I | INTRODUCTION |
Great Depression in
the United States, worst and longest economic collapse in the history of
the modern industrial world, lasting from the end of 1929 until the early 1940s.
Beginning in the United States, the depression spread to most of the world’s
industrial countries, which in the 20th century had become economically
dependent on one another. The Great Depression saw rapid declines in the
production and sale of goods and a sudden, severe rise in unemployment.
Businesses and banks closed their doors, people lost their jobs, homes, and
savings, and many depended on charity to survive. In 1933, at the worst point in
the depression, more than 15 million Americans—one-quarter of the nation’s
workforce—were unemployed.
The depression was caused by a number of
serious weaknesses in the economy. Although the 1920s appeared on the surface to
be a prosperous time, income was unevenly distributed. The wealthy made large
profits, but more and more Americans spent more than they earned, and farmers
faced low prices and heavy debt. The lingering effects of World War I
(1914-1918) caused economic problems in many countries, as Europe struggled to
pay war debts and reparations. These problems contributed to the crisis that
began the Great Depression: the disastrous U.S. stock market crash of 1929,
which ruined thousands of investors and destroyed confidence in the economy.
Continuing throughout the 1930s, the depression ended in the United States only
when massive spending for World War II began.
The depression produced lasting effects on the
United States that are still apparent more than half a century after it ended.
It led to the election of President Franklin Delano Roosevelt, who created the
programs known as the New Deal to overcome the effects of the Great Depression.
These programs expanded government intervention into new areas of social and
economic concerns and created social-assistance measures on the national level.
The Great Depression fundamentally changed the relationship between the
government and the people, who came to expect and accept a larger federal role
in their lives and the economy.
The programs of the New Deal also brought
together a new, liberal political alliance in the United States. Roosevelt’s
policies won the support of labor unions, blacks, people who received government
relief, ethnic and religious minorities, intellectuals, and some farmers,
forming a coalition that would be the backbone of the Democratic Party for
decades to come.
On a personal level, the hardships suffered
during the depression affected many Americans’ attitudes toward life, work, and
their community. Many people who survived the depression wanted to protect
themselves from ever again going hungry or lacking necessities. Some developed
habits of frugality and careful saving for the rest of their lives, and many
focused on accumulating material possessions to create a comfortable life, one
far different from that which they experienced in the depression years.
The depression also played a major role in
world events. In Germany, the economic collapse opened the way for dictator
Adolf Hitler to come to power, which in turn led to World War II.
II | CAUSES OF THE DEPRESSION |
It is a common misconception that the stock
market crash of October 1929 was the cause of the Great Depression. The
two events were closely related, but both were the results of deep problems in
the modern economy that were building up through the “prosperity decade” of the
1920s.
As is typical of post-war periods, Americans
in the Roaring Twenties turned inward, away from international issues and social
concerns and toward greater individualism. The emphasis was on getting rich and
enjoying new fads, new inventions, and new ideas. The traditional values of
rural America were being challenged by the city-oriented Jazz Age, symbolized by
what many considered the shocking behavior of young women who wore short skirts
and makeup, smoked, and drank.
The self-centered attitudes of the 1920s
seemed to fit nicely with the needs of the economy. Modern industry had the
capacity to produce vast quantities of consumer goods, but this created a
fundamental problem: Prosperity could continue only if demand was made to grow
as rapidly as supply. Accordingly, people had to be persuaded to abandon such
traditional values as saving, postponing pleasures and purchases, and buying
only what they needed. “The key to economic prosperity,” a General Motors
executive declared in 1929, “is the organized creation of dissatisfaction.”
Advertising methods that had been developed to build support for World War I
were used to persuade people to buy such relatively new products as automobiles
and such completely new ones as radios and household appliances. The resulting
mass consumption kept the economy going through most of the 1920s.
But there was an underlying economic
problem. Income was distributed very unevenly, and the portion going to the
wealthiest Americans grew larger as the decade proceeded. This was due largely
to two factors: While businesses showed remarkable gains in productivity during
the 1920s, workers got a relatively small share of the wealth this produced. At
the same time, huge cuts were made in the top income-tax rates. Between 1923 and
1929, manufacturing output per person-hour increased by 32 percent, but workers’
wages grew by only 8 percent. Corporate profits shot up by 65 percent in the
same period, and the government let the wealthy keep more of those profits. The
Revenue Act of 1926 cut the taxes of those making $1 million or more by more
than two-thirds.
As a result of these trends, in 1929 the top
0.1 percent of American families had a total income equal to that of the bottom
42 percent. This meant that many people who were willing to listen to the
advertisers and purchase new products did not have enough money to do so. To get
around this difficulty, the 1920s produced another innovation—“credit,” an
attractive name for consumer debt. People were allowed to “buy now, pay later.”
