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Depression of the 1930s
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 New Deal
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).
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