966); Wecter,
Dixon, Age of the Great Depression, 1929-1941 (1971).