But this only put off the day when consumers accumulated so much debt that they
could not keep buying up all the products coming off assembly lines. That day
came in 1929.
American farmers—who represented one-quarter
of the economy—were already in an economic depression during the 1920s, which
made it difficult for them to take part in the consumer buying spree. Farmers
had expanded their output during World War I, when demand for farm goods was
high and production in Europe was cut sharply. But after the war, farmers found
themselves competing in an over-supplied international market. Prices fell, and
farmers were often unable to sell their products for a profit.
International problems also weakened the
economy. After World War I the United States became the world’s chief creditor
as European countries struggled to pay war debts and reparations. Many American
bankers were not ready for this new role. They lent heavily and unwisely to
borrowers in Europe, especially Germany, who would have difficulty repaying the
loans, particularly if there was a serious economic downturn. These huge debts
made the international banking structure extremely unstable by the late
1920s.
In addition, the United States maintained
high tariffs on goods imported from other countries, at the same time that it
was making foreign loans and trying to export products. This combination could
not be sustained: If other nations could not sell their goods in the United
States, they could not make enough money to buy American products or repay
American loans. All major industrial countries pursued similar policies of
trying to advance their own interests without regard to the international
economic consequences.
The rising incomes of the wealthiest
Americans fueled rapid growth in the stock market (see Stock Exchange),
especially between 1927 and 1929. Soon the prices of stocks were rising far
beyond the worth of the shares of the companies they represented. People were
willing to pay inflated prices because they believed the stock prices would
continue to rise and they could soon sell their stocks at a profit.
The widespread belief that anyone could get
rich led many less affluent Americans into the market as well. Investors bought
millions of shares of stock “on margin,” a risky practice similar to buying
products on credit. They paid only a small part of the price and borrowed the
rest, gambling that they could sell the stock at a high enough price to repay
the loan and make a profit.
For a time this was true: In 1928 the price
of stock in the Radio Corporation of America (RCA) multiplied by nearly five
times. The Dow Jones industrial average industrial average—an index that tracks
the stock prices of key industrial companies—doubled in value in less than two
years. But the stock boom could not last. The great bull market of the late
1920s was a classic example of a speculative “bubble” scheme, so called because
it expands until it bursts. In the fall of 1929 confidence that prices would
keep rising faltered, then failed. Starting in late October the market plummeted
as investors began selling stocks. On October 29, known as Black Tuesday, the
worst day of the panic, stocks lost $10 billion to $15 billion in value. By
mid-November almost all of the gains of the previous two years had been wiped
out, with losses estimated at $30 billion.
The stock market crash announced the
beginning of the Great Depression, but the deep economic problems of the 1920s
had already converged a few months earlier to start the downward spiral. The
credit of a large portion of the nation’s consumers had been exhausted, and they
were spending much of their current income to pay for past, rather than new,
purchases. Unsold inventories had begun to pile up in warehouses during the
summer of 1929.
The crash affected the economy the way
exposure to cold affects the human body, lowering the body’s resistance to
infectious agents that are already present. The crash reduced the ability of the
economy to fight off the underlying sicknesses of unevenly distributed wealth,
agricultural depression, and banking problems.
III | ECONOMIC COLLAPSE (1929-1933) |
The stock market crash was just the first
dramatic phase of a prolonged economic collapse. Conditions continued to worsen
for the next three years, as the confident, optimistic attitudes of the 1920s
gave way to a sense of defeat and despair. Stock prices continued to decline. By
late 1932 they were only about 20 percent of what they had been before the
crash. With little consumer demand for products, hundreds of factories and mills
closed, and the output of American manufacturing plants was cut almost in half
from 1929 to 1932.
Unemployment in those three years soared
from 3.2 percent to 24.9 percent, leaving more than 15 million Americans out of
work. Some remained unemployed for years; those who had jobs faced major wage
cuts, and many people could find only part-time work. Jobless men sold apples
and shined shoes to earn a little money.
Many banks had made loans to businesses and
people who now could not repay them, and some banks had also lost money by
investing in the stock market. When depositors hit by the depression needed to
withdraw their savings, the banks often did not have the money to give them.
This caused other depositors to panic and demand their cash, ruining the banks.
By the winter of 1932 to 1933, the banking system reached the point of nearly
complete collapse; more than 5,000 banks failed by March 1933, wiping out the
savings of millions of people.
As people lost their jobs and savings,
mortgages on many homes and farms were foreclosed. Homeless people built shacks
out of old crates and formed shantytowns, which were called “Hoovervilles” out
of bitterness toward President Herbert Hoover, who refused to provide government
aid to the unemployed.
The plight of farmers, who had been in a
depression since 1920, worsened. Already low prices for their goods fell by 50
percent between 1929 and 1932. While many people went hungry, surplus crops
couldn’t be sold for a profit.
Natural forces inflicted another blow on
farmers. Beginning in Arkansas in 1930, a severe drought spread across the Great
Plains through the middle of the decade. Once-productive topsoil turned to dust
that was carried away by strong winds, piling up in drifts against houses and
barns. Parts of Kansas, Oklahoma, Texas, New Mexico, and Colorado became known
as the Dust Bowl, as the drought destroyed the livelihood of hundreds of
thousands of small farmers. Packing up their families and meager possessions,
many of these farmers migrated to California in search of work. Author John
Steinbeck created an unforgettable fictional portrait of their fate in the novel
The Grapes of Wrath (1939).
IV | INITIAL RESPONSE TO THE DEPRESSION |
The initial government response to the Great
Depression was ineffective, as President Hoover insisted that the economy was
sound and that prosperity would soon return. Hoover believed the basic need was
to restore public confidence so businesses would begin to invest and expand
production, providing jobs and income to restore the economy to health. But
business owners saw no reason to increase production while unsold goods clogged
their shelves. By 1932 investment had dropped to less than 5 percent of its 1929
level.
Convinced that a balanced federal budget was
essential to restoring business confidence, Hoover sought to cut government
spending and raise taxes. But in the face of a collapsing economy, this served
only to reduce demand further. As conditions worsened, Hoover’s administration
eventually provided emergency loans to banks and industry, expanded public
works, and helped states offer relief. But it was too little, too late.
The epitome of a “self-made man,” Hoover
believed in individualism and self-reliance. As more and more Americans lost
jobs and faced hunger, Hoover asserted that “mutual self-help through voluntary
giving” was the way to meet people’s needs. Private giving increased greatly,
reaching a record high in 1932, but charitable organizations were overwhelmed by
the enormous number of people in need. To many, government assistance seemed the
only answer, but Hoover was convinced that giving federal relief payments would
undermine recipients’ self-reliance, and he resisted this step throughout his
term.
The tension between citizens seeking
government action and Hoover’s administration came to a head in June 1932. More
than 20,000 World War I veterans marched on Washington, D.C., to ask for early
payment of government bonuses they had been promised. But the government
refused, and when some members of the so-called Bonus Army didn’t leave the
capital, federal troops used tear gas and bayonets to evict the men and their
families (see Bonus March).
Hoover and most of his Republican Party
firmly supported protective tariffs to block imports and stimulate the American
economy by increasing sales of American-made products. In 1930 they enacted the
Hawley-Smoot Tariff, which established the highest average tariff in American
history. This was a crushing blow to European economies, which were already
sinking into depression. Other nations retaliated by raising their own tariffs.
This action helped to worsen and spread the depression by choking off
international trade. Between 1929 and 1932 the total value of world trade had
declined by more than half.
V | INTERNATIONAL EFFECTS OF THE DEPRESSION |
Like Hoover, leaders of other nations around
the world were determined to balance their budgets by raising taxes and slashing
government spending. Germany, struggling to pay reparations imposed by the peace
settlements after World War I, suffered to a larger extent than any other major
industrial nation. Nearly 40 percent of the German workforce was unemployed by
1932. In these desperate economic circumstances, large numbers of Germans began
to listen to the tirades of Hitler, who blamed the depression on Jews and
Communists and promised to restore Germany to economic and military strength.
After his Nazi (National Socialist) Party became the strongest political force
in Germany, Hitler was named chancellor in January 1933. He soon seized absolute
control of the German government.
In Britain the effects of the depression were
not as dramatic because the nation had been suffering from high unemployment
through much of the 1920s. Unlike the United States, Britain already had
unemployment insurance and government welfare payments to ease the burden on the
jobless. The depression took longer to hit hard in France because it was less
industrialized than the United States, Germany, and Britain. Also, because so
many French men had died in World War I, the workforce was very small, and it
took a severe economic decline before the demand for workers fell below the
small supply.
VI | ROOSEVELT AND THE NEW DEAL |
By the election year of 1932, the depression
had made Hoover so unpopular that the election of the Democratic presidential
candidate Franklin Delano Roosevelt was all but assured. Confidence—Hoover’s
elusive goal—was Roosevelt’s most abundant quality. Declaring in his inaugural
speech that “the only thing we have to fear is fear itself,” Roosevelt quickly
lifted the nation’s spirits with the rapid and unprecedented actions of the New
Deal.
Within days of his inauguration Roosevelt
called Congress into a special session, during which many pieces of emergency
legislation were passed. Following the example of many states, Roosevelt
proclaimed a nationwide bank holiday, closing all banks to stop panicky
depositors from withdrawing their money. A few days later he broadcast the first
of many fireside chats on the radio, reassuring Americans that all banks that
were allowed to reopen would be safe.
The New Deal produced a wide variety of
programs to reduce unemployment, assist businesses and agriculture, regulate
banking and the stock market, and provide security for the needy, elderly, and
disabled. The basic idea of early New Deal programs was to lower the supply of
goods to the current, depressed level of consumption. Under the Agricultural
Adjustment Act of 1933, the government sought to raise farm prices by paying
farmers not to grow surplus crops. Parts of the National Industrial Recovery Act
created codes for many industries that regulated competition while guaranteeing
minimum wages and maximum hours for workers.
The New Deal also tried to increase demand,
pumping large amounts of money into the economy through public works programs
and relief measures. Public works projects not only provided jobs but built
schools, dams, and roads; the innovative Tennessee Valley Authority provided
electric power and improved living conditions in an area of the southeast United
States.
However, Roosevelt never embraced the new
ideas of British economist John Maynard Keynes, who argued that intentionally
unbalancing the budget to a significant degree would boost demand to the point
where recovery would take place. The U.S. gross public debt increased from $22.5
billion in 1933 to $40.44 billion in 1939, but Roosevelt was reluctant to accept
any more deficit spending than seemed absolutely necessary to prevent mass
suffering. He did not create an unbalanced budget on the scale Keynes advocated
until World War II forced it upon him. Once the government started spending at
the levels Keynes had suggested, the depression ended.
The New Deal helped people to survive the
depression, but acted as a painkiller rather than a cure for the nation’s
economic ills. Unemployment was reduced, but remained high through the 1930s.
Farm income rose from a low of $1.9 billion in 1932 to $4.2 billion in 1940. The
demands of the depression led the United States to institute social-security
programs and accept labor unions, measures that had been taken decades earlier
in many European nations.
VII | LIFE DURING THE DEPRESSION |
The Great Depression had a substantial and
varied impact on the lives of Americans. Physically and psychologically, it was
devastating to many people, who not only lacked adequate food, shelter, and
clothing but felt they were to blame for their desperate state.
Although few people died from starvation,
many did not have enough to eat. Some people searched garbage dumps for food or
ate weeds. Malnutrition took a toll: A study conducted in eight American cities
found that families that had a member working full time experienced 66 percent
less illness than those in which everyone was unemployed.
The psychological impact was equally
damaging. During the prosperity of the 1920s, many Americans believed success
went to those who deserved it. Given that attitude, the unemployment brought by
the depression was a crushing blow. If the economic system really distributed
rewards on the basis of merit, those who lost their jobs had to conclude that it
was their own fault. Self-blame and self-doubt became epidemic. These attitudes
declined after the New Deal began, however. The establishment of government
programs to counteract the depression indicated to many of the unemployed that
the crisis was a large social problem, not a matter of personal failing. Still,
having to ask for assistance was humiliating for many men who had thought of
themselves as self-sufficient and breadwinners for their families.
Because society expected a man to provide
for his family, the psychological trauma of the Great Depression was often more
severe for men than women. Many men argued that women, especially married women,
should not be hired while men were unemployed. Yet the percentage of women in
the workforce actually increased slightly during the depression, as women took
jobs to replace their husbands’ lost pay checks or to supplement spouses’
reduced wages. Women had been excluded from most of the manufacturing jobs that
were hardest hit by the depression, which meant they were less likely than men
to be thrown out of work. Some fields that had been defined as women’s work,
such as clerical, teaching, and social-service jobs, actually grew during the
New Deal.
The effects of the depression on children
were often radically different from the impact on their parents. During the
depression many children took on greater responsibilities at an earlier age than
later generations would. Some teenagers found jobs when their parents could not,
reversing the normal roles of provider and dependent. Sometimes children had to
comfort their despairing parents. A 12-year-old boy in Chicago, for example,
wrote to President and Mrs. Roosevelt in 1936 to seek help for his father, who
was always “crying because he can’t find work [and] I feel sorry for him.” The
depression that weakened the self-reliance of many adult men strengthened that
quality in many children.
The depression’s impact was less dramatic,
but ultimately more damaging, for minorities in America than for whites. Since
they were “born in depression,” many blacks scarcely noticed a change at the
beginning of the 1930s. Over time, however, blacks suffered to an even greater
extent than whites, since they were usually the last hired and first fired. By
1932 about 50 percent of the nation’s black workers were unemployed. Blacks were
frequently forced out of jobs in order to give them to unemployed whites.
Yet the depression decade was one of
important positive change for blacks. First lady Eleanor Roosevelt and several
leading New Deal figures were active champions of black rights, and most New
Deal programs prohibited racial discrimination. These rules were often ignored
in the South, but the fact that they were included at all was a major step
forward. Blacks were sufficiently impressed with the New Deal to cause a large
majority of black voters to switch their allegiance from the Republican to the
Democratic Party during the depression years. See also African American
History.
Other minority populations had experiences
similar to those of blacks during the depression. Native Americans were even
less likely than blacks to notice a downturn when the depression began; they
already fared poorly by virtually every social or economic indicator. But Native
Americans, like blacks, were brought into New Deal relief programs that in
theory did not discriminate, and an attempt was made, through the Indian
Reorganization Act, to enable tribes to reestablish their identities and
cultural practices. In industrial cities such as Detroit, Gary, and Los Angeles
and in agricultural regions such as California’s San Joaquin Valley, Mexican
Americans were seen as holding jobs that should go to whites. Repatriation
(meaning deportation) programs were instituted to persuade Chicanos to return to
Mexico, often through intimidation.
Groups of white Americans also faced
discrimination during this era. Poor farmers evicted from their land or fleeing
the Dust Bowl were often despised and abused when they arrived in California and
other western states. They were commonly labeled “Okies,” whether they came from
Oklahoma or other states.
VIII | END OF THE DEPRESSION |
Although economic conditions improved by
the late 1930s, unemployment in 1939 was still about 15 percent. However, with
the outbreak of World War II in Europe in September 1939, the U.S. government
began expanding the national defense system, spending large amounts of money to
produce ships, aircraft, weapons, and other war material. This stimulated
industrial growth, and unemployment declined rapidly. After the United States
entered the war in December 1941, all sectors of the economy were mobilized to
support the war effort. Industry greatly expanded, and unemployment was replaced
by a shortage of workers.
IX | LEGACY OF THE DEPRESSION |
The impact of the Great Depression and the
programs of the New Deal dramatically altered the relationship between the
American people and their government. The federal government expanded its role
in many social and economic areas, becoming larger and more powerful. Americans
came to accept government involvement and responsibility in caring for society’s
most needy members and regulating many aspects of the economy.
The New Deal’s social programs reflected a
shift in American values created by the shared hardships of the depression era.
The depression experience discredited the extreme individualism and pursuit of
self-interest that characterized the 1920s, and revived an emphasis on
community, cooperation, and compassion. These values were reflected in the
popular culture of the day and in political and labor movements that developed
and expanded during the 1930s.
One of the most far-reaching New Deal
measures, the Social Security Act of 1935, guaranteed government help to
citizens who were unemployed or disabled, to older Americans, and to mothers and
children. The National Labor Relations Act (1935) provided protection for union
activity, which contributed to the rise of labor unions in mass-production
industries such as steel and automobile manufacturing. Unions and racial
minorities, who had benefited from the New Deal, were among the groups who
became staunch supporters of the Democratic Party, changing American politics
for decades to come.
The literature, films, and art of the
depression era demonstrated the desire for a more cooperative, less fiercely
competitive way of life. Many celebrated the common people, who were contrasted
with greedy, powerful interests. Examples included films such as Mr. Smith
Goes to Washington (1939), directed by Frank Capra, and Stagecoach
(1939), by John Ford; paintings by Norman Rockwell; songs by folk singer Woody
Guthrie; and novels by such writers as John Steinbeck.
While many conservatives believed the New
Deal was turning the United States toward socialism, other Americans felt it did
not go far enough and sought more revolutionary change. Political movements to
the left of the New Deal enjoyed considerable support during the 1930s. Among
them were the Minnesota Farmer-Labor Party, which offered radical proposals
challenging the capitalist system, and the unsuccessful campaign by novelist
Upton Sinclair to be governor of California in 1934, proposing essentially
socialist programs to “End Poverty in California.” By alleviating some of the
worst effects of the depression, the New Deal helped defuse tensions and
preserve a democratic, capitalist system at a time when other nations turned to
fascism or socialism.
The return of prosperity during and after
World War II revived some of the forces that divided society and promoted
self-interest in the 1920s. But the experience of the Great Depression left a
lasting mark on the United States in the forms of a much greater role for the
federal government, a new political alignment in which Democrats would retain
the support of a majority for most of the next half century, and a general
feeling that the free market must be regulated in order to avoid another such
economic catastrophe.
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